Foreign Exchange Outright – Cross – Split Swap Cost From Spot Reference Rate

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

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

J1                         Month end revaluation

TradeIDPostDateB/PAccountCcyCcy Amt D/(CR)RateBaseBase Amt D/(CR)Line
FRX100131-Mar-03BFRX: Derivative Liability Fair ValueGBP0.001.000000USD-9,116.91J1a
FRX100131-Mar-03PFX - Unrealised Swap LossesGBP0.001.000000USD10,381.49J1b
FRX100131-Mar-03PFX - Unrealised Gains - FX TradeGBP0.001.000000USD-1,264.58J1c

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

                                     SUMMARY

Component of Gain/LossCcyAmount Working/Reference
Due to Spot Ref Rate (Gain)USD1,264.58= 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 AmtGBP-1,000,000.00
SRR (Historical)GBP/SGD2.509940
Historical Counter AmountSGD2,509,940.00
SRR (31-Mar)GBP/SGD2.507750
Counter Amount on 31 MarSGD-2,507,750.00
Change (Gain)SGD2,190.00
SGD to USD 31 Mar0.577434
Gain/(Losses) in Base CcyUSD1,264.58

                                    Working 2  Gross Revaluation Gain/Loss

                                       Forward Points at 31-Mar-03

CcyDescriptionDaysBidOfferMid
GBP1 Week7101211
1 Month30252726
SGD1 Week7-46-44-45
1 Month30-69-67-68

                                      Interpolation of GBP 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 Points0.000471D = B/10000
Forward Rate1.448531E = C + D

                                      Interpolation of SGD forward points

7 days forward-45A2
Days3A2' = 31-Mar-03 to 3-Apr-03
3 days forward-19.28571429B2= A2 / 7 * A2'
Spot Rate at 31-Mar-031.731800C2
Add Forward Points-0.001929D2 = B2/10000
Forward Rate1.729871E2 = C2 + D2

                                     Computation of forward rate

SGD forward rate to USD1.729871F = E2
GBP forward rate to USD1.448531G = E
SGD forward rate to GBP2.505773H = F * G

                                    Future Value Profit and Loss in Transaction Ccy GBP

Counter Ccy AmountSGD2,490,000.00I
CostGBP-1,000,000.00J
RevaluedGBP-993,705.41K = I / H
Losses (FV)GBP-6,294.59I = J - K

                                     Discounting Valuation Currency Method

Losses (FV)USD-9,117.91J = I * E

                                      Discount Rate

CcyDescriptionDaysRate
USD1 Week73.123%
USD1 Month304.456%

                                      Interpolation of discount rate

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

                                     Present Value Profit and Loss in base currency USD

Losses (PV)-9,116.91N = J * M

J2                        Reversal of Month end revaluation

TradeIDPostDateB/PAccountCcyCcy Amt D/(CR)RateBaseBase Amt D/(CR)Line
FRX10011-Apr-03BFRX: Derivative Liability Fair ValueGBP0.001.000000USD9,116.91J2a
FRX10011-Apr-03PFX - Unrealised Swap LossesGBP0.001.000000USD-10,381.49J2b
FRX10011-Apr-03PFX - Unrealised Losses - FX TradeGBP0.001.000000USD1,264.58J2c

J3                       Settlement of Trade

TradeIDPostDateB/PAccountCcyCcy Amt D/(CR)RateBaseBase Amt D/(CR)Line
FRX10013-Apr-03BCash at BankSGD2,490,000.000.581416USD1,447,724.92J3a
FRX10013-Apr-03BFX Cash Clearing AccountSGD-2,490,000.000.581416USD-1,447,724.92J3b

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

TradeIDPostDateB/PAccountCcyCcy Amt D/(CR)RateBaseBase Amt D/(CR)Line
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. The rate is rounded to 6dp for display. Full precision is used in calculation.

J5                      Settlement of Trade

TradeIDPostDateB/PAccountCcyCcy Amt D/(CR)RateBaseBase Amt D/(CR)Line
FRX10013-Apr-03PFX - Realised Gains - FX TradeGBP0.001.455237USD-4,081.54J5a
FRX10013-Apr-03PFX - Realised Swap LossesGBP0.001.000000USD11,593.43J5b
FRX10013-Apr-03BFX Cash Clearing AccountGBP0.001.455237USD-7,511.89J5c

Note J5a:             The FX revaluation Profit/Loss is analyzed as follows:

                                     SUMMARY

Component of Gain/LossCcyAmount Working/Reference
Due to Spot Ref Rate (Gain)USD4,081.54Working 1
Due to Swap Points (Loss)USD-11,593.43Balancing
Total Reval'n P/L (Loss)USD-7,511.89Working 2

                                     Working 1   Revaluation of Profit/Loss due to movement in the Spot Reference Rate:

Transaction Ccy AmtGBP-1,000,000.00
SRR (Historical)GBP/SGD2.509940
Historical Counter AmountSGD2,509,940.00
SRR (3-Apr)GBP/SGD2.502920
Counter Amount on 3-AprSGD-2,502,920.00
Change (Gain)SGD7,020.00
SGD to USD 3-Apr0.581416
Gain/(Losses) in Base CcyUSD4,081.54

                                     Working 2  Revaluation of Settled Amounts

CcyAmountRateBaseAmount
GBP-1,000,000.001.455237USD-1,455,236.81
SGD2,490,000.000.581416USD1,447,724.92
Gain/(Loss)-7,511.89

EXCHANGE RATES

The following rates were used for this illustration.

Spot rate

DateUSD to SGDSGD to USD*GBP to USDGBP/SGD
31-Mar-031.7318000.5774341.4480602.507750
3-Apr-031.7199400.5814161.4552372.502920

*Rates used for calculation are in full precision. Illustrated rates are rounded to 6dp.

FREQUENTLY ASKED QUESTIONS

RELATED INFORMATION

CHANGE HISTORY

DateByChanges
8-Oct-2014CSCreation.
17-Jun-2016RJReformatted.
5-May-2020LTRe-formatting.
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