EXCHANGE RATES (Ron Akie) Marcia Tuttle 29 Oct 1993 11:59 UTC

---------- Forwarded message ----------
Date: Thu, 28 Oct 1993 09:57:13 -0400
From: Ron Akie <AKIE@FAXON.COM>
Subject: EXCHANGE RATES - Reply to Hannah King, Susan Davis

(NOTE:This is a somewhat longer version of a response I sent last week
directly to Hannah)

Sue is correct that more of the large European publishers are moving to
setting prices in $US, making the exchange rate issue less important for
them. Historically, this is the group that also set a fixed currency
exchange rate when they priced in their own currencies, so that all US
libraries who ordered within the specified time period (usually at least 6
months) set by the publisher for the fixed rate paid the same $US price
based on the fixed conversion rate.

The larger (by number) group of publishers outside the US who do _not_ set
a fixed rate of exchange are really the ones in question here.  These
publishers are paid in their own currency and let the $US prices vary
according to currency market values.  I believe that all agents follow the
practice of using the exchange rate in effect at the time that the order
is sent to the publisher, not when the library sends its renewal list to
the agent.  This is the point at which a liability is created; prior to
this, libraries can and do cancel the orders with the agent. The
publisher, of course, will only recognize the rate that is in effect at
the time he receives the order, not when the library sends its list to the
agent.

Presumably, agents could apply the rate in effect when the renewal is
received from the library rather than when the order is sent, but please
realize two key points.  First, the library could lose on this as easily
as gain, since currency values can go up or down.  Second, in order to
cover the risk inherent in this type of practice (i.e. gambling on future
currency values), your agent would have to pass along the increased cost
to you.  And, if the value of the $US were to sky-rocket after a library
sent in its renewal but before the agents sent orders to publishers, would
libraries be any happier seeing agents reap these profits?  The current
practice may not be perfect, but I do believe that it is the least risky
one and that, over time, the gains and losses will generally balance out .

As for the point about knowing more about how your agent handles currency
exchange, I think agents would agree.  Over the past decade, as libraries
have become more sophisticated about the purchasing process, we have
shared this type of information frequently.  In the past, Faxon has not
noted the exchange rate used on each line of our invoices, mainly due to
system constraints, but we have always been able to provide the
information upon request, and it is a feature we are adding.

Currency exchange is a complex issue and speculating in it is one of the
most risky of financial endeavors.  Libraries should expect full
disclosure of currency exchange practices from their agents, but neither
libraries nor agents should leap into the arena of currency speculation,
where even the most knowledgable professional can suffer huge losses.