Exchange rates risk – ACCA Financial Management (FM)
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Hi John,
Does matching referring to the F/x Gain/Loss account? Whatever that is more due to exchange rate will be accounted in the F/x Gain Account, whatever that is less due to exchange rare will be booked in to the F/x Loss Account?
How they are accounted for in the accounts is nothing to do with Financial Management (and therefore irrelevant for Paper FM),
If you are worried about the accounting then ask in the Ask the Tutor Forums for the accounting papers (Paper FR and Paper SBR).
Hi John,
I am concerned about the definition of “matching”, may I ask you explain more in wording on how “matching” able to help in reducing the risk.
Thank you John.
It is when you have an income and an expense in the same foreign currency, both of a similar amount. As the exchange rate changes then both the income and the expense either increase or decrease when converted, but the net of the two will be staying the same.
Thanow John 馃檪
You are welcome 馃檪
How is matching different from netting?
Matching is deliberately arranging to have income and expenditure of a similar amount in the same currency throughout the year.
Netting is when several distinct receipts and payments in the same currency are netted off and just the net amount is converted.
The reason for there being two rates is so that the bank can make a profit. Although I actually do explain the ‘rule’ in my lectures, it is always whichever rate is worse for the company (because it is the bank who profits). So when receiving we use the higher rate (using the lower rate would mean we received more, which cannot be the case). When paying we use the lower rate (using the higher rate would mean we paid less, which cannot be the case).
The same rule applies when using forward rates.
I do suggest that you watch the lectures again.
hi,
i would like to ask that when we are paying or receiving the exhange rate in 2nd problem we are taking spot as $/euros 1.6250-1.6310 and in receiving we are taking $100000*1.6310 …. so what is the rule or logic behind taking spot as 1.6310 becuz i cant understand it
in pay we are taking spot IR/R$ 8.6380-9.2530 here we are dividing like 240000*9.2530
forward contracts i cant udstd that spot sometimes it is taken great number and sometimes small number .. briefly explain the logic behind buying and selling of a company cuz they didnt mention in the question whether to buy or sell it the $ or pounds