Two years ago, a bright-eyed student stepped off a plane from Melbourne after a 17-hour flight to the United States, excited to begin a college journey in a new country. He had never been to the USA before and was ready to deal with whatever tribulations studying in a foreign country had in store. However, one challenge he didn’t expect came from the strong US dollar. He still vividly remembers heading to Target to buy dorm-room essentials and being shocked at the prices when he converted them into Australian dollars. Prices that seemed reasonable when denominated in strong US dollars pinched when converted into the weaker Australian dollars he had exchanged during the trip.
If someone were to imagine the issues international students might face, the strength of the US dollar is not typically acknowledged as a significant issue over something like homesickness and culture shock. However, when the US dollar appreciates against a student’s home currency, college becomes more expensive. The stronger the US dollar becomes, the more currency a student will require to get a single US dollar. If, for instance, a student had previously traded one dollar in their local currency for $0.75, but then the value of the US dollar increased so that one dollar in their local currency could only buy $0.60, then every expense just got significantly higher. Small fluctuations might not seem extraordinary when considering the price of a single meal, but they mean big changes when a student earns foreign currency and pays for tuition and housing in US dollars.
A student might look to get around the issues caused by a strong US dollar by taking advantage of the law of one price, which says a good should have the same price everywhere in the world but might take some time to work. Using this information, an international student facing a stronger dollar might think of bringing over goods from their home country for weaker home currency and selling them in the US for stronger dollars. Under the law of one price, it would hold that the value of whatever object they sell in America would have the same value as it did back home.
Unfortunately, tariffs, transportation costs, and other barriers might stand in the way. A stronger dollar might mean furniture is cheaper in Australia than in the US, but shipping it is prohibitively costly and could attract unwanted attention from customs officials. Someone might be able to make a few dollars buying low in their home country and selling high in the US. However, shipping costs, transaction costs, and the distractions that might come with running what looks like an international smuggling operation might mean it isn’t feasible to operate on a scale that would pay for an education.
International students have another option. They might also want to buy currency futures to reduce their exposure to the risks associated with a stronger dollar, but life as an international student is already stressful and complicated–and given the kinds of decisions college students make, it’s not clear they’ll make especially wise choices in markets for foreign exchange or about their portfolio of currency futures.
Exchange rate risk is all too real for international students. A stronger dollar creates challenges for international students and higher education institutions as it makes goods and services the US sells to foreigners–like higher education–more expensive. If you see an international student who looks especially ecstatic or glum, there’s a chance it has something to do with exchange rates. At least one Australian student has learned to keep a close eye on exchange rates to avoid unpleasant surprises. Now, whenever he looks at his bank account the exchange rate is always in the back of his mind. On some days, when the US dollar is particularly strong, it feels like every expense is amplified. It’s a reminder that for international students, the fluctuating strength of the US dollar can mean the difference between a simple shopping trip and a major financial headache.
Darcy Nicholls is a student and member of the tennis team at Samford University from Melbourne, Australia. Art Carden is an economics professor at Samford University.
