Risk as an Exporter : you may draw your export bills either in rupees or in foreign currencies. If you have drawn your export bills in Indian currency i.e., rupees, you will not suffer any loss by any ask able depreciation of foreign currencies or of Indian rupees. You are sure to receive the Indian rupees for which you have invoiced your goods. But it may not always be possible for you to invoice your goods in rupees. Firstly, the foreign importer may insist that he be billed in his local currency. That will make the cost of goods imported by him certain in his own currency.
Again, it is a matter of courtesy to the exporter to bill the importer in the currency of importer's choice. It is a good marketing strategy also. Moreover, the Government of India has now directed that exporters bill their importers in foreign currency only.
If you have billed your importer in a foreign currency, there is an equal possibility that the foreign currency may appreciate or depreciate by the time you are likely to receive payment. As a result, you may receive more or less in terms of rupees than you bargained for. Let us understand this by means of an example. Suppose you export goods worth US$10,000 on January 1, when the value of $1 is Rs.35. You thus, expect a payment of s.3,50,000. But the payment is due to be received by you on May 1. Suppose the value of the dollar decreases to Rs.34 on the day. You will now receive only Rs.3,40,000. The fact that Indian exporters operate on a very low margin, may mean that whatever profit he expected may be wiped out due to a decline in the value of the dollar. But if the value of the dollar increases to Rs.36, the exporter will get Rs.3,60,000 and may earn a profit that he never expected. Thus while there is a possibility of the exporter making a windfall profit, there is a definite risk lo which the exporter is exposed. The larger the depreciation of the foreign currency, the larger is the risk to which the exporter is exposed.