Watching the dollar

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Here is what keeps Vice Chancellors in Australia up at night: exchange movements. Not student performance, faculty issues and the like but the vagaries of international currency markets. Why? Because they are a heavily export oriented industry. Every time the dollar appreciates, they wince. Every time it falls, they rejoice. They know that whether students turn up from overseas or not depends critically on such movements.

But here is the thing: it is insane. There is no export industry in this country that does not hedge currency movements except for education. Now I am not suggesting that our Universities buy futures on the Australian dollar although that is an option. Instead, they need to provide a hedge for their customers — international students. What they need to do is offer tuition fees in the domestic currency of those students. Do this and you will no longer have a reason to wince or rejoice and you can sleep at night and we won’t have to read these stories anymore.

And just in case you think this is a new idea, I have suggested it for every currency fluctuation for the last 15 years.

13 Responses to "Watching the dollar"
  1. “Here is what keeps Vice Chancellors in Australia up at night: exchange movements. ”

    I hope you’re right – as recently as 5 years ago  I had to spell out the point at a price-setting meeting that the exchange rate was killing us and was a factor in prices that international students perceived.

  2. This might be a good idea in terms of smoothing out enrolments, but it doesn’t solve the longer-term issue – Australian universities, thanks to currency appreciation, are becoming more expensive.

  3. I agree that hedging is a good idea, but why should universities expose themselves to currency risk by locking in income in a foreign currency, while their expenses are in AUD?

  4. BruceT, to stop dramatic fluctuations in international numbers, which carry significant costs in admin and viability of degree programs. I think the correct idea is to both set fees in foreign currencies and to hedge.

  5. That’s not a solution, its just another way of dying.
    Most exporters already price their goods or services in the currency of their customers. All it means is your margins vanish as the dollar rises. You can either have death by pricing yourself out of the market, or death by vanishing margins.

  6. The Monash Vice Chancellor Ed Byrne sounds likes he’s lying awake thinking about this too. See: http://www.abc.net.au/insidebusiness/content/2010/s3040409.htm He raises a further differential issue regarding finances: \ED BYRNE:…for a student who’s been accepted by the university academically to go to the States or the UK, the family has to put of the order of $25,000 on the table for a few weeks. To come to Australia … ALAN KOHLER: As a surety? ED BYRNE: As a surety. To cover the first year’s fees. To come to Australia for six months, a mainland Chinese family has to put down three years’ living expenses and three years’ fees, which say for an Arts degree at Monash, is of the order of AU$140,000.\ It would certaintly help such families if the surety was at least in yuan… but would help even more if it wasn’t so high in the first place!

  7. Adding to the consequences, will the Federal Government be compelled to make a decision with respect to continued university funding, i.e. increased expenditure of tax dollars or higher HECS fees for domestic students or both?

    The Federal Government (and domestic students) have had a relatively smooth ride until now with international student fees and a weaker exchange rate.

  8. Hopefully the respective unis have made their hay during the good times and have stored enough food for the winter.

  9. Others have made this point, but it warrants emphasising: unis will wince and rejoice with exchange rate movements irrespective of whether they price in Australian dollars or foreign currencies. But I agree their pricing strategies seem less than profit-maximising given their cost structures and the nature of demand. And I don’t know why you wouldn’t suggest they hedge against currency fluctuations.

  10. I’m wondering how one hedges against a structural, and long-term shift in the exchange rate?  Sure you can hedge against fluctuations, but if the AUD is going above parity and staying there for a decade (as many are suggesting) you can’t hedge against that.  Eventually non-resources exporters will either have their margins crushed or they’ll have to price themselves out of the market.
    Essentially we’re screwed.  Welcome to Quarry Australia.

  11. Joshua, when you come back to Melbourne, perhaps you can suggest the university prices your salary in USD as well as the degrees it offers overseas students?
    Actually, given that education is (was?) such an important export industry for Australia, I think paying all academics in USD (especially academic economists) is a necessary structural reform to ensure our long term competitiveness.

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