Monday, August 1, 2016

How currency devaluation affects prices

Most of the appliances that Whirlpool sells in the UK, are built in the EU.  This means that Whirlpool incurs costs in euros but is paid with pounds.  When the pound declines, as it did when the British people voted to exit the EU, their revenue, and their profit margin gets squeezed.
“A 1% change in value of the pound is the same as 1% change in cost,” Whirlpool Chief Executive Jeff Fettig said in an interview.

Whirlpool's stock price rose 2.7% after it announced that prices of their products in the UK and Russia have to rise to account for the declining buying power of the pound and the rubble.

This brings to mind the post of two days ago, The Power of P.

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