In its latest statement, Apple lays claim that the number of pre-ordered units for the iPhone 5 has reached $1 million. This is within 24 hours of the product’s launch in the mobile market. This pushed back deliveries for the first million orders until October 2012. While Apple managed to make money move from people’s bank accounts, we know little of what happens behind the scenes when money, the basic medium of trade, manifests an influx towards an industry depending on the speed of manufacturing to meet consumer demand. Here is a quick look at how foreign exchange can helps Apple deliver its results.
You have no idea of what happens when a huge business such as Apple seeks to streamline its operation costs. Just like the Business Processing Outsourcing (BPO) industry, huge mobile companies also establish operations overseas. This allows for more production of the needed parts in one country, while software is developed in another country, and assembly takes place in yet another country.
China is known to manufacture parts for Apple. The company’s mobile technology is not an exception. With the great demand in iPhone 5 units, Apple is pushed to tap into its overseas plants to produce parts. This causes Apple to supply China with millions of US dollars for conversion to Yuan. This is necessary for the procurement of goods needed to produce the parts needed.
In reverse, the Yuan, China’s main currency, will experience a great demand from Apple, which is an American company, to trade US Dollars to pay for manufacturing services. This means that while demand for units has increased in the United States, the demand for parts also increases in China. In order for Apple to meet the units required for shipment in a short period of time, it needs Yuan currency to operate and get its manufacturing arm moving in China.
The payment of services is also mediated by foreign exchange. For work rendered in meeting production targets, Apple cannot pay Chinese workers in US Dollars. It needs to purchase millions of Yuan currency through foreign exchange from US Dollars. On the other side, the Chinese government is also paid tax in Yuan. They surely cannot use US Dollars when the medium of trade within China is different.
Based on the currency relationships above, it is clear that foreign currency exchange is determined by the supply and demand. People who use Yuan as a mode of payment will find the US Dollar a bit affordable to purchase. This is because the law of supply shares an inverse relationship with the law of demand. When supply increases and demand decreases, the value of a currency depreciate. When supply decreases and demand increases, the value of a currency appreciate.
It may look simple for individuals to frown upon how foreign exchange is sustained through time when anyone can simply stick to using the currency of his country in everything he does. Truth is, the foreign exchange industry is alive, and to put it simply, a smart phone can cause currencies to move.