ANY company involved with import and export knows that drastic forex fluctuations and price uncertainties are not good for business. This is especially true for small and medium enterprises (SMEs), which often face cash flow and margin challenges.

Such challenges are more pronounced when the foreign exchange market experiences a lot of volatility in tandem with the vagaries of the domestic and global economy, as well as geopolitical developments.

For example, the range of the ringgit was almost 9% in 2018 (3.86 – 4.20), indicating a high volatility. This volatility is a function of US interest rate movements, the US-China trade war, geopolitical risks in the Middle East which influences oil prices, and the mixed pace of global economic growth. On the domestic front, potential changes in Malaysia’s policy rate, growth rate, inflation rate and foreign interest in our capital markets could also influence the movement of the ringgit.

For an SME that is importing goods from overseas, when the US dollar to ringgit rate swings from 4.00 to 4.40, this directly translates into a 10% increase in costs. SMEs will then need to consider between possibly passing down the cost to their end-clients, or taking a hit on their profit margins.

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