Foreign exchange exposure and risk for trading companies and investors.

DXY (U.S Dollar Index - Bloomberg) has sharply risen until 102.82 points in March 20th this year, which made S&P 500 historic low down to 2,237.40 points after Trump's election as 45th president of United States (Dec, 2016). USD to KRW (European Term*) exchange rate hits 1,296 won, highest in 11 years.
European Term: USD is always the base currency in currency pair. (USD/JPY=106.56, USD/HKD=7.75) 
American Term: USD is always the quote(counter) currency in currency pair. (NZD/USD=0.75, EUR/USD=1.11)
[It is due to express the same way of indicating the price of the product. 1 cheese = USD 2.50)

Foreign exchange exposure and foreign exchange risk always have been in danger for trading companies, investors and financial institutions who invest abroad. I will explain the exchange risk with the example of a trading companies in Korea, because Korean companies react most sensitively to the economic cycle and exchange rates.

There are usually two kinds of business in trading companies: import and export.
Importing company: It is different to buy the same 10 USD item for 10,000 KRW and 13,000 KRW. Purchasing in 10,000 KRW is 23.1% more profitable because of a rise in Korean currency value. (Rise of value in the currency means an increase in purchasing power. For import-specialized companies, the actual fall in the USD/KRW exchange rate is more beneficial than the contractual rate.

Exporting company: The company A is trying to sell the product at a 10% of operating profit. However, its profit becomes 3 percent if USD to KRW currency rate drops at 7 percent. (Which means KRW became stronger). Meanwhile, if company B is trying to export at a low margin of 1% due to the contract, but if KRW weakens by 7%, then it will make more 8% of the profit.

This circumstance seems not to take place, but it does happen frequently like the precedent explains when COVID-19 spreads all over the world.

To sum up, the fall of currency exchange rate from USD to KRW would benefit importers and harm exporters. On the contrary, rising exchange rates are good for exporters and damage importer's profit. However, it is impossible to predict the direction of exchange rate. (Only God knows) Nevertheless, exporters and importers should always prepared to manage the downside and upside risks of the exchange rate.

Source 1: Coronavirus Map: Tracking the Global Outbreak (New York Times)
https://www.nytimes.com/interactive/2020/world/coronavirus-maps.html

Source 2: Quote Currency Definition
https://www.investopedia.com/terms/q/quotecurrency.asp#:~:text=Key%20Takeaways-,The%20quote%20currency%2C%20commonly%20known%20as%20%22counter%20currency%2C%22,currency%20is%20the%20domestic%20currency.