Exchange Rate Requirements

Transcription

1 C APPENDIX Foreign Currency Financial Reporting from Euro to Yen to Yuan: A Guide to Fundamental Concepts and Practical Applications By Robert Rowanc Copyright 2011 by SAS Institute, Inc. Exchange Rate Requirements Background : The following documentation comes from a company s financial reporting system implementation. The document is presented as is from an implementation to provide insight into what a simple requirement document might look like. The company receives daily spot exchange rate feeds from a data provider for over 80 currencies. The requirements specify: The types of exchange rates required How averages are to be calculated How constant currency will be defined and calculated How to populate best - estimate ( VIEW ) forecast exchange rates. How to calculated, populate, and adjust high and low exchange rate forecasts for currency scenario analysis Constant year is not addressed specifically since it simply uses the prior year s rate for the current year For the forecasted rates, including the high and low estimates of future rates, the document specifies the automated manner in which the system populates the application. No user intervention is required. If users desire a change to a forecasted rate, the method in this document can be followed, or the user can use the financial reporting application s user interface directly to make a rate change. 275

2 276 EXCHANGE RATE REQUIREMENTS DEFINITION OF ACTUAL RATES ACTUAL Exchange Rate Set ACTUAL For Actual exchange rates, the financial reporting system requires the following types of data at a month level; therefore, month equals period: Period average exchange rate Period closed exchange rate Period open exchange rate (defined as the previous month s period closed exchange rate) Month (period) average Use month - to - date average Rate would change each day and should be calculated as the daily figures from the daily spot rate table, averaged over the number of days that have elapsed that month Example : The exchange rate used for December 8, 20XX for Canada would be the daily exchange rates for CAD currency December 1, 20XX through December 8, 20XX added together and divided by 6. 01DECXX DECXX DECXX DECXX DECXX DECXX Month-to-date average on 08DECXX = sum of the above 6 = Using the current month - to - date average the rate would change each day and then be the actual month average at the end of any given month. The month - end average rate should be reconciled with the rate used in the financial reporting system tables at the end of each month.

3 EXCHANGE RATE REQUIREMENTS 277 DEFINITION OF CONSTANT CURRENCY RATES The previous definition of constant currency was the prior YTD average of the month averages. A concern was raised regarding the jump forward each year with regard to regions that have more volatile currency fluctuations. Consequently, there is a need to smooth out the effect, and the new definition will extend the base period to address this. The new constant currency definition is a rolling month average rate of the current month and the previous 23 months. The constant currency rate would roll forward one month every month. The plan is to discard the previous constant currency rates instead of versioning them. The current constant currency rate would apply to all time periods. For example, March 2011 constant currency rate would consist of the month average rates for April 2009 March April 2011 constant currency rate would consist of the month average rates for May 2009 April DEFINITION OF FORECAST RATES Exchange rate set naming conventions are as follows: JANVIEW, FEBVIEW, MARVIEW, etc., DECVIEW, where VIEW means forecast. DEFINITION OF VIEWS The views will be based on period average. Each view will start in January and will be + 15 from the current month ( + 15 allows for a full calendar year forecast starting as early as September). For example, the January 2010 view will include data for January 2010 through April The August 2010 view will include data for January 2010 through November For months prior to the current view, the actual period average rate will be used. For the current month and the + 15, the previous month s period average rate will be populated forward. Only the period average rate will be

4 278 EXCHANGE RATE REQUIREMENTS populated, under the assumption that a balance sheet budget/forecast will not be needed. This is a key assumption that needs to be confirmed, especially if plans are to forecast a balance sheet and cash flow statement in the future. An example, based on description above: September View JAN X1 FEB X1 MAR X1 APR X1 MAY X1 JUN X1 JUL X1 AUG X1 SEP X1 OCT X1 NOV X1 DEC X1 JAN X2 FEB X2 MAR X2 APR X2 MAY X2 JUN X2 JUL X2 AUG X2 SEP X2 OCT X2 NOV X2 DEC X2

5 EXCHANGE RATE REQUIREMENTS 279 DEFINITION OF HIGH ( USH ) AND LOW ( USL ) RATES Exchange Rate Sets: HIGH, LOW Requires two source tables, one for each exchange rate set, similar to how constant currency and constant year are stored. DEFINITION OF RATES IN THE TABLES The data will use only the period average rate type. Each set will start in January and will be + 15 from the current month ( + 15 allows for a full calendar year forecast starting as early as September). If the current month is May 2010, the set will have the actual period average rate for JAN2010 through MAY2010, plus the forecasted rate (referred to here as FR, and defined below) for JUN2010 through AUG2011. To calculate the forecasted rate for each forecast month, start with the most recent ACTUAL period average rate. In the preceding example, start with MAY2010. The forecast rates are percent increases or decreases from that starting rate. For example, if the rate from EUR to USD for MAY2010 is 1.25, and the desired high forecast rate for JUN2008 is percent, the EUR - to - USH rate would be 1.25 ( ) = Note that inputs to the cross rate table are expressed in base - currency/unit in this example, USH/EUR. Each subsequent month uses the previous month s value percentage change. For JUL2010, if the desired change is 0.25 percent, the EUR to USH rate would be the JUN2010 rate of (1 + ( )) = = Up to 16 significant digits should be maintained in the mantissa. The monthly percentage changes are to be maintained in a source file. The source file does not require month to be specified, as the last ACTUAL month serves as the starting month for the calculation. The forecast default values would be expressed as 15 values, one for each future period. For example, Default, 0.005, , 0, 0, 0, , , , , , , , , ,

6 280 EXCHANGE RATE REQUIREMENTS These default values apply to all currencies unless otherwise specified in the source file. If the user desires a forecast specifically for a single currency, perhaps because the GBP is moving in a different direction, then a second record (and n more as desired) can be inserted in the source file, specifying the default override values. For example, Default, 0.005, , 0, 0, 0, , , , , , , , , , GBP, 0.005, 0.005, 0.005, 0.005, 0.001, 0.001, 0.001, 0.001, 0.001, 0.001, 0.001, 0.001, 0.001, 0.001, The source file could be updated at any time by a Finance user, and a Finance user could run a stored process from the portal to update the table values and then load the updated exchange rates via FM Studio. If the Finance user does not update the source, the same trend is rolled forward to the next start month. For the HIGH rate set, the TO currency (i.e., base currency) is USH. For the LOW rate set, the TO currency is USL. The actual period average rate can be taken from the actual exchange rate table s period average value for the same time period. Just change the TO currency from USD to USH or USL as appropriate. Only the period average rate will be populated, under the assumption that a balance sheet budget/forecast will not be needed. Two new dimension members will be added to the currency dimension: USH and USL. They will have no rate in other exchange rate sets, but will be the base currencies of their respective exchange rate sets. Those exchange rate sets then will be the n + 1 ordinal and n + 2 ordinal look - through sets in the exchange rate look - through table. Here is an example, based on the foregoing description:

7 EXCHANGE RATE REQUIREMENTS 281 HIGH JAN X1 FEB X1 MAR X1 APR X1 MAY X1 JUN X1 JUL X1 AUG X1 SEP X1 OCT X1 NOV X1 DEC X1 JAN X2 FEB X2 MAR X2 APR X2 MAY X2 JUN X2 JUL X2 AUG X2