Exchange rates and currency risk: which rate to use and how to protect your margin

An importer agrees a price in US dollars, pays three months after shipment and finds that the home currency has weakened in between. The goods cost more than calculated, while the selling price to customers was fixed long ago. Small importers and exporters rarely lose money on exchange rates in one dramatic deal. They lose it quietly: on rate moves between order and payment, on bank spreads, and on conversions booked at a rate nobody can explain afterwards.

This page covers what reference rates are, with the European Central Bank's euro rates as the example, which rate to use for prices, tax and the accounts, the three kinds of currency risk, and the simple tools a small business has to manage them. The logic works for any home currency.

What is a reference exchange rate?

A reference rate is an indicative rate that an official body publishes once a day, so that businesses, accountants and authorities can use a common figure that anyone can check afterwards. It is not a price at which you can trade. Your bank or payment provider converts at its own buying or selling rate, which includes a spread (the difference between the two) and sometimes a separate fee.

The European Central Bank (ECB) publishes euro reference rates against 29 currencies (source: ECB, October 2026). They are usually updated around 16:00 CET on every working day except TARGET closing days (the days the euro payment system is closed), based on a daily concertation procedure between central banks across Europe that reflects market conditions at 14:15 CET (source: ECB, October 2026).

Other central banks publish similar daily rates. Canada's tax authority, for instance, lists the Bank of Canada among acceptable sources for converting GST/HST amounts (source: CRA, April 2019).

Which exchange rate should you use for invoicing and bookkeeping?

Three different questions hide behind "which rate": the rate in your contract, the rate for tax and the rate in your accounts.

In your prices and contracts

This is a commercial choice. Agree the invoicing currency, and if a price is converted, which reference rate on which date applies. Limit how long a quote in foreign currency stays valid, or add a currency clause that adjusts the price when the rate moves beyond an agreed band.

For VAT and other taxes

Here the law sets the options, and they differ by market:

Checked October 2026. Customs valuation and other taxes can have their own rates; check with your tax authority.

In your accounts

Under the international standard IAS 21, a foreign-currency transaction is recorded at the spot rate on the transaction date, and a rate that approximates it, such as a weekly or monthly average, may be used for practical reasons unless rates fluctuate significantly (source: IFRS Foundation, April 2024). At each reporting date, monetary items such as foreign-currency cash, receivables and payables are translated at the closing rate, and the exchange differences go to profit or loss (source: IFRS Foundation, April 2024). National standards for smaller companies often follow similar logic; ask your accountant which applies to you.

Three types of currency risk

Example: what a weaker euro does to an importer's margin

Maren runs Corvina Coffee Roasters, which buys green coffee in US dollars and sells roasted coffee to retailers in euro. She orders a shipment of USD 180,000, payable 90 days after shipment, and has already agreed €230,000 in sales for the resulting batch.

Fictitious Firmfocus example. Exchange rates and the forward rate are assumptions, not forecasts; bank fees are left out. The logic works for any currency pair.

Without protection, the move from 1.10 to 1.04 costs Maren €9,441 on one shipment, more than four points of margin. The forward contract fixes the rate at 1.095. In this example that costs her a little against the order-day rate, and she would have gained nothing had the euro strengthened, but she knows her margin on the day she sets her prices.

In the books, her bookkeeper records the supplier invoice at the rate on the invoice date, say 1.08, which gives €166,667. Paid unhedged at 1.04, the invoice costs €173,077, so €6,410 is booked as an exchange loss. Corvina also sells to a US speciality retailer for USD 60,000 a quarter. By keeping that income in a US dollar account and paying the coffee supplier from it, Maren reduces the amount she needs to convert, and protect, from USD 180,000 to USD 120,000.

How small importers and exporters can manage currency risk

Set a short written policy: which exposures you protect, for example all confirmed orders above a certain size, how far ahead, and who may sign contracts with the bank. Hedge the business you actually have, never a view on where the currency will go next.

Small business or larger business

Pitfalls

• Pricing at today's rate for delivery in months: the margin depends on a rate you do not control.
• Treating a reference rate as a dealing rate: your bank will not convert at it.
• Comparing only fees: the spread inside the rate can cost more than the fee.
• Switching rate sources when convenient: inconsistency is what inspectors look for.
• Hedging more than the confirmed exposure: that turns protection into speculation.

Exchange differences land in your bookkeeping, and rate moves belong in your pricing and cash flow forecast. For dependence on foreign suppliers more broadly, see supply chain risk. All finance topics are in Finance, part of the knowledge base.