In international sales departments around the world, for all types of products, there are some countries (or some economies) that pay more for products than others. The more robust economies often pay more for international products than a heavily indebted, fragile economies. It is thought that the sale of a heavily discounted product in another country at a lower price is usually better than no sale at all, thus , manufacturers often adjust their wholesale prices for products according to the specific country involved. In these troubled economic times around the world it was of major curiosity as to how and why currencies are adjusted that brings this issue to the week’s topic at Hearing International.
Americans have, for most of their lives enjoyed the fact that their currency, the US Dollar, was the “king of currencies worldwide”. No matter where the money was changed it was respected ans when changed into the local money, it was often worth more than the local currency and allowed us to enjoy more of the finer pleasures than others when purchasing foreign products or traveling abroad.
A number of years ago, I was in Bern, Switzerland having dinner with an old friend who was a major player in the currency exchange department at the United Bank of Switzerland (UBS). The dollar had just gone down slightly against the Swiss Franc and I asked what goes into the relative currency rates and specifically why would the dollar be going down? At the time, the US Dollar had just been reduced from 1.8 CHF (Swiss Francs) to 1.6 CHF, it was hard for an audiologist, even one studying for an MBA at the time, to really understand how these fluctuations can really affect us, except that it would require more Swiss Francs to pay my consulting fees in US dollars. My friend, George, explained that National Debt, the deficit (the tax income-expenses) and the estimates of a countries Gross Domestic Product were all macroeconomic factors considered in international currency fluctuations. I really did not think about these factors much and went on to have a very nice meal and a few glasses of wine to round out the evening. ……. Now a fast forward to 2011 and these issues are more real than ever. The economic news is inescapeable on the Nightly news. programs. If you listen to Fox, it is all Obama’s fault, if you listen to other news organizations, its an inherited problem, and it will take lots of time to heal. Other new analysists blame the Tea Party for these problems and that there has not been a rise in taxes to offset the new spening that has been intended to spur the economic growth. No matter whose at fault in August of 2011, if you change a $1.00 (US) you can only get get back €.69 of in Euros or CHF .78. In the past, the US Dollar was the world currency, the undisputed settlement for debt in most any country. Many countries have their curr3ency set to the value of a US Dollar so many of our woes become problems for other countries as well. So far the Dollar is still is a valued currency, but why did it go down so fast and furious. Burrows and Smithin (2009) indicate that that the foreign exchange rate is highly related to the balance of payments and the relative debt of the countries to their corresponding Gross Domestic Product (GDP). The higher a countries debt relative to their overall GDP compared to other countries, the lower their the value of their currency.
In the past few years, as the US national debt has climbed to an all time high and the US Dollar is at an all time low (See Left). As other countries maintain their currency values and the US currency goes down, think about where most hearing instruments are manufacturered. Those of us that work with US Dollars purchasing products from companies headquarted in Denmark (Euros), Germany (Euros), Switzerland (CHF) require more US Dollars for the productts that are made in their countries. Thus, a product that would have cost $1,000 (US) in 2002 or 2003, now costs us us roughly $1300 in equivalent Euros or about about $2,000 in equivlent Swiss Francs. Most Audiology practices are small business that work on a small margin to facilitate their practice and support patient centric philosophy. As the margin dwindles, our businesses feel the pinch of rising product costs and reduced revenues as well as the uncertainly of taxes that could well be highere in a system hthat has continued to spend money that is borrowed. For us, the morale of the story is that as the US Nations debt has increased to all time highs and the economy has fizzled, so has our purchasing power for the latest and best technology for our patients. -RMT-
Burrows, D., & Smithin, J. (2009). Fundamentals of Economics for Business, Ontario, CA: Captus Press.
FX Street (2011). The Dollar’s Demise. FX Street: Education, Retrieved from the Wold Wide Web August 23, 2011: http://www.fxstreet.com/education/