Foreign Exchange Outright Base

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

IDDateDescription
J131-Mar-03Month end revaluation
J21-Apr-03Reversal of Month end revaulation
J33-Apr-03Settlement of Trade
J43-Apr-03Settlement of Trade

J1                         Month end revaluation

TradeIDPostDateB/PAccountCcyCcy AmountExc RateCcyBase AmountLine
FRX100131-Mar-03BFRX: Derivative Liability Fair ValueUSD-18,529.231.000000USD-18,529.23J1a
FRX100131-Mar-03PFX - Unrealised Losses - FX TradeUSD18,529.231.000000USD18,529.23J1b

Note J1a:             The FX revaluation Profit/Loss is analzyed as follows:

                                       Forward Points at 31-Mar-03

CcyDescriptionDaysBidOfferMid
GBP1 Week7101211
1 Month30252726

                                      Interpolation of forward points

7 days forward11A
Days3A' = 31-Mar-03 to -3-Apr-03
3 days forward4.714285714B = A/7* A'
Spot Rate at 31-Mar-031.448060C
Add Forward Points0.000471429D = B/10000
Forward Rate1.448531E = C + D

                                      Future Value Profit and Loss in Settlement (Against Currency) USD

Transaction AmountGBP1,000,000.00F
CostUSD1,430,000.00G
RevaluedUSD1,448,531.25H = F * E
Losses (FV)USD-18,531.25I = G -H

                                     Discount Rate

CcyDescriptionDaysRate
USD1 Week73.123%
USD1 Month304.456%

                                     Interpolation of discount rate

7 days forward3.123%J
3 days forward1.338%K = J / 7 * A'
Discount Factor0.999890763L = 1 /(1+K)^(3/365)

                                     Present Value Profit and Loss in Settlement (Against Currency) USD

Losses(PV)-18,529.23M = L * I

J2                       Reversal of Month end revaluation

TradeIDPostDateB/PAccountCcyCcy AmountExc RateCcyBase AmountLine
FRX10011-Apr-03BFRX: Derivative Liability Fair ValueUSD18,529.231.000000USD18,529.23J2a
FRX10011-Apr-03PFX - Unrealised Losses - FX TradeUSD-18,529.231.000000USD-18,529.23J2b

J3                       Settlement of Trade

TradeIDPostDateB/PAccountCcyCcy AmountExc RateCcyBase AmountLine
FRX10013-Apr-03BCash at BankUSD1,430,000.001.000000USD1,430,000.00J3a
FRX10013-Apr-03BFX Cash Clearing AccountUSD-1,430,000.001.000000USD-1,430,000.00J3b

J4                       Settlement of Trade

TradeIDPostDateB/PAccountCcyCcy AmountExc RateCcyBase AmountLine
FRX10013-Apr-03BCash at BankGBP-1,000,000.001.455237USD-1,455,236.81J4a
FRX10013-Apr-03BFX Cash Clearing AccountGBP1,000,000.001.455237USD1,455,236.81J4b

Note J4a:             The exchange rate on value date is 1.455237. See Exchange Rates below.

EXCHANGE RATES

DateGBP
31-Mar-031.448060
3-Apr-031.455237

* round to 6 dp. Full precision used for calculation.

FREQUENTLY ASKED QUESTIONS

RELATED INFORMATION

CHANGE HISTORY

DateByChanges
28-Jul-2008CSCreation.
09-Jun-2016RJReformatted.
23-Apr-2020LTRe-formatting.
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