PURPOSE
To show illustration of foreign exchange outright by cross currency – split swap cost from spot reference rate.
OVERVIEW
i. Component of Gain/Loss split between FX effect and swap point effect during period end.
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 |
| Sell Ccy |
| Sell Amount |
| Buy Ccy |
| Spot Reference Rate |
| Forward Swap Points |
| Contract Rate |
| Buy Amount |
| USD |
| FRX1001 |
| 25-Mar-03 |
3-Apr-03 |
SELL (GBP) |
GBP |
| -1,000,000.00 |
SGD |
2.509940 |
-199.40 |
2.490000 |
2,490,000.00 |
SUMMARY OF JOURNALS
| ID | Date | Description |
|---|---|---|
| J1 | 31-Mar-03 | Month end revaluation |
| J2 | 1-Apr-03 | Reversal of Month end revaluation |
| 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 Amt D/(CR) | Rate | Base | Base Amt D/(CR) | Line |
|---|---|---|---|---|---|---|---|---|---|
| FRX1001 | 31-Mar-03 | B | FRX: Derivative Liability Fair Value | GBP | 0.00 | 1.000000 | USD | -9,116.91 | J1a |
| FRX1001 | 31-Mar-03 | P | FX - Unrealised Swap Losses | GBP | 0.00 | 1.000000 | USD | 10,381.49 | J1b |
| FRX1001 | 31-Mar-03 | P | FX - Unrealised Gains - FX Trade | GBP | 0.00 | 1.000000 | USD | -1,264.58 | J1c |
Note J1a: The FX revaluation Profit/Loss is analyzed as follows:
SUMMARY
| Component of Gain/Loss | Ccy | Amount | Working/Reference |
| Due to Spot Ref Rate (Gain) | USD | 1,264.58 | = Z (Working 1) |
| Due to Swap Points (Loss) | USD | -10,381.49 | = N - Z ( Balancing) |
| Total Reval'n P/L (Loss) | USD | -9,116.91 | = N (Working 2) |
Working 1 Revaluation of Profit/Loss due to movement in the Spot Reference Rate:
| Transaction Ccy Amt | GBP | -1,000,000.00 |
| SRR (Historical) | GBP/SGD | 2.509940 |
| Historical Counter Amount | SGD | 2,509,940.00 |
| SRR (31-Mar) | GBP/SGD | 2.507750 |
| Counter Amount on 31 Mar | SGD | -2,507,750.00 |
| Change (Gain) | SGD | 2,190.00 |
| SGD to USD 31 Mar | 0.577434 | |
| Gain/(Losses) in Base Ccy | USD | 1,264.58 |
Working 2 Gross Revaluation Gain/Loss
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 Transaction Ccy GBP
| Counter Ccy 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 = J - K |
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 base currency USD
| Losses (PV) | -9,116.91 | N = J * M |
J2 Reversal of Month end revaluation
| TradeID | PostDate | B/P | Account | Ccy | Ccy Amt D/(CR) | Rate | Base | Base Amt D/(CR) | Line |
|---|---|---|---|---|---|---|---|---|---|
| FRX1001 | 1-Apr-03 | B | FRX: Derivative Liability Fair Value | GBP | 0.00 | 1.000000 | USD | 9,116.91 | J2a |
| FRX1001 | 1-Apr-03 | P | FX - Unrealised Swap Losses | GBP | 0.00 | 1.000000 | USD | -10,381.49 | J2b |
| FRX1001 | 1-Apr-03 | P | FX - Unrealised Losses - FX Trade | GBP | 0.00 | 1.000000 | USD | 1,264.58 | J2c |
J3 Settlement of Trade
| TradeID | PostDate | B/P | Account | Ccy | Ccy Amt D/(CR) | Rate | Base | Base Amt D/(CR) | 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 Amt D/(CR) | Rate | Base | Base Amt D/(CR) | 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.
J5 Settlement of Trade
| TradeID | PostDate | B/P | Account | Ccy | Ccy Amt D/(CR) | Rate | Base | Base Amt D/(CR) | Line |
|---|---|---|---|---|---|---|---|---|---|
| FRX1001 | 3-Apr-03 | P | FX - Realised Gains - FX Trade | GBP | 0.00 | 1.455237 | USD | -4,081.54 | J5a |
| FRX1001 | 3-Apr-03 | P | FX - Realised Swap Losses | GBP | 0.00 | 1.000000 | USD | 11,593.43 | J5b |
| FRX1001 | 3-Apr-03 | B | FX Cash Clearing Account | GBP | 0.00 | 1.455237 | USD | -7,511.89 | J5c |
Note J5a: The FX revaluation Profit/Loss is analyzed as follows:
SUMMARY
| Component of Gain/Loss | Ccy | Amount | Working/Reference |
| Due to Spot Ref Rate (Gain) | USD | 4,081.54 | Working 1 |
| Due to Swap Points (Loss) | USD | -11,593.43 | Balancing |
| Total Reval'n P/L (Loss) | USD | -7,511.89 | Working 2 |
Working 1 Revaluation of Profit/Loss due to movement in the Spot Reference Rate:
| Transaction Ccy Amt | GBP | -1,000,000.00 |
| SRR (Historical) | GBP/SGD | 2.509940 |
| Historical Counter Amount | SGD | 2,509,940.00 |
| SRR (3-Apr) | GBP/SGD | 2.502920 |
| Counter Amount on 3-Apr | SGD | -2,502,920.00 |
| Change (Gain) | SGD | 7,020.00 |
| SGD to USD 3-Apr | 0.581416 | |
| Gain/(Losses) in Base Ccy | USD | 4,081.54 |
Working 2 Revaluation of Settled Amounts
| Ccy | Amount | Rate | Base | Amount |
| GBP | -1,000,000.00 | 1.455237 | USD | -1,455,236.81 |
| SGD | 2,490,000.00 | 0.581416 | USD | 1,447,724.92 |
| Gain/(Loss) | -7,511.89 |
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 |
|---|---|---|
| 8-Oct-2014 | CS | Creation. |
| 17-Jun-2016 | RJ | Reformatted. |
| 5-May-2020 | LT | Re-formatting. |
0 Comments