Translating a Hyperinflationary Foreign Operation (IAS 21 and IAS 29)
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Foreign Exchange
Comptroller of the Currency Administrator of National Banks Foreign Exchange Comptroller’s Handbook (Section 813) Narrative and Procedures - March 1990 I Other Income Producing Activities Foreign Exchange (Section 813) Table of Contents Introduction 1 Risks 1 Policy 6 The Market 12 Examination Procedures 17 Internal Control Questionnaire 25 Verification Procedures 32 Comptroller’s Handbook i Foreign Exchange (Section 813) Foreign Exchange (Section 813) Introduction This section is intended to provide minimum background and procedural guidelines to examiners responsible for evaluating a bank’s foreign currency activities. Within individual banks, foreign currency money market and exchange trading operations may be combined or completely separate with regard to policies, procedures, reporting, and even dealing. However, they ultimately must be viewed together to evaluate liquidity and to insure compliance with overall bank objectives and risk management strategy. For the sake of brevity, this section discusses both functions as if they were performed by the same traders, processed by the same bookkeepers and managed by the same officers. Close coordination is required among examiners performing the foreign exchange, due from banks—time, nostro account, and funds management functions. Most importers, exporters, manufacturers, and retailers tend to let banks handle their foreign exchange needs. They rely on banks to make and receive their foreign currency payments, to provide them with foreign currency loans, to fund their foreign currency bank accounts, and to purchase their excess foreign currency balances. They may ask banks to provide such services for immediate delivery, i.e., at spot (short-term contracts, perhaps up to 10 days), or they might contract to buy or sell a specified amount of foreign currency for delivery at a future date. -
Revaluation of Financial Statement Due To
Academy of Accounting and Financial Studies Journal Volume 25, Special Issue 2, 2021 REVALUATION OF FINANCIAL STATEMENT DUE TO DEVALUATION OF CURRENCY– DOES FINANCIAL STATEMENT SHOW ACCURATE VALUE OF YOUR ORGANIZATION? Muhammad Nabeel Mustafa*, SZABIST University Haroon ur Rashid Khan, SZABIST University Salman Ahmed Shaikh, SZABIST University ABSTRACT Purpose: Debtors are current asset has a time of 120 days at max. During this time, the value of debtors gets changed. This study explores the effect of this time value of money. The objective of this research is to sight see the effect of the time value of money, normal inflation, and purchasing power on the comprehensive debtors/receivable side of the balance sheet, which can be devalued if key macroeconomic factors determine the devaluation percentage of a single currency. Methodology: Concerning these significant questions of the research, we grasped a pragmatic philosophy with an inductive approach. A mono-method of qualitative based on grounded theory was endorsed, which helped to unfold a new model through qualitative data analysis. Results: A new strategy is developed, which utters three components; normal inflation, time value of money, and purchasing power revealing significant contribution in literature. The effect of these constructs was not incorporated in the financial statement, showing vague financial valuation. These constructs have a significant impact on the financial statement of any organization especially with items having time components in the balance sheet, such as receivables and payables. Research Limitations: This research is limited to only one currency i.e., Pakistani Rupee but can be implemented on any currency. Practical Implication: The strategy will help auditors to pass the adjustment entry in the balance sheet to adjust the value of the currency at the year-end. -
Hyperinflationary Economies
