03-30-2009, 06:50 PM
Dear,
I agree that it may be a hedging arrangement but to my understanding it does not go unrecorded between various accoutning periods.
The transaction is initially recorded at spot rate of transaction date, so revenue and receivable is established (in case of sale) or cost and payable is recorded (in case of purchase).
Now on each reporting date the receivable or payable initially established on transaction date has to be re-stated at the spot rate of balance sheet date. The resulting gain or loss is recorded as of that date. You will be doing this at the end of both quarters (out of the three) and eventually if the receivable or payable gets settled in third quarter, the actual gain or loss will be realized and recorded.
The currency hedge arrangement (forward booking) depends upon the date of settlement agreed. If it is not settled on the agreed date, the previous contract of currency settlement is closed resulting actual gain or loss and a new contract is again entered into, if it is considered feasible.
To my understanding the valuation of hedge derivative (as you pointed out) is a difficult issue. In Pakistan even our banks don't have the valuation models to value such derivatives. In most of cases of swap arrangements they rely on the models of foreign valuers and banks. I don't have the required expertise on this issue so I cannot comment in detail. However, I feel even if such valuation would be feasible, it would be immaterial and cost benefit ratio may not suggest doing so.
I guess some one well versed with banking industry may be in a position to point out the solution. May we look forward to Pracs, Goodman, Derivativetrader, XBRL, CFACCA or any other member who may be knowing it in further detail.
Regards,
KAMRAN.
I agree that it may be a hedging arrangement but to my understanding it does not go unrecorded between various accoutning periods.
The transaction is initially recorded at spot rate of transaction date, so revenue and receivable is established (in case of sale) or cost and payable is recorded (in case of purchase).
Now on each reporting date the receivable or payable initially established on transaction date has to be re-stated at the spot rate of balance sheet date. The resulting gain or loss is recorded as of that date. You will be doing this at the end of both quarters (out of the three) and eventually if the receivable or payable gets settled in third quarter, the actual gain or loss will be realized and recorded.
The currency hedge arrangement (forward booking) depends upon the date of settlement agreed. If it is not settled on the agreed date, the previous contract of currency settlement is closed resulting actual gain or loss and a new contract is again entered into, if it is considered feasible.
To my understanding the valuation of hedge derivative (as you pointed out) is a difficult issue. In Pakistan even our banks don't have the valuation models to value such derivatives. In most of cases of swap arrangements they rely on the models of foreign valuers and banks. I don't have the required expertise on this issue so I cannot comment in detail. However, I feel even if such valuation would be feasible, it would be immaterial and cost benefit ratio may not suggest doing so.
I guess some one well versed with banking industry may be in a position to point out the solution. May we look forward to Pracs, Goodman, Derivativetrader, XBRL, CFACCA or any other member who may be knowing it in further detail.
Regards,
KAMRAN.
