Contract currency

Contract currency: The contract currency is the currency in which a licensing agreement expresses the royalty obligation, the minimum guarantee, any advance, and usually the payment itself. It is most often the licensor’s home currency, though some agreements denominate in the currency of the granted territory and a few in a third currency entirely. Where sales occur in other currencies, every reported amount has to be converted into the contract currency — and the agreement, not the finance system, is what should determine the rate source and the conversion date.

Denomination has consequences beyond the statement total. Because minimum guarantees and volume thresholds are usually expressed in the contract currency, a territory that performs exactly to plan in its own currency can still fall short of a guarantee if that currency weakens — a shortfall created by currency movement alone, and still payable. Advance recoupment moves for the same reason: an advance denominated in the contract currency is drawn down by royalties converted into it, so the recoupment schedule is partly a currency forecast.