Issue 175/October 2020 IFRS Developments Hyperinflationary economies (Updated October 2020) What you need to know Overview • We believe that IAS 29 should Accounting standards are applied on the assumption that the value of money (the be applied in 2020 by entities unit of measurement) is constant over time. However, when the rate of inflation is whose functional currency is the no longer negligible, a number of issues arise impacting the true and fair nature of currency of one of the following the accounts of entities that prepare their financial statements on a historical cost countries: basis, for example: • Argentina • Historical cost figures are less meaningful than they are in a low inflation • Islamic Republic of Iran environment • Lebanon • Holding gains on non-monetary assets that are reported as operating profits do not represent real economic gains • South Sudan • Current and prior period financial information is not comparable • Sudan • ‘Real’ capital can be reduced because profits reported do not take account of • Venezuela the higher replacement costs of resources used in the period • Zimbabwe To address such concerns, entities should apply IAS 29 Financial Reporting in Hyperinflationary Economies from the beginning of the period in which the • We believe the following existence of hyperinflation is identified. countries are not currently hyperinflationary, but should be IAS 29 does not establish an absolute inflation rate at which an economy is monitored in 2020: considered hyperinflationary. Instead, it considers a variety of non-exhaustive characteristics of the economic environment of a country that are seen as strong Angola • indicators of the existence of hyperinflation.This publication only considers the • Liberia absolute inflation rates. -
IAS 21 the Effects of Changes in Foreign Exchange Rates
Technical Summary This extract has been prepared by IASC Foundation staff and has not been approved by the IASB. For the requirements reference must be made to International Financial Reporting Standards. IAS 21 The Effects of Changes in Foreign Exchange Rates An entity may carry on foreign activities in two ways. It may have transactions in foreign currencies or it may have foreign operations. In addition, an entity may present its financial statements in a foreign currency. The objective of this Standard is to prescribe how to include foreign currency transactions and foreign operations in the financial statements of an entity and how to translate financial statements into a presentation currency. The principal issues are which exchange rate(s) to use and how to report the effects of changes in exchange rates in the financial statements. This Standard does not apply to hedge accounting for foreign currency items, including the hedging of a net investment in a foreign operation. IAS 39 applies to hedge accounting. This Standard does not apply to the presentation in a statement of cash flows of the cash flows arising from transactions in a foreign currency, or to the translation of cash flows of a foreign operation (see IAS 7 Statement of Cash Flows). Functional currency Functional currency is the currency of the primary economic environment in which the entity operates. The primary economic environment in which an entity operates is normally the one in which it primarily generates and expends cash. An entity considers the following factors in determining its functional currency: (a) the currency: (i) that mainly influences sales prices for goods and services (this will often be the currency in which sales prices for its goods and services are denominated and settled); and (ii) of the country whose competitive forces and regulations mainly determine the sales prices of its goods and services. -
Redenomination of Naira: a Strategy for Inflationary Reduction
International Journal of Academic Research in Business and Social Sciences Vol. 1 1 , No. 2, 2021, E-ISSN: 2222-6990 © 2021 HRMARS Redenomination of Naira: A Strategy for Inflationary Reduction Osakwe Charity Ifunanya, Nduka, Afamefuna Joseph, Obi-nwosu Victoria Ogochukwu To Link this Article: http://dx.doi.org/10.6007/IJARBSS/v11-i2/8860 DOI:10.6007/IJARBSS/v11-i2/8860 Received: 02 January 2021, Revised: 29 January 2021, Accepted: 15 February 2021 Published Online: 25 February 2021 In-Text Citation: (Ifunanya et al., 2021) To Cite this Article: Ifunanya, O. C., Nduka, A. J., & Ogochukwu, O. V. (2021). Redenomination of Naira: A Strategy for Inflationary Reduction. International Journal of Academic Research in Business and Social Sciences, 11(2), 472–481. Copyright: © 2021 The Author(s) Published by Human Resource Management Academic Research Society (www.hrmars.com) This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at: http://creativecommons.org/licences/by/4.0/legalcode Vol. 11, No. 2, 2021, Pg. 472 - 481 http://hrmars.com/index.php/pages/detail/IJARBSS JOURNAL HOMEPAGE Full Terms & Conditions of access and use can be found at http://hrmars.com/index.php/pages/detail/publication-ethics 472 International Journal of Academic Research in Business and Social Sciences Vol. 1 1 , No. 2, 2021, E-ISSN: 2222-6990 © 2021 HRMARS Redenomination of Naira: A Strategy for Inflationary Reduction Osakwe Charity Ifunanya (PhD) Department of Banking and Finance, Nnamdi Azikiwe University, Anambra State, PMB 5025, Awka, Nigeria. -
