I. Choosing the Right Exchange Rate
Which exchange rate should be used for quotations? According to foreign exchange practices, there are three options: the central parity rate (the official benchmark RMB/USD rate published by the China Foreign Exchange Trade System at 9:15 AM on every business day);
the bank buying rate (the rate used when a customer sells foreign currency to the bank—i.e., settlement—applicable to both export quotes and settlement); and the bank selling rate (the rate used when a customer buys foreign currency from the bank—i.e., purchase—applicable to imports). Regarding the spread: at any given moment, the bank’s buying rate is lower than its selling rate, and the spread for spot foreign exchange trading must not exceed 1% of the central parity rate. In quoting practice, one should use the bank’s spot buying rate for the day, round to two decimal places (e.g., 7.00), and specify the validity period (e.g., “This quote is calculated at 1 USD = 7 RMB and is valid for 7 days”). Selecting the wrong type of exchange rate can result in a difference of several percentage points in profit on a single order.
II.
Cost of Currency Exchange
The formula for the cost of currency exchange.
When calculating costs for foreign trade, determine the foreign exchange conversion cost before quoting a price: the conversion cost for export goods equals the total cost (in RMB) divided by the net foreign exchange income (in USD)—profit is realized only when the conversion cost is lower than the exchange rate. The break-even conversion cost equals the bank’s foreign exchange buying rate divided by (1 minus the tax rebate rate divided by 1 plus the VAT rate). Example: With an RMB cost of 100 yuan and net export income of 15 USD, the conversion cost is 6.67; if this is lower than the exchange rate of 7.0, there is room for profit. Impact of tax rebates: a higher rebate rate lowers the break-even exchange rate; at a 13% rebate rate, an item with a tax-inclusive cost of 100 yuan has an actual cost of approximately 88.5 yuan, causing the conversion cost to drop accordingly. Quoting does not simply involve dividing the cost by the exchange rate;
rather, one divides the net cost (after the tax rebate) by the exchange rate and then adds a profit margin.
III. Impact of Appreciation
How RMB appreciation affects price quotes.
According to foreign exchange market data, exchange rate fluctuations directly alter quotes. Example: On September 9, 2025, the central parity rate of RMB against USD was 7.1008; a year later, it fell by approximately 4.56%, indicating significant RMB appreciation. Regarding costs: if the RMB cost remains constant while the RMB appreciates, the USD quote must be raised to maintain the same RMB revenue. If the exchange rate drops from 7.0 to 6.8, the USD price for a 100-yuan cost item rises from 14.29 to 14.71. Difference between forward and spot rates: for a payment of 1 million USD due in one year, with a spot rate of 6.70 and a forward settlement rate of 6.49, calculating based on the spot rate yields 6.7 million RMB, whereas the forward rate locks in only 6.49 million RMB—a difference of 210,000 RMB. Bookkeeping exchange rate: this is either the rate on the day the transaction occurs or the central bank’s central parity rate on the first working day of the month; once selected, it cannot be changed arbitrarily throughout the year. During periods of RMB appreciation, quotes should include a sufficient exchange rate buffer; during periods of depreciation, foreign exchange settlement should be expedited.
IV.
Forward Exchange Rate Locking
How to execute forward exchange rate locking: According to State Administration of Foreign Exchange guidelines, hedging tools include forward settlement and sale of foreign exchange—where an enterprise agrees with a bank to settle or purchase foreign exchange at a predetermined rate on a future date, thereby locking in the exchange rate and securing returns (e.g., export enterprises locking in export earnings in advance); hedging assessment—calculated as (locked exchange rate minus target cost exchange rate) multiplied by the transaction amount; options—range-based options lock the exchange rate exposure between two strike prices without requiring an upfront premium payment; real-world example—a foreign trade merchant locked in 50% of their exposure with a settlement rate between 6.95 and 7.00, securing a profit margin of 3.5% to 4%;
locking in 60%–70% of the contract value—this ensures that the exchange rate after quoting isn’t left to chance, effectively turning the profit calculated at the time of the quote into realized gain.
V.
Quotation Terms
How to specify exchange rates in quotations: According to industry standards for quotations, there are five key elements regarding exchange rate terms for automation component quotes: exchange rate benchmark—state that the quote is calculated based on a rate (e.g., 1 USD = 7 RMB) and specify the use of the bank’s spot buying rate; validity period—valid for 7 days, or 3 days during periods of high exchange rate volatility; value preservation clause—for orders with long lead times, agree that prices will be re-confirmed if exchange rate fluctuations exceed 2%; payment milestones—clarify whether the balance is settled at the contract rate or the rate at the time of receipt (settling the balance at the spot rate effectively introduces floating rate risk); RMB quotation model—specify RMB pricing but settlement in USD based on the daily rate, with exchange rate risk shared by both parties; exchange rate linkage—for orders involving imported raw materials where costs fluctuate with exchange rates, link the quote accordingly—clearly stating the exchange rate in the quotation eliminates ambiguity for both the customer and the supplier.
Conclusion
How should exchange rates be calculated when quoting prices for automation equipment components? The key takeaways are: select the correct rate (use the bank’s spot buying rate for exports, the selling rate for imports, and the central parity rate as a benchmark, ensuring the spot spread does not exceed 1% of the central parity rate); apply the formulas (conversion cost = total RMB cost / net USD revenue; break-even conversion cost = buying rate / [1 – (tax rebate rate / (1 + VAT rate))]); consider the impact of appreciation (e.g., a 4.56% annual RMB appreciation necessitates raising USD quotes for the same cost base, and forward settlement yields 210,000 RMB less than spot settlement on a $1 million order); utilize hedging tools (lock in rates via forward contracts or set ranges via range options; calculate hedge value as [locked rate – target cost rate] × amount);
and structure the quotation correctly (include the five essential elements: exchange rate benchmark, validity period, value-preservation clauses, payment milestones, and the RMB-based pricing model).
Industry practice shows that the exchange rate is the most easily overlooked yet profit-damaging line item in a quote: costs are in RMB, quotes are in USD, and settlement reverts to RMB—meaning every fluctuation in the rate represents real money lost or gained.
