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By Michael E Kanell
Atlanta Journal-Constitution
Tuesday, December 27th, 2007
Currency exchange rates might seem esoteric and arcane. Until, that is, you hold out a fistful of dollars in trade.
Then you may find out that a buck ain't worth what it used to be.
The calculation of a dollar's shrinking value happens to U.S. companies that sell equipment made abroad. It happens to companies that sell their own products and services overseas.
And it happened to Emily Sanders, president of Norcross-based Sanders Financial Management, on a recent trip.
"When I was in Greece and Turkey, I tried to give dollars to shopkeepers and they turned thumbs down," she said. "I have traveled the world since I was 16, and I have never had anybody be so disdainful of the U.S. dollar."
Measured against the world's major currencies, the dollar this year has lost about 9 percent of its value. More dramatically, since the crest in early 2002, the dollar has fallen 35.4 percent.
A strengthening dollar effectively makes imports cheaper. A weakening dollar does the opposite —- but it makes U.S. products cheaper abroad.
The larger the shift, the bigger the impact.
But what creates inflation and higher prices for consumers can be a boon for exporters. So while the vendors were scoffing at Sanders, business was booming at the Rocket Science Group.
The six-employee Atlanta company sells e-mail services, helping companies mount and monitor marketing campaigns. Clients include nonprofit organizations, small businesses and creative agencies —- an increasing number of them from overseas.
"There's really no difference for them because it is all done over the Internet," said Neil Bainton, head of marketing for Rocket Science. "It really doesn't matter where you are sitting."
The company started getting orders in large volumes and realized that overseas customers were trying to get a bargain.
"We have tripled our international business this year," Bainton said. "I would attribute 50 percent of that to the dollar continuing to go down."
The dollar has cycled through both strength and weakness in the past few decades, hitting its most muscular moment in 1985. A lesser peak came near the start of 2002.
The dollar has been anemic before, although the past several months have taken the greenback to new lows.
But the decline has been uneven. Against the euro, for example, the buck has fallen hard. Against the Chinese yuan —- not so much. That means that the price of Chinese goods —- which account for much of what is sold by big-box retailers —- has not changed much.
On the other hand, the exchange rate has padded import prices for the likes of Swiss cheese, Australian sheepskin, Canadian lumber and German beer.
That puts importers in a squeeze.
Their costs are climbing, but if they try to pass the higher prices along, they may be undercut by the competition —- or just stiffed by customers. So they may protect consumers from inflation by taking the hit themselves —- finding ways to become more efficient or simply accepting skinnier profit margins.
For example, in the past four years the dollar has dropped roughly 20 percent against the Korean won. That is a problem for a Suwanee-based company that sells equipment made in South Korea.
"As the won grew stronger, their manufacturing costs go up and they pass it along to us," said Tom Lattie, chief financial officer of Doosan Infracore America Corp. "There is maybe a 15 to 20 percent price difference in the last two or three years."
The company sells forklifts, machine tools, excavators and other construction equipment. The vast majority of its customers are in the United States, buying with dollars.
"The hard part is that you can't pass it along to customers," Lattie said.
But the globalized economy increasingly pushes business to deal with the dilemma.
Against the British pound, the dollar has fallen nearly 20 percent in two years. That is good if you are selling Georgia peanuts to pubs in London. The view is a lot worse if you're traveling in the opposite lane.
For instance, the currency works against Promethean, which is based in England and sells white boards for dollars through its U.S. headquarters in Alpharetta.
Schools throughout Georgia —- as well as every other state —- have Promethean products, said Mark Elliott, president of the company's Americas unit. But the exchange rate waters down the profits shipped back to the parent company.
So far, Promethean's U.K. parent has absorbed the currency costs, Elliott said. "But from my perspective in the U.S., it makes their investing in us more difficult as the currency falls."
To soften the blow, Promethean tries to buy financial hedges that will lock in costs, while making some purchases in the United States, rather than in more expensive British markets, said Neil Johnson, chief financial officer of the parent company.
Making assumptions about the dollar's direction is risky, he said. "If I could predict how the dollar will move, I'd be retired on a beach in the Bahamas."
Since World War II, the dollar has served as a de facto global standard. Dollars are held "in reserve" by most countries for security, for investment, but also to control the strength of their own currency against that of the world's largest economy.
That status —- pegged to the might of both the U.S. economy and its military —- has propped up the dollar. The rise of the euro and the surge of China have stirred some to say the dollar's reign as a reserve currency is doomed.
Now, with the U.S. economy apparently slowing and the Federal Reserve trimming short-term interest rates, many experts expect the dollar's long slide to continue.
The pressures on the dollar are broader than just Fed action, Sanders said. "The dollar was already in decline before the Fed started cutting rates. I still believe that the dollar will weaken more."
The dropping dollar has made U.S. assets cheap. That is partly why Lufthansa is investing in JetBlue, why an investment group in the United Arab Emirates bought a share in Citigroup.
Much of the big overseas money seems to expect more decline in the dollar, said Paul Laudicina, chairman of consulting firm A.T. Kearney.
At a recent conference in Dubai, United Arab Emirates, participants said the dollar's retreat wasn't over —- not with rates dropping and the economy slipping perilously close to recession.
"I think the conventional wisdom of most people at the table was that the dollar would continue to sink, that it hasn't hit bottom yet," Laudicina said. "The consensus was to expect a 10 percent decline before it starts moving in the opposite direction."
Still, the dollar has already fallen a long way —- and it has rebounded before.
Speculators pushed the dollar down in advance of the Fed's actions, said Josh Feinman, chief economist of Deutsche Asset Management. "I think the decline is already priced in. I think it's hard to make the argument that the dollar needs to fall much more."
If it does, it will hurt in some unexpected places —- and not just the rack for French Bordeaux.
For instance, the Global Partners MBA program, an ambitious, 14-month, four-continent, dual-degree offering from Georgia State University, draws students from around the world. Currency changes make tuition cheaper for them, but those changes also raise the university's costs.
Since 2005, the program's first year, each student's bill for housing in Rio de Janeiro, Brazil, and Paris has jumped from $3,500 to $5,000, said professor Karen D. Loch, the program's director.
For the program itself, currency shifts have been painful, adding about 10 percent to costs, she said.
"I collect my program fees in dollars, but I pay invoices in other currencies. The currency value hits me coming and going."
TWO SIDES TO EVERY DOLLAR
As with most any economic proposition, the weak dollar can help or hurt a firm, depending on the nature of what that business does. Here are two examples of the impact of exchange rates.
GOOD FOR BUSINESS
>Rocket Science Group: Atlanta-based e-mail services company has tripled sales to international customers, who saw a bargain buy.
BAD FOR BUSINESS
>Promethean: Profits of Alpharetta-based seller of white boards are diminished when translated to pound sterling for British parent company.
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