The Choice and Design of Exchange Rate Regimes Már Gudmundsson
The choice and design of exchange rate regimes Már Gudmundsson Introduction This paper discusses the design and management of exchange rate regimes in Africa.1 It starts by looking at the current landscape of exchange rate regimes in the region and comparing it to other regions of the world. It then discusses relevant considerations for the choice of exchange rate regimes in developing countries, including the optimal currency area, but also their limitations in a developing country context. The ability of countries to deliver disciplined macroeconomic policies inside or outside a currency union is an important consideration in that regard, along with political goals and the promotion of financial sector development and integration. The paper then proceeds to discuss in turn the management of flexible exchange rates, the design of exchange rate pegs and monetary integration. Exchange rate regimes in Africa Exchange rate regimes in Africa reflect choices made at the time of independence as well as more recent trends in exchange rate regimes of developing countries. Original exchange rate pegs in many cases evolved over time into flexible exchange rates. That development was given a further boost by the stabilisation and liberalisation programmes in the 1980s and 1990s. Former colonies of France constitute a core group in the CFA franc zone of western and central Africa, which is composed of two currency unions with a hard external peg to the euro, underpinned by the French authorities. Three neighbouring countries of South Africa are part of the rand zone, where national currencies are 1 The paper draws extensively on Masson and Pattillo (2005). -
Chapter 1717
ChapterChapter 1717 FixedFixed ExchangeExchange RatesRates andand ForeignForeign ExchangeExchange InterventionIntervention Copyright © 2003 Pearson Education, Inc. Slide 17-1 Chapter 17 Learning Goals • How a central bank must manage monetary policy so as to fix its currency's value in the foreign exchange market. • The relationship between the central bank's foreign exchange reserves, its purchases and sales in the foreign exchange market, and the money supply. • How monetary, fiscal, and sterilized intervention policies affect the economy under a fixed exchange rate. • Some causes and effects of balance of payments crises. • How alternative multilateral systems for pegging exchange rates work. Copyright © 2003 Pearson Education, Inc. Slide 17-2 Chapter Organization ! Why Study Fixed Exchange Rates? ! Central Bank Intervention and the Money Supply ! How the Central Bank Fixes the Exchange Rates ! Stabilization Policies with a Fixed Exchange Rate ! Balance of Payments Crises and Capital Flight ! Managed Floating and Sterilized Intervention ! Reserve Currencies in the World Monetary System ! The Gold Standard ! Liquidity Traps Copyright © 2003 Pearson Education, Inc. Slide 17-3 Chapter Organization ! Summary ! Appendix I: Equilibrium in the Foreign Exchange Market with Imperfect Asset Substitutability ! Appendix III: The Timing of Balance of Payments Crises Copyright © 2003 Pearson Education, Inc. Slide 17-4 Introduction ! In reality, the assumption of complete exchange rate flexibility is rarely accurate. • Industrialized countries operate under a hybrid system of managed floating exchange rates. – A system in which governments attempt to moderate exchange rate movements without keeping exchange rates rigidly fixed. • A number of developing countries have retained some form of government exchange rate fixing. ! How do central banks intervene in the foreign exchange market? Copyright © 2003 Pearson Education, Inc. -
Redenomination of Naira: a Critical Analysis of Its Problems and Prospects
