Impuesto a las ganancias

The issue of currency exchange is both a complex and a critical one for the global wine industry, as it is for any type of international trade. Rapid changes in the values of different currencies impact the sourcing, the pricing, and potentially thedistribution of wine. A wine importer must consider the currency risk of com- mitting to a contract fixed in a foreign currency when planning purchases of wine from other countries and preparing pricing strategies for its domestic market.

If the foreign currency appreciates between the signing of the contract and the actual payment to the supplier—that is, if the foreign currency’s value compared to the domestic currency goes up—the price paid in domestic currency terms will be higher. The result (assuming there is no contingency for this in the contract and it is not possible to renegotiate a higher price with the supplier) will be either a higher selling price at market, which could hurt sales volume, or a reduction in the importer’sprofit margin. In reality, the first option may not be feasible in the short term because many states require price postings 30, 60, or even 90 days in advance and retailers publish catalogues and restaurants—especially restaurant chains—publish wine lists that have a long lead time and will not accept price fluctuations. Of course, the currency exchange rate fluctuation could also work to the importer’s advantage should the foreign currency devalue before delivery of payment is made; the foreign currency will then be purchased at the lower market price.

Savvy importers will commit to a purchase of the transaction currency from a bank at the moment that their purchase contract is signed with the supplier. By locking in an exchange rate, they are able to eliminate the currency risk and guar- antee the cost of goods in terms of their own domestic currency. The most common type of contract for purchasing currencies in advance is called a forward contract. The exchange rate at which the foreign currency will be pur- chased on a future date is determined by taking the current ‘‘spot rate’’ observed in the market and adjusting it to the ‘‘forward’’ date, the date on which the importer will need the foreign currency to complete the transaction. The adjust- ment is determined by the interest rate differential between the two currencies being exchanged.

An alternative to the forward contract is the currency option. This contract, which is purchased for a premium, much like an insurance policy, serves to guar- antee a maximum exchange rate for the purchase of the needed currency. The advantages of the currency option are twofold. First, the contract is a right, but not an obligation, to exchange currencies on a given date. As an example, should an importer anticipate the purchase of a quantity of foreign wine, he may contract an option before signing the contract with a supplier as a hedge against the cur- rency risk. If the contract is not concluded, then the importer holds a financial instrument that does not require an actual exchange of currency—hence the ‘‘option.’’ The second advantage of a currency option is that it sets a ceiling on

the purchase price of the needed currency. Should the currency that is being bought end up trading in the market at a more favorable rate than the option rate or ‘‘strike price,’’ the owner of the option is not obliged to buy the currency at the guaranteed rate and is free to purchase it in the open market at the better rate.

Foreign exchange risk is an issue not only for importers but also for suppliers, who may see diminished demand for their products in markets where the pur- chasing power of the domestic currency is affected by poor exchange rates, as well as forconsumers of imported wines, who ultimately must choose between paying the higher price or switching to a different wine. A weakened currency, on the other hand, may be a boon for a wine-exporting country as its products become more price competitive in foreign markets.

The most significant recent exchange rate trend has been the weakening of the U.S. dollar. Between January 2006 and March 2008, the dollar declined precipi- tously against other major currencies, from being worth, for example, 0.83 euros (a) or 1.33 Australian dollars (A$) to just a0.63 or A$1.09. Thus, everything else remaining the same, wine from France cost 30 percent more in the United States in 2008 than in 2006—pain that was shared by the French suppliers, their U.S. importer, and especially the dollar-paying consumer. This was all great news for American wineries, however, because not only did their wines become much more reasonably priced and attractive compared to imports on the U.S. market, but they also became 24 percent cheaper for Europeans to buy, at the same wholesale price in dollars.

The foreign exchange market that deals in the purchases and sales of currencies and related products is a 24-hour-a-day operation. It is the largest financial market by volume, with a daily turnover estimated at $3.2 trillion.

Philippe Newlin

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