Pricing a supply contract when the rate moves under you
Fixed-naira supply contracts have been quietly transferring risk to whichever party understood the exposure least. There are three workable ways to write around it.
Market Notes 1 min read
By Administrator
Where a contract is priced in naira and the cost base is in dollars — or the reverse — someone is carrying currency risk whether or not they agreed to. In the contracts we see, it is usually whichever party thought least about it at signature.
Three workable structures
- Dollar-denominated, naira-settled at the rate on the invoice date. Simple, and it puts the exposure with the buyer who can usually price it.
- Banded adjustment — the price holds while the rate stays inside an agreed band, and adjusts by formula outside it. Fairest, and the most work to negotiate.
- Short tenor, repriced — quote for thirty days and requote. Crude, but it survives contact with volatility better than a twelve-month fixed price.
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