EUROPEAN ACADEMIC RESEARCH Vol. VII, Issue 12/ March 2020 Impact Factor: 3.4546 (UIF) ISSN 2286-4822 DRJI Value: 5.9 (B+) www.euacademic.org Redenomination of Naira: A Critical Analysis of Its Problems and Prospects OSAKWE CHARITY IFUNANYA (Ph.D)1 Department of Banking and Finance Faculty of Management Sciences Nnamdi Azikiwe University, Awka, Nigeria Abstract The study examines the problems and prospects of redenominating the naira currency. The economic consequences of the devaluation of Naira currency in the eighties are still being felt in the low value of naira. To ascertain Nigerians view on redenominating the naira, a total number of 153 respondents were studied and the data extracted from them was analyzed with simple percentage method. The study found that redenomination of naira will lead to the economic recovery of Nigeria and that redenomination can increase the prices of Nigeria export. The study recommends that for the redenomination exercise to be successful, it should be complemented with strict and disciplined fiscal policy so as to strengthen the economy and sustain the value of the redenominated currency and that the redenomination exercise should be timed in such a way that it will not create uncertainty and instability that will make investors to be risk averse. Key words: Redenomination, Prospects, Currency, Decimalization, and evaluation. 1 The author Osakwe Charity Ifunanya is a Financial Management Lecturer in Banking and Finance Department of Nnamdi Azikiwe University, Awka, Nigeria. Her research interests cover diverse areas of Investment Banking and finance. Her recent publications include: stock market capitalization and economic growth of Nigeria and South Africa (2000-2018), Credit Risk Management and Efficiency in the Banking Industry of an Emerging Economy in Africa: Evidence from Nigeria and stock market development and economic growth in Nigeria: A camaraderie Reconnaissance amongst others. -
Floating Exchange Rates and the Need for Surveillance
ESSAYS IN INTERNATIONAL FINANCE No. 127, May 1978 FLOATING EXCHANGE RATES AND THE NEED FOR SURVEILLANCE JACQUES R. ARTUS AND ANDREW D. CROCKETT INTERNATIONAL FINANCE SECTION DEPARTMENT OF ECONOMICS PRINCETON UNIVERSITY Princeton, New Jersey This is the one hundred and twenty-seventh number in the series ESSAYS IN INTERNATIONAL FINANCE, published from time to time by the International Finance Section of the Department of Economics of Princeton University. The authors, Jacques R. Artus and Andrew D. Crockett, are both on the staff of the International Monetary Fund. Artus, who is Chief of the External Adjustment Division of the Fund, which he joined as economist in 1969, has pub- lished widely on economic and financial matters. Crockett, a member of the staff of the Bank of England from 1966 to 1972, when he joined the Fund,is presently Advisor, Middle East Department. He is the author of Money: Theory, Policy, and Institutions and International Money: Issues and Analysis. The Section sponsors the Essays in this series but takes no further responsibility for the opinions expressed in them. The writers are free to develop their topics as they wish. PETER B. KENEN, Director International Finance Section ESSAYS IN INTERNATIONAL FINANCE No. 127, May 1978 FLOATING EXCHANGE RATES AND THE NEED FOR SURVEILLANCE JACQUES R. ARTUS AND ANDREW D. CROCKETT INTERNATIONAL FINANCE SECTION DEPARTMENT OF ECONOMICS PRINCETON UNIVERSITY Princeton, New Jersey Copyright © 1978, by International Finance Section Department of Economics, Princeton University Library of Congress Cataloging in Publication Data Artus, Jacques R Floating exchange rates and the need for surveillance. (Essays in international finance; no. -
Denationalisation of Money -The Argument Refined
Denationalisation of Money -The Argument Refined An Analysis ofthe Theory and Practice of Concurrent Currencies F. A. HAYEK Nohel Laureate 1974 Diseases desperate grown, By desperate appliances are reli'ved, Or not at all. WILLIAM SHAKESPEARE (Hamlet, Act iv, Scene iii) THIRD EDITION ~~ Published by THE INSTITUTE OF ECONOMIC AFFAIRS 1990 First published in October 1976 Second Edition, revised and enlarged, February 1978 Third Edition, with a new Introduction, October 1990 by THE INSTITUTE OF ECONOMIC AFFAIRS 2 Lord North Street, Westminster, London SWIP 3LB © THE INSTITUTE OF ECONOMIC AFFAIRS 1976, 1978, 1990 Hobart Paper (Special) 70 All rights reseroed ISSN 0073-2818 ISBN 0-255 36239-0 Printed in Great Britain by GORON PRO-PRINT CO LTD 6 Marlborough Road, Churchill Industrial Estate, Lancing, W Sussex Text set in 'Monotype' Baskeroille CONTENTS Page PREFACE Arthur Seldon 9 PREFACE TO THE SECOND (EXTENDED) EDITION A.S. 11 AUTHOR'S INTRODUCTION 13 A NOTE TO THE SECOND EDITION 16 THE AUTHOR 18 INTRODUCTION TO THE THIRD EDITION Geoffrey E. Wood 19 THE PRACTICAL PROPOSAL 23 Free trade in money 23 Proposal more practicable than utopian European currency 23 Free trade in banking 24 Preventing government from concealing depreciation 25 II THE GENERALISATION OF THR UNDERLYING PRINCIPLE 26 Competition in currency not discussed by economists 26 Initial advantages of government monopoly in money 27 III THE ORIGIN OF THE GOVERNMENT PREROGATIVE OF MAKING MONEY 28 Government certificate of metal weight and purity 29 The appearance of paper money 31 -
