How Currency Exchange Rates Impact my Online Business
An simple economic lesson on how exchange rates impact international business transactions.
I run an online business and tutor students in different countries.
One factor that influences my business is the exchange rate from international payments.
When exchange rates fluctuate, they impact the cost of goods and services, resulting in higher or lower payments for the participants, including the buyers (students) and sellers (tutors).
To prevent students from paying different rates per hour, I set the payment for all students in USD.
I then convert the money to my local currency based on the exchange rate with the US Dollar.
What is an Exchange Rate?
An exchange rate is the value of one currency compared to another.
For example, if the exchange rate between the US Dollar (USD) and the Vietnamese Dong (VND) is 1 USD = 25,000 VND, it means 1 US Dollar can be exchanged for 25,000 Vietnamese Dong.
People exchange currency when they do business, travel, or move to a new country where their old currency can’t be used.
How Exchange Rates Influence My Tutoring Business
1 - Supply and Demand of Currencies
Exchange rates are influenced by the supply and demand of currencies.
When there is a high demand for USD in Vietnam, the value of USD increases relative to VND. Conversely, if there is a higher demand for VND in the US, the value of VND increases relative to USD.
These fluctuations can impact my business in several ways:
Pricing for Services: When the USD strengthens against the VND, I receive more VND for every USD paid by my students in Vietnam. This makes my tutoring services more expensive for my Vietnamese students. On the other hand, if the VND strengthens against the USD, my services become cheaper for students in Vietnam, potentially increasing demand.
Income and Expenses: Managing income from two different currencies means fluctuations in the exchange rate can affect my overall income. For instance, if the USD weakens, the revenue I earn from my Vietnamese students will convert to fewer dollars, impacting my total income.
What Happens When a Currency Strengthens Relative to Another Currency?
1 - USD Strengthens Against VND
If the exchange rate changes from 1 USD = 23,000 VND to 1 USD = 24,000 VND, the value of the USD has increased.
This means that for every dollar my students in Vietnam pay, I get more VND.
While this seems beneficial initially, it could lead to a decrease in demand for my services because the students in Vietnam might find the prices higher than before.
2 - VND Strengthens Against USD
If the exchange rate changes from 1 USD = 23,000 VND to 1 USD = 22,000 VND, the value of the VND has increased.
This means that I will receive fewer VND for each USD paid by my students.
However, this could make my services more affordable for Vietnamese students, potentially increasing demand and expanding my customer base.
No Currency is as Valuable as Your Business
The fluctuation of currency exchange rates may affect my pricing and income.
However, in building my business, I’ve realized that no currency is as strong as the quality of your goods and services.
The better you improve your business, the more you can sell, the higher price you can charge, and the better you can sustain through changes in the exchange rate.