Import Cost Exchange Rate Impact Calculator

Understanding the exchange rate impact on import cost — concept and principle

When you buy goods in a foreign currency and sell them in your own, a change in the exchange rate changes your cost even if the supplier's price stays the same. This calculator shows how a new exchange rate affects your cost per unit and your margin, and what selling price would restore the margin you had before. Use it when the currency moves or before a price review. It works with any pair of currencies.

How it is calculated

The exchange rate is entered as units of your currency per 1 unit of the foreign currency.

• Landed cost = supplier price × exchange rate + other costs per unit
• Margin = (selling price − landed cost) ÷ selling price × 100
• Cost change per unit = supplier price × (new rate − old rate)
• Price to keep old margin = new landed cost ÷ (1 − old margin)

Other costs (shipping, duty, packaging, fees) are entered per unit in your own currency and are assumed not to change with the rate.

The principle

The supplier price is fixed in foreign currency, so its value in your currency moves one-for-one with the rate: a 6.5% rise in the rate makes the imported part of the cost 6.5% dearer. The margin here is a margin on the selling price, not a markup on cost. To keep the same margin, the price must be set so that cost is the same share of price as before, which is why the new cost is divided by (1 − margin) rather than simply adding the cost change to the price.

Worked example

1. Inputs: supplier price 10 (foreign), old rate 1.08, new rate 1.15, selling price $25, other costs $4.
2. Cost before = 10 × 1.08 + 4 = $14.80; margin before = (25 − 14.80) ÷ 25 = 40.8%.
3. Cost now = 10 × 1.15 + 4 = $15.50; margin now = (25 − 15.50) ÷ 25 = 38%.
4. Cost change per unit = 10 × (1.15 − 1.08) = $0.70.
5. Price to keep old margin = 15.50 ÷ (1 − 0.408) = 26.182, shown as $26.18.

How to read the result

Simply adding the $0.70 cost change gives $25.70, which keeps your profit per unit at $10.20 but leaves the margin at about 39.7%. The $26.18 price keeps the margin at 40.8%, so profit per unit rises to about $10.68. Which target you choose depends on whether you manage by profit per unit or by margin percentage.

Common mistakes

• Entering the rate the wrong way round (foreign per your currency), which inverts the result.
• Using the mid-market rate when your bank or payment provider charges a spread.
• Treating margin and markup as the same thing.

Frequently asked questions

What is the difference between margin and markup?

Margin is profit divided by selling price; markup is profit divided by cost. A 40.8% margin here equals a markup of about 68.9% on the $14.80 cost.

How do I convert a rate quoted the other way?

Take its reciprocal. A rate of 0.87 foreign per 1 of your currency is about 1.149 of your currency per foreign unit.

Can I protect myself from currency moves?

Businesses often use forward contracts, pricing in their own currency, or holding foreign-currency balances. A bank or adviser can explain the costs.

Sources: IFRS Foundation, IAS 21 The Effects of Changes in Foreign Exchange Rates