Oanda corporation Revision 5

February 10 - Collect the receivable 

On February 10 US Gadget collects its accounts receivable and converts the euros to US dollars. With 

the euro receivable collected, US Gadget closes out the forex hedge on the retail forex trading platform. 

Assume the current exchange rate is EUR/USD = 1.4130/1.4131. 

 

 

Account 

 

Date 

Foreign Currency 

Euros – Debit (Credit) 

Reporting Currency 

US Dollar – Debit (Credit) 

Accounts receivable 

Feb 10 

 

1,090.00 

Gain on foreign exchange 

Feb 10 

 

(1,090.00) 

Record the gain in value of accounts receivable ((1.4130 - 1.4021) * 100,000) 

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Forex Hedge Accounting Treatment  

OANDA’s FXConsulting 

 

for Corporations

   

22 

 

forex hedge (balance sheet) 

Feb 10 

 

(1,090.00) 

Loss on foreign exchange 

Feb 10 

 

1,090.00 

Record the loss in the value of the forex hedge (1.4131 - 1.4022). 

Interest expense 

Feb 10 

 

6.24 

Cash (USD) 

Feb 10 

 

(6.24) 

Record the interest differential on the retail forex platform’s carry spot trade for 41 days. 

EUR interest paid (sold currency) = 41/365*4.35%*(100,000) = (488.63) 

Convert EUR interest to USD= (488.63) *1.4130= $(690.43) USD 

USD interest received (purchased currency) = 41/365*4.15%*(146,770) = $684.19 USD 

Net interest expense (684.19 – 690.43) = $(6.24) 

Accounts receivable 

Feb 10 

(100,000.00) 

(141,300.00) 

Cash (EUR) 

Feb 10 

100,000.00 

141,300.00 

Collect the accounts receivable: 100,000 euros at a EUR/USD rate of 1.4130 

(146,770.00 – 6,560.00 +1,090.00 = 141,300.00) 

Cash (EUR) 

Feb 10 

(100,000.00) 

(141,300.00) 

Cash (USD) 

Feb 10 

 

141,300.00 

 Convert euros to US dollars (assuming the same exchange rate) 

forex hedge (balance sheet) 

(-10.00+6,560.00-1,090.00) 

Feb 10 

 

(5,460.00) 

Cash USD 

Feb 10 

 

5,460.00 

Close out the forex hedge (1.4131 - 1.4677)  

 

In the end, US Gadget managed foreign exchange fluctuations through forex hedging. Any accounts 

receivable losses were offset by forex hedge gains. In total, US Gadget paid $16.60 (0.011% of the 

USD value) to cover off any foreign currency fluctuations. Alternatively, if they had not hedged, the 

loss on foreign exchange would have cost them $5,470 (-6,560.00+1,090.00), or 3.73% of the USD 

value. In fact, the actual loss might have been even higher due to unfavourable EUR/USD exchange 

rates charged by their local bank. 

 

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 euros to US dollars 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 broker 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 

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