Managing The Currency Conversions

Any global enterprise must deal with currency issues. Governments will fix duty rates, carriers will set freight charges, and brokers will establish fees for clearing shipments. Currency conversion chart is black magic. You can't control it, but you can manage it. Here's how:

Purchase and use your computing products in the same country when possible. If you have a central purchasing agreement with a global vendor, have the product delivered and paid for locally. This may limit your exposure to the fluctuations in exchange rates between the local currency and the dollar.

Your vendor's cost, however, is probably based in another currency. You may buy and accept delivery of PCs in Belgium but their cost base is probably not in Belgian francs. In this case, share the risk with the vendor. Provide a mechanism through which you can change prices quarterly if the relevant exchange rate fluctuates more than 10%.

If you buy on a case-by-case basis without a central purchasing agreement, watch the exchange rates to see if there are trends to exploit. If prices change slowly in a country whose currency is weak, take advantage. Convert your strong currency into the weaker one and buy in that country. Gambling on currency rate fluctuations over an extended period of time is risky. Don't try this at home. Experts, primarily banks, can minimize your risk, so get your financial people to hedge currency fluctuations.

Adjust your purchasing policies and procedures regularly to reflect changes in the global purchasing environment. In other words, monitor exchange rates and keep tabs on trade relations among nations in which you do business. The General Agreement on Tariffs and Trade and the North American Free Trade Agreement are examples of trade initiatives that will impact not only trade barriers but also currency exchange rates.

The foreign currency market in Israel is unusual in its stability. Devaluation such as witnessed last year occurs in the world as a matter of course, informed head of the First International Bank's foreign currency division.

Levy has joined the call by other banks for the opening of the foreign currency market to free foreign investor activity, to be delayed. First International Bank senior vice president and foreign currency division head Yehuda Levy attacks last year's devaluation from an unexpected point of view. Levy claims there is nothing unusual about the devaluation. What is unusual is that devaluation is not more frequent.

Levy compared the fluctuations (standard deviation) on the Israeli foreign currency market to that of other currency markets. In complete contrast to conventional wisdom, his comparison shows that the foreign currency market in Israel is one of the most stable in the world.

The market's traditional standard deviation is only 6%, compared to the 8%-10% standard deviation generally accepted in dollar trading against the pound or the mark, and the almost 14% standard deviation in yen-dollar trading. Even after the latest devaluation, when the standard deviation in Israel's foreign currency market rose to 7%-8%, it remains low compared to world markets.