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Differential Pricing and Exchange Rate Profits

Roth, Dana L. (2002) Differential Pricing and Exchange Rate Profits. California Institute of Technology . (Unpublished) http://resolver.caltech.edu/CaltechLIB:2002.008

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Abstract

Prior to 1993, Elsevier Science negotiated "spot rates" which were set sometime in the early summer and would depend on the value of the dollar relative to the European currencies on the day the currency futures were purchased. Futures would be purchased, usually in July, for actual currency delivery in January (i.e., six-month forward purchases). The difficulty in this approach was that Elsevier was dependent upon the dollar's value on currency markets during a very narrow window of time during the summer. In 1993, Elsevier Science implemented a policy to spread forward currency purchases, in monthly installments, over a twelve-month period running from July - June, in order to smooth the peaks and valleys of exchange rate fluctuation that can occur with spot rate purchases. In 1999, Elsevier Science announced that they would hold price increases for the complete package of their print journals to single digit figures in each of the currencies in which they invoice -- US dollars, euro and yen. While Elsevier Science's announced intent was to "create a much more predictable and stable pricing environment for the vast majority of our customers", the net effect appeared to lock in inflated US$ subscription rates and produce windfall exchange rate profits.


Item Type:Report or Paper (Report)
Group:Library System Papers and Publications
Record Number:CaltechLIB:2002.008
Persistent URL:http://resolver.caltech.edu/CaltechLIB:2002.008
Usage Policy:You are granted permission for individual, educational, research and non-commercial reproduction, distribution, display and performance of this work in any format.
ID Code:25893
Collection:CaltechLIB
Deposited By: Imported from CaltechLIB
Deposited On:24 Jul 2002
Last Modified:26 Dec 2012 13:49

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