The Scope for Foreign Exchange Market Interventions
THE SCOPE FOR FOREIGN EXCHANGE MARKET INTERVENTIONS No. 204 October 2011 THE SCOPE FOR FOREIGN EXCHANGE MARKET INTERVENTIONS Peter Bofinger No. 204 October 2011 Acknowledgement: This paper was prepared as a background note for a seminar of the UNCTAD Division on Globalization and Development Strategies. The author is grateful to seminar participants for valuable comments during the discussion. UNCTAD/OSG/DP/2011/4 ii The opinions expressed in this paper are those of the author and are not to be taken as the official views of the UNCTAD Secretariat or its Member States. The designations and terminology employed are also those of the author. UNCTAD Discussion Papers are read anonymously by at least one referee, whose comments are taken into account before publication. Comments on this paper are invited and may be addressed to the author, c/o the Publications Assistant, Macroeconomic and Development Policies Branch (MDPB), Division on Globalization and Development Strategies (DGDS), United Nations Conference on Trade and Development (UNCTAD), Palais des Nations, CH-1211 Geneva 10, Switzerland (Telefax no: +41 (0)22 917 0274/Telephone no: +41 (0)22 917 5896). Copies of Discussion Papers may also be obtained from this address. New Discussion Papers are available on the UNCTAD website at http://www.unctad.org. JEL classification: F31, F32, F33 iii Contents Page Abstract ....................................................................................................................................................... 1 I. THE CURRENT DEBATE ON THE REFORM OF THE INTERNATIONAL MONETARY SYSTEM (IMS) ......................................................................................................... 1 II. THE SYSTEM OF FLEXIBLE EXCHANGE RATES: MYTHS AND REALITY ................... 2 A. Myths of flexible exchange rates .................................................................................................. 2 B. The puzzling and dangerous reality of flexible exchange rates ................................................... -
Revaluation Versus Devaluation: a Study of Exchange-Rate Changes William R
© The Chicago Mercantile Exchange, 1979 www.cmegroup.com Revaluation Versus Devaluation: A Study of Exchange-Rate Changes William R. Folks, Jr. and Stanley R. Stansell The purpose of this study is to determine whether the technique of linear discriminant analysis can assist in exchange-risk management. Specifically, a discriminant function, using readily available or estimable macro- economic values is developed which will classify countries into two dis tinct groups: 1) countries whose currency value (relative to the value of the dollar) will decrease by 5 percent or more over a two-year period, and 2) countries whose currency value will not show such a decrease. The authors believe that such a discriminant function, if reasonably ac curate, is valuable in corporate exchange-risk management. Under normal operating conditions, U.S.-based corporations with direct investments overseas generally have an excess of assets over liabilities that are ex posed to the risk of currency changes. Thus, a reduction in foreign-cur rency values causes, at least for accounting purposes, a loss in the value of exposed assets. Numerous strategies for adjusting the exchange-risk posture of the firm exist but require some warning for effective use. Some projection of the extent of currency-rate change is also required to pre vent adoption of exchange-adjustment strategies which may prove more costly than the losses they were designed to prevent. The authors hope that the discriminant function developed below will provide an early warning of impending downward exchange-rate changes. Armed with this warning, corroborated possibly by local sources, non- statistically based projections, and other information, the exchange- risk manager can then provide closer surveillance of the currency under suspicion, take long-range steps to adjust the exchange-risk posture of the firm, and develop contingency plans for short-term measures should the decrease in currency value become imminent.