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Barnsley Baker Explains What Exchange Rates Means for His Business
The effect of exchange rates can be difficult for students to digest, but this is a brilliant little one-minute teaching video. It shows how volatile exchange rates make business planning difficult, and cash-flow forecasts look half-baked.
Fosters bakery in Barnsley sells to the food service industry, rather than individual customers. As the value of the pound has weakened, and bought less foreign currency, so Fosters' raw material costs have risen, forcing them to pass that cost on to their customers. And as their product becomes the input cost for the cafes, restaurants, hotels and airlines that they supply, so those retail businesses have to raise their prices, otherwise their profits will be toast.
On the other hand, other currencies can buy more pounds, so this makes Fosters' products much cheaper for their overseas buyers, to the extent that they have to turn down export orders as they haven't the capacity to fulfil them. So, finding the right recipe for cooking up the best business plan at the moment is food for thought.