Oanda corporation Revision 5

Forex Hedge Accounting Treatment  

OANDA’s FXConsulting 

 

for Corporations

   

26 

 

expenses for the period (the interest differential of the forex hedge). The amount of the interest 

differential depends on the interest rates of each currency in the pair. 

 

December 31 - Reporting Period 

Assume the USD has increased in value over the last quarter (92 days), and by December 31 the 

USD/CAD exchange rate is 1.0355/1.0358. You need to record the changes in fair value of the forex 

hedge. 

 

Account 

 

Date 

Foreign Currency 

CAD– Debit (Credit) 

Reporting Currency 

US Dollar – Debit (Credit) 

Forex hedge (balance sheet) 

Sep 30 

 

5,741.61 

Other comprehensive income 

(balance sheet – equity section) 

Sep 30 

 

(5,741.61) 

Record the gain in value of the forex hedge (1.0355 – 1.0111). 

Calculate the change in the Canadian dollar: ((1.0355 – 1.0111)*243,736= $5,947.16 CDN 

Convert the Canadian dollar gain to USD: 5,947.16 /1.0358 = $5,741.61 USD 

Note: Use the sell rate for the mark-to-market amount on the forex hedge as this is the rate used to 

close out the original forex hedge. 

Interest expense 

Sep 30 

 

219.28 

Cash (USD) 

Sep 30 

 

(219.28) 

Record the interest differential of the spot trade on the retail forex platform for 92 days. 

CAD interest paid (sold currency) = 92/365*4.55%*(250,000.02) = (2,867.12) CAD 

Convert the CAD interest to USD: (2,867.12) /1.0358= $(2,768.83) USD 

USD interest received (purchased currency): 92/365*4.15%*243,735.99 = $2,549.55 USD 

Net interest expense: 2,549.55 – 2,768.83 = $219.28 

 

In this example, US Gadget has no foreign currency gain or loss on its income statement. Although the 

value of the future sale to the CAD customer has decreased, this was offset by the gain in value of the 

forex hedge, which is recorded as ―other comprehensive income‖ on the financial statements. US 

Gadget has effectively managed the risk of currency fluctuations and would record $219.28 in interest 

expense for the period (the interest differential of the forex hedge). The amount of the interest 

differential depends on the interest rates of each currency in the pair.