January 23, 2009

U.S. Dollar Affects Abroad Choices

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With so much news focusing on economic problems at home, some Cornellians might not be aware that changes in the international value of the U.S. dollar have the potential to affect study abroad, a program in which over 800 undergraduates participate each year.
Changing dollar exchange rates have always been an issue in the U.S., and events like the formation of the European Union have caused dramatic fluctuations [img_assist|nid=34353|title=Off we go|desc=| The rate of exchange in foreign countries may deter students planning to study abroad. |link=node|align=left|width=|height=0]in the value of the dollar. But with decreasing prosperity at home, will the exchange rate issue become more important to Cornellians hoping to study abroad?
Kathy Lynch, financial services coordinator for the study abroad office, is optimistic when it comes to the future of Cornell’s study abroad program.
Lynch noted that, with respect to the dollar-euro exchange rate, students are in a better position today than they were at this time last year. Last year, she said, the exchange rate was about $1.50 per euro, while the current exchange rate is approximately $1.30 per euro.
“It’s actually a good time to go abroad, economically speaking,” she said, noting specifically that pessimism about the British bank bailout has had a positive effect on the value of the dollar.
The dollar-euro exchange rate, she said, is a particularly important one, since Western European countries are the most popular destinations for Cornellians who study abroad.
On the subject of costs of living, Lynch added that the exchange rate issue has a limited effect on study abroad programs because students pay their tuition in U.S. dollars, meaning that their other expenses — including food, local transportation and, for some programs, housing — are the only ones affected by the exchange rate.
Lynch said that some increasingly popular destinations, including countries in Latin America, have lower costs of living and therefore might represent good choices for Cornellians worried about decreases in the value of the U.S. dollar.
Lynch’s optimism was, however, tempered by knowledge of the volatility of the exchange rates.
“It’s been an incredible roller coaster ride,” she said, referring to recent fluctuations in the value of the dollar.
Lynch’s view is shared, in large part, by Prof. Viktor Tsyrennikov, economics.
“For students, the first thing is that if you go abroad, I think the dollar is going to grow,” he said. “If you look into the economic data, the U.S. has the greatest chance to recover first from the crisis.”
He pointed to exchange rate indexes such as the Federal Reserve Bank of St. Louis’s DTWEXM trade-weighted index of major currencies, which shows a significant increase in the overall value of the dollar in recent months.
Tsyrennikov explained that Western European countries have their own sets of serious economic problems, intensified by the fact that the rules of the E.U. constrain these countries’ ability to bolster their economies. The rules of the E.U. require that each member country reduce its debt to 60 percent of its GDP and limit its deficit to three percent of its GDP. According to Tsyrennikov, such limits mean that these countries will probably not rebound from the crisis as quickly as the United States.
For Asian countries like China, Tsyrennikov added, close ties to the economy of the U.S. mean that their recovery will trail that of the U.S.
Tsyrennikov also believes that the major stimulus package undertaken by the United States should slow or reverse the downturn.
However, he too noted that exchange rates are subject to rapid and sometimes unpredictable change, depending on “the mood of investors rather than the real fundamentals.”
Cornellians currently planning to study abroad have mixed feelings regarding the issue.
Ben Wagner ’10, who will study abroad in Australia this semester, said, “I can see how the exchange rates could hinder people who want to study abroad, especially in today’s economy, but they weren’t a factor in my personal decision.”
Pyrs Carvolth ’11, who is considering studying abroad in Germany or London next year, concurred.
“Because the tuition costs are the same, I only have to consider my personal spending, which is of less concern to me. I haven’t really thought about the exchange rate at all.”
Rebecca Guarino ’11, on the other hand, said that U.S. exchange rates have the potential to influence her plans to study abroad.
“I think that study abroad is a unique experience that I absolutely want to do … With the current economic climate, though, I could see [the exchange rate issue] affecting where I choose to go.”