PURPOSE
To show illustration of foreign exchange outright cross.
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 |
| Buy |
| Sell |
| Buy Amount |
| Sell Amount |
| USD |
| FRX1001 |
| 25-Mar-03 |
3-Apr-03 |
SGD |
GBP |
| 2,490,000.00 |
-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 | -9,116.91 | 1.000000 | USD | -9,116.91 | J1a |
| FRX1001 | 31-Mar-03 | P | FX - Unrealised Losses - FX Trade | USD | 9,116.91 | 1.000000 | USD | 9,116.91 | 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 | |
| SGD | 1 Week | 7 | -46 | -44 | -45 |
| 1 Month | 30 | -69 | -67 | -68 |
Interpolation of GBP 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 | 0.000471 | D = B/10000 |
| Forward Rate | 1.448531 | E = C + D |
Interpolation of SGD forward points
| 7 days forward | -45 | A2 |
| Days | 3 | A2' = 31-Mar-03 to 3-Apr-03 |
| 3 days forward | -19.28571429 | B2= A2 / 7 * A2' |
| Spot Rate at 31-Mar-03 | 1.731800 | C2 |
| Add Forward Points | -0.001929 | D2 = B2/10000 |
| Forward Rate | 1.729871 | E2 = C2 + D2 |
Computation of forward rate
| SGD forward rate to USD | 1.729871 | F = E2 |
| GBP forward rate to USD | 1.448531 | G = E |
| SGD forward rate to GBP | 2.505773 | H = F * G |
Future Value Profit and Loss in Settlement (Against Currency) GBP
| Transaction Amount | SGD | 2,490,000.00 | I |
| Cost | GBP | 1,000,000.00 | J |
| Revalued | GBP | 993,705.41 | K = I / H |
| Losses (FV) | GBP | -6,294.59 | I = K - J |
Discounting Valuation Currency Method
| Losses(FV) | USD | -9,117.91 | J = I * E |
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% | K |
| 3 days forward | 1.338% | L = K / 7 * A' |
| Discount Factor | 0.999890763 | M = 1/(1+L)^(3/365) |
Present Value Profit and Loss in Settlement (Against Currency) USD
| Losses(PV) | -9,116.91 | N = J * M |
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 | 9,116.91 | 1.000000 | USD | 9,116.91 | J2a |
| FRX1001 | 1-Apr-03 | P | FX - Unrealised Losses - FX Trade | USD | -9,116.91 | 1.000000 | USD | -9,116.91 | 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 | SGD | 2,490,000.00 | 0.581416 | USD | 1,447,724.92 | J3a |
| FRX1001 | 3-Apr-03 | B | FX Cash Clearing Account | SGD | -2,490,000.00 | 0.581416 | USD | -1,447,724.92 | J3b |
Note J3a: The exchange rate on value date is 1.719940 (multiplier 0.581416). See Exchange Rates below. The rate is rounded to 6dp for display. Full precision is used in calculation.
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. The rate is rounded to 6dp for display. Full precision is used in calculation.
EXCHANGE RATES
The following rates were used for this illustration.
Spot rate
| Date | USD to SGD | SGD to USD* | GBP to USD | GBP/SGD |
| 31-Mar-03 | 1.731800 | 0.577434 | 1.448060 | 2.507750 |
| 3-Apr-03 | 1.719940 | 0.581416 | 1.455237 | 2.502920 |
*Rates used for calculation are in full precision. Illustrated rates are rounded to 6dp.
FREQUENTLY ASKED QUESTIONS
RELATED INFORMATION
CHANGE HISTORY
| Date | By | Changes |
|---|---|---|
| 28-Jul-2008 | CS | Creation. |
| 10-Jun-2016 | RJ | Reformatted. |
| 23-Apr-2020 | LT | Re-formatting. |
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