How to Survive a Rock-Bottom Dollar Exchange Rate in Costa Rica

    Currency would close at ¢530 at the end of the year

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    Since the end of June 2022, companies in Costa Rica that receive their income in dollars have suffered a reduction in profits by approximately 27%.The falling dollar exchange rate severely hits exporters and tourism companies, but also a large ecosystem of small and medium-sized businesses of all types.

    On the other hand, if the day before is taken, the dollar will close the year below ¢530, according to the projections of experts from the National University.In this situation, it is important that companies take measures to avoid bankruptcy.

    Finance experts advice

    Optimizing costs and promoting operational efficiency, reevaluating prices and providing advice are some of the solutions that finance experts provide.To this, market diversification should be added so that the company is not subject to fluctuations in the exchange rate and, of course, acquiring currency coverage.

    And it is that, for example, the use of a financial instrument such as an exchange hedge or currency hedge allows a future exchange rate to be fixed, which provides stability and security, and in this way better financial planning can be done in the flows. of cash, while eliminating the risk of losses due to the appreciation of the colon.

    “For business owners, it is recommended to analyze acquiring exchange hedges to cover their financial flows and take advantage of favorable moments to build liquidity reserves,” said José Antonio Vásquez, Director of Finance of the National Bank.

    Regarding expert advice, professional guidance is important to have a specific solution for your line of work or market, which would help you have greater profits, evaluate prices without being affected and optimize processes to save.

    “Companies that have income in dollars have had a reduction in their income of 27% in the last year and a half, thanks to the appreciation of the colon, while their expenses for salaries, taxes and raw materials maintain their levels, or even decrease. they become more expensive. This clearly reduces investment and employment,” said Gerardo Corrales, economist at Economía Hoy.

    What to do to survive the dollar exchange rate?

    In the short term, the dollar exchange rate will not increase, in fact, financial experts expect that the United States currency will close the year between ¢510 and ¢530.

    These are 5 tips that will allow small and medium-sized businesses to stay afloat:

    Diversify income: If possible, look for opportunities to generate income in other currencies or markets that are not affected by the appreciation of the colon. This could involve expanding your operations internationally or diversifying your products and services.

    Currency Hedging: It is important to consider using financial instruments such as futures contracts or options to protect your business against unfavorable exchange rate movements.

    This will allow you to set a price in dollars for your products or services and mitigate the risk of losses due to the appreciation of the colón. Both exporting and importing companies can benefit from acquiring currency hedges offered by financial institutions.

    These hedges allow you to fix a future exchange rate, which provides stability and security, since it allows you to do better financial planning in your cash flows.Optimize costs and operational efficiency In times of currency volatility, it is crucial to optimize costs and improve operational efficiency.

    It is important to review your internal processes, identify areas for improvement and look for ways to reduce expenses without compromising the quality of your products or services.

    Reevaluate prices and pricing strategies: Analyze whether it is possible to adjust your prices to compensate for the loss of income due to the appreciation of the colon.This should be done with kid gloves so that healthy profit margins can be maintained without impacting customers.

    Seek professional financial advice: Consult a financial expert with experience in currency risk management. A financial advisor can help you develop a personalized strategy to protect your business from the negative impacts of currency fluctuation.

    Resonance Costa Rica
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