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If derivative arises on a credit purchase from overseas counterparty?

Forums › ACCA Forums › ACCA SBR Strategic Business Reporting Forums › If derivative arises on a credit purchase from overseas counterparty?

  • This topic has 1 reply, 2 voices, and was last updated 12 years ago by adilomax.
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  • May 20, 2012 at 6:10 pm #52759
    lsm1288
    Member
    • Topics: 1
    • Replies: 0
    • ☆

    Dear Friends,

    Today I had revision course of the P2 exam. In the course of study we solved the question about some US company (USD is functional c-cy), which bought some goods from the other US company (USD is functional c-cy), but the account payable is EUR nominated. The tutor said that this transaction gives rise to embedded derivative, as the EUR is not a functional c-cy for both seller and buyer.
    I asked him, if the embedded derivative would arise to the buyer giving the EUR to be functional c-cy of the seller. He replies than no, but could not explain why.
    As far as I understand, it is doesnt matter to the buyer what functional c-cy will seller have untill the anount due in local c-cy will vary due to the currency ex-rate dynamic. In each case such a contract is a derivative. What do you think?

    July 13, 2012 at 5:31 pm #97900
    adilomax
    Participant
    • Topics: 0
    • Replies: 3
    • ☆

    Its currency swap, & currency swap is a derivative

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