Currency Adjustment Factor - CAF

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DEFINITION of 'Currency Adjustment Factor - CAF'

A type of charge applied on top of freight costs by carriers servicing trade between the United States and Pacific Rim countries. The charge was developed due to costs that carriers incur from constantly changing exchange rates between the U.S. dollar and other foreign currencies.

INVESTOPEDIA EXPLAINS 'Currency Adjustment Factor - CAF'

The currency adjustment factor rises as the value of the U.S. dollar falls. It is applied as a percentage on top of the base exchange rate, which is calculated as the average exchange rate for the previous three months. Due to this added charge, shippers are now looking to enter into "all inclusive" contracts at one price, that accounts for all applicable charges, to limit the effect of the CAF.

In the third quarter of 2005, the CAF charged on shipments to Japan was approximately 51%.

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