1) In the 1980’s a small U.S. company purchase Japanese brand of adhesive and signed a long term agreement with Japanese manufacturer because adhesive manufactures in USA. Was expensive than Japanese manufacturer and a small U.S. company need cheapest supply but the U.S. company must be paid in Japanese yen by negotiating with Japanese team. Therefore, the U.S. company will have currency fluctuation risk in business.
2) American company and Japanese company have contracts traded goods at a rate of 185 yen to $1 U.S. dollar. Later the exchange rate fell from 250 yen to $1 U.S. dollar caused American company get gain from traded goods. But after 1998 the exchange rate higher from 250 yen to $1 U.S. dollar cause American company loss from traded goods. Which this event caused by the fluctuations of currency exchange rate. So American company must find a way to resolve such issues.
3) Solutions of exchange rate has 4 choices 1) They can both share the risk mean American company and Japanese company is a recipient loss from currency exchange rate together. 2) The foreign partner assumes the risk mean this risk accept by Japanese company which Japanese company is a recipient loss from currency exchange rate. 3) Your side assumes the risk mean this risk accept by American company which American company is a recipient loss from currency exchange rate. 4) One or both parties stipulate in the contract that the currency denomination is an area open to renegotiation, allowing for a certain percentage of rate fluctuation to occur mean American company and Japanese company have agreement about percent of currency exchange rate that both company can accept if percent of currency exchange rate has more over than agreement in contract. Both company will have new agreement.
4) The agreement of both sides should set exchange rates are set at a fixed value. For the time being, the currency exchange rate fluctuations. Both sides will be allocated to each risk. Not by any party to accept the risk of exchange rate fluctuations unilaterally. And in the long term agreement between the contracting parties should agree on a reasonable period. Should not be too long because it will lose the opportunity for the exchange rate is more appropriate.