Wednesday, December 17, 2014

The Russian Ruble (Rouble) turns to rubble. Apple Products edition.

This snapshot of the Russian Ruble (you see it spelled "Rouble" sometimes) value relative to the US dollar is from today's Bloomberg website:

Right now, the institutional market price (different (lower) than the market price we would pay) is $1.00US will exchange for 65.7746 Russian Rubles.

One year ago (look in red circled area) $1.00US exchanged for 32.4834 Rubles.

This means the US dollar can exchange for approx 33 more Rubles than it did one year ago. The dollar "buys" more Rubles than it did before, hence we can say the US dollar has APPRECIATED relative to the Ruble by about 102%  (rounded).

Exchange rates are reciprocal to each other.  If $1.00US exchanges for 65.7746 Rubles then 1.00 Ruble will exchange for 1.5 US cents

One year ago, Russians could exchange a Ruble and get 3.1 US cents. The Ruble "buys" fewer cents than it did before, hence we can say the Ruble has DEPRCIATED relative to the Dollar by 51% (rounded).

This has major consequences for US businesses that do business in Russia and want to expatriate profits or investments back into US dollars.

Simple example.  A year ago, a  business that earned 1,000 Rubles in profits could exchange those Rubles and receive $30.78US (1,000 Rubles/32.4834 Rubles per Dollar).

Today 1,000 Rubles would exchange for $15.20US (1,000Rubles/65.7745 Rubles per dollar).

Exchange rates matter because they can change the relative value of goods and services across borders WITHOUT changing the properties of those goods and services.

While writing this post, I checked the BBC and coincidently they have this story:

Rouble turmoil leads to Apple halting online sales in Russia

The company stopped sales of its iPhones, iPads and other products in the country after a day in which the currency went into free-fall. 
The rouble has lost more than 20% this week, despite a dramatic decision to raise interest rates from 10.5% to 17%. 
By afternoon trade the rouble was flat with one dollar buying 68 roubles.US Dollar v Russian Rouble 
$1 buyschange%
Its all time low, set on Wednesday, saw one dollar buying as many as 79 roubles. 
Apple last month increased its prices in Russia by 20% after the weakening rouble left products in the country cheaper than in the rest of Europe.
Timely! I hope this helps you understand exchange rates a little better.

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