Foreign Currency Valuation Accounting for Financial Services

Enable banks to manage their foreign currency exposures and comply with regulatory requirements through a comprehensive currency valuation process. It involves position accounting, which determines net exposure to market risks by moving the foreign currency exposure for revenue and expense accounts to the balance sheet, followed by revaluations that adjust account balances to their current fair market value. This feature is applicable to financial institutions and the French banking sector in particular that adhere to regulatory requirements from the Basel Committee on Banking Supervision (BCBS), European Central Bank (ECB) and European Banking Authority (EBA).

Use the Transfer Income Statement Account Balances to FX Position Accounts and Revalue process to manage foreign currency exposures.  It consists of two subprocesses: FX Transfer and FX Revaluation.

FX Transfer Process

According to regulatory requirement, revenues and expenses are reported exclusively in the ledger currency, and fluctuations in exchange rates are recorded in separate revaluation gain and loss accounts.  The FX Transfer process generates journal entries to move foreign currency balances in revenue and expense accounts to FX position related balance sheet accounts.  These balance sheet accounts are subsequently revalued using the FX Revaluation Process.

FX Revaluation Process