PURPOSE
To show illustration of foreign exchange outright base.
OVERVIEW
i. Foreign Exchange outright transaction revalued at period and using forward rates discounted to present value.
ii. Settlement amounts are journalled across multi-currency cash clearing accounts in the general ledger.
TRANSACTION DETAILS
| Accounting Base Ccy |
| Trade ID |
| Trade Date |
| Value Date |
| Transaction |
| Against Currency Settlement |
| Buy Amount |
| Sell Amount |
| USD |
| FRX1001 |
| 25-Mar-03 |
3-Apr-03 |
Sell GBP |
USD |
| USD 1,430,000.00 |
GBP 1,000,000.00 |
SUMMARY OF JOURNALS
| ID | Date | Description |
|---|---|---|
| J1 | 31-Mar-03 | Month end revaluation |
| J2 | 1-Apr-03 | Reversal of Month end revaulation |
| J3 | 3-Apr-03 | Settlement of Trade |
| J4 | 3-Apr-03 | Settlement of Trade |
J1 Month end revaluation
| TradeID | PostDate | B/P | Account | Ccy | Ccy Amount | Exc Rate | Ccy | Base Amount | Line |
|---|---|---|---|---|---|---|---|---|---|
| FRX1001 | 31-Mar-03 | B | FRX: Derivative Liability Fair Value | USD | -18,529.23 | 1.000000 | USD | -18,529.23 | J1a |
| FRX1001 | 31-Mar-03 | P | FX - Unrealised Losses - FX Trade | USD | 18,529.23 | 1.000000 | USD | 18,529.23 | J1b |
Note J1a: The FX revaluation Profit/Loss is analzyed as follows:
Forward Points at 31-Mar-03
| Ccy | Description | Days | Bid | Offer | Mid |
| GBP | 1 Week | 7 | 10 | 12 | 11 |
| 1 Month | 30 | 25 | 27 | 26 |
Interpolation of forward points
| 7 days forward | 11 | A |
| Days | 3 | A' = 31-Mar-03 to -3-Apr-03 |
| 3 days forward | 4.714285714 | B = A/7* A' |
| Spot Rate at 31-Mar-03 | 1.448060 | C |
| Add Forward Points | 0.000471429 | D = B/10000 |
| Forward Rate | 1.448531 | E = C + D |
Future Value Profit and Loss in Settlement (Against Currency) USD
| Transaction Amount | GBP | 1,000,000.00 | F |
| Cost | USD | 1,430,000.00 | G |
| Revalued | USD | 1,448,531.25 | H = F * E |
| Losses (FV) | USD | -18,531.25 | I = G -H |
Discount Rate
| Ccy | Description | Days | Rate |
| USD | 1 Week | 7 | 3.123% |
| USD | 1 Month | 30 | 4.456% |
Interpolation of discount rate
| 7 days forward | 3.123% | J |
| 3 days forward | 1.338% | K = J / 7 * A' |
| Discount Factor | 0.999890763 | L = 1 /(1+K)^(3/365) |
Present Value Profit and Loss in Settlement (Against Currency) USD
| Losses(PV) | -18,529.23 | M = L * I |
J2 Reversal of Month end revaluation
| TradeID | PostDate | B/P | Account | Ccy | Ccy Amount | Exc Rate | Ccy | Base Amount | Line |
|---|---|---|---|---|---|---|---|---|---|
| FRX1001 | 1-Apr-03 | B | FRX: Derivative Liability Fair Value | USD | 18,529.23 | 1.000000 | USD | 18,529.23 | J2a |
| FRX1001 | 1-Apr-03 | P | FX - Unrealised Losses - FX Trade | USD | -18,529.23 | 1.000000 | USD | -18,529.23 | J2b |
J3 Settlement of Trade
| TradeID | PostDate | B/P | Account | Ccy | Ccy Amount | Exc Rate | Ccy | Base Amount | Line |
|---|---|---|---|---|---|---|---|---|---|
| FRX1001 | 3-Apr-03 | B | Cash at Bank | USD | 1,430,000.00 | 1.000000 | USD | 1,430,000.00 | J3a |
| FRX1001 | 3-Apr-03 | B | FX Cash Clearing Account | USD | -1,430,000.00 | 1.000000 | USD | -1,430,000.00 | J3b |
J4 Settlement of Trade
| TradeID | PostDate | B/P | Account | Ccy | Ccy Amount | Exc Rate | Ccy | Base Amount | Line |
|---|---|---|---|---|---|---|---|---|---|
| FRX1001 | 3-Apr-03 | B | Cash at Bank | GBP | -1,000,000.00 | 1.455237 | USD | -1,455,236.81 | J4a |
| FRX1001 | 3-Apr-03 | B | FX Cash Clearing Account | GBP | 1,000,000.00 | 1.455237 | USD | 1,455,236.81 | J4b |
Note J4a: The exchange rate on value date is 1.455237. See Exchange Rates below.
EXCHANGE RATES
| Date | GBP |
|---|---|
| 31-Mar-03 | 1.448060 |
| 3-Apr-03 | 1.455237 |
* round to 6 dp. Full precision used for calculation.
FREQUENTLY ASKED QUESTIONS
RELATED INFORMATION
CHANGE HISTORY
| Date | By | Changes |
|---|---|---|
| 28-Jul-2008 | CS | Creation. |
| 09-Jun-2016 | RJ | Reformatted. |
| 23-Apr-2020 | LT | Re-formatting. |
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