Oanda corporation Revision 5

Product Delivered and Sale Completed – January 18 

On January 18 US Gadget sells its product to the Canadian customer for $250,000, and continues with 

the forex hedge on the online forex platform until the Canadian dollars have been collected. Assume 

the US dollar continues to strengthen to a current exchange rate of USD/CAD = 1.0413/1.0416. 

 

Account 

 

Date 

Foreign Currency 

CAD – Debit (Credit) 

Reporting Currency 

US Dollar – Debit (Credit) 

Accounts receivable 

Jan 18 

250,000.00 

240,015.36 

Sale 

Jan 18 

(250,000.00) 

(240,015.36) 

Record the sale on the books 

forex hedge (balance sheet) 

Jan 18 

 

1,357.21 

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Forex Hedge Accounting Treatment  

OANDA’s FXConsulting 

 

for Corporations

   

27 

 

Other comprehensive income 

(balance sheet – equity section) 

Jan 18 

 

(1,357.21) 

Record the gain in value of the forex hedge: (1.0413 – 1.0355) 

Calculate the change in the Canadian dollar: ((1.0413 – 1.0355)*243,736= $1,413.67 CDN 

Convert the Canadian dollar gain to USD: 1,413.67 /1.0416 = $1,357.21 USD 

Interest expense 

Feb 10 

 

39.74 

Cash (USD) 

Feb 10 

 

(39.74) 

Record the interest differential of the spot trade on the retail forex platform for 18 days. 

CAD interest paid (sold currency): 18/365*4.55%*(250,000.02) = $(560.96) CAD 

Convert the CAD interest paid to USD: (560.96) /1.0416= $(538.56) USD 

USD interest sold (purchased currency) = 18/365*4.15%*(243,735.99) = $498.82 USD 

Net interest expense 498.82 – 538.56 = $39.74 

Other comprehensive income 

(balance sheet – equity section) 

Jan 18 

 

3,652.68 

Income statement 

Jan 18 

 

(3,652.68) 

Reclassify the other comprehensive income amount on the balance sheet to the income statement 

when the sale has been completed. Previous transactions were: 

Sep 30:  $3,446.14 

Dec 31:  (5,741.61) 

Jan 18:   (1,357.21) 

Total:    (3,652.68) 

 

In the end, US Gadget was able to manage foreign exchange fluctuations using forex hedging with 

retail forex platform. Any losses in value of the sales contract were offset by gains in value of the forex 

hedge. In the end, US Gadget paid $420.23 (or 0.17% of the sales value) to manage foreign currency 

fluctuations over a period of 139 days. ($71.29+89.92+219.28+39.74) 

 

Notes: 

  This example simplified the interest differential. The actual interest amount is charged daily as 

opposed to the reporting period dates or transaction dates in the example.  

  The example assumes that US Gadget is able to convert CAD to USD at spot market rates, 

whereas the cost of the conversion would typically be higher. In addition to local banks, there 

are foreign currency international wire companies, which offer international funds transfers at 

close to interbank rates. It is assumed that US Gadget has sufficient margin dollars in their 

online forex platform account at all times to maintain the forex hedge at spot market rates. By 

regulation, online forex brokers must use margin accounts to guarantee financial security to 

their customers. Through the use of margin accounts, online forex brokers can offer greater 

transactional efficiency and avoid the cost of credit checks and ongoing monthly credit 

monitoring. Alternatively, if online forex brokers offered credit to their clients, then the cost of 

credit management and written-off accounts would be charged to all its customers through 

higher rates and set-up fees. 

  The example excludes the interest earned on the funds held at the online forex broker margin 

account. Ensure your online forex broker pays competitive interest on all outstanding margin 

balances. 

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