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Effects of currency changes Item General introduction

Description Quasi capital accounts and long term borrowed funds are lent in international currency. The simulation’s output then recalculates these into local currency, where all input and output, for the trainee as well as the trainer, is expressed in local currencies. The market information screen displays all rates for all international currencies under ‘simulation currency against international reference currency’. It is up to the trainer to edit these every / any quarter. To convert a trainee’s input from quasi-capital accounts and long term borrowed funds, in the decision input screen, to international currencies, this input has to be divided by the “Simulation currency against international reference currency”. This conversion is necessary, because rates may change in future quarters. For any portfolio- and interest calculations, all new funds will first be converted to international currency. For the simulation’s output, the total portfolio and interest is again recalculated back to local currency. Because rates may go up, there’s a risk loans will become more expensive. Benefit to the trainees when the rates go down, however; for loans then go for less. Any profit or loss due to rate changes is booked under ‘exchange differences: gain/(loss)’, under P&L, which follows the following formula: Gain / Loss = (previous quarter’s rates – current quarter’s rates) X Total portfolio funds at the start of the quarter (expressed in international currency) In the simulation, the rates under market information are the rates as they were at the end of the corresponding quarter. So, if in the 2nd quarter, the rates stand at 1,5, and in the 1st quarters they stood at 1,4, the rates are 1,4 at the start of the 2nd quarter, and 1,5 at the end of it.

1


Where?

Market information>(Main parameters>)Macro-economy>Simulation currency against international reference currency Financial statement>Profit and loss (P&L)> Gross financial margin > Exchange differences: gain / (loss)

Example

In this example, the total portfolio of long term borrowed funds with a maturity of 7 years is calculated. In table 1 an overview of the necessary data is given.

Total amount new contracts in local currency (input in Decision screen) One unit international currency expressed in local currency Total amount new contracts in international currency Quarterly interest rate Table 1: Overview data

2

Quarter 1 1000

Quarter 2 500

Quarter 3 1500

1,2

0,8

1,5

833,33

625

1000

2%

3%

4%


3

Calculation portfolio at the end of quarter 1: Total portfolio at the beginning of quarter 1: Total payback end of quarter 1: Total portfolio at the end of quarter 1: Total interest at the end of quarter 1:

833,33 29,76 803,57 16,67

Calculated back to local currency (to be displayed on P&L and balance) Total portfolio at the end of quarter 1: Total interest at the end of quarter 1:

964,29 20,00

Calculation portfolio at the end of quarter 2: Total portfolio at the end of quarter 1: Total amount of new contracts at the beginning of quarter 2: Total portfolio at the beginning of quarter 2: Payback from funds from quarter 1 Payback from funds from quarter 2 Total payback end of quarter 2: Total portfolio at the end of quarter 2: Interest from funds from quarter 1: Interest from funds from quarter 2: Total interest at the end of quarter 2:

803,57 625,00 1.428,57 29,76 22,32 52,08 1.376,49 19,40 15,00 34,40

Calculated back to local currency (to be displayed on P&L and balance) Total portfolio at the end of quarter 2: Total interest at the end of quarter 2: "Exchange differences: gain/(loss)"

1.101,19 27,52 571,43

Calculation portfolio at the end of quarter 3: Total portfolio at the end of quarter 2: Total amount of new contracts at the beginning of quarter 3: Total portfolio at the beginning of quarter 3: Payback from funds from quarter 1 Payback from funds from quarter 2 Payback from funds from quarter 3 Total payback end of quarter 3: Total portfolio at the end of quarter 3: Interest from funds from quarter 1: Interest from funds from quarter 2: Interest from funds from quarter 3: Total interest at the end of quarter 3:

1.376,49 1.000,00 2.376,49 29,76 22,32 35,71 87,80 2.288,69 18,81 14,33 60,00 93,14

Calculated back to local currency (to be displayed on P&L and balance) Total portfolio at the end of quarter 3: Total interest at the end of quarter 3: "Exchange differences: gain/(loss)"

3.433,04 139,71 -1.663,54


22 Effects of Currency Change