Posted by Rod Mathews on April 08, 2003 at 20:03:41:
In Reply to: Re: Yamaha Price Increase posted by SHS Tubamaster on April 08, 2003 at 17:03:21:
That's actually partially right. Small manufacturers typically run their business in local currency. In the case of the German manufacturers, they buy goods using Euros, pay people using Euros, and sell goods from a price list based on the Euro. When American distributors want to import the products, they pay the manufacturer in Euros, off of a price list that is adjusted for local costs on a periodic basis. What has happened over the past year is the dollar has weakened about 20% against the Euro, in effect causing these instruments to be about 20% more. Over the past week, the dollar has strengthened, and after the Iraqi war is over it is likely to strengthen significantly.
There is a benefit to the currency rate changes on the upside, in that when a distributor buys an instrument he locks in an exchange rate at the time he pays the manufacturer. If he buys when the dollar is strong, the instruments cost less, and if he buys when the dollar is weaker the instruments will cost more. If he buys when they cost less, he can charge more as the new instruments increase in price because of the stronger dollar. On the other hand, if he bought when the dollar was high and the currency rates fall, he is likely to only be able to sell the instrument at the new lower rate, thereby losing profit dollars in the process. There are ways to hedge against the downside, but none of the guys who import tubas do enough volume to justify that type of investment.
Thanks!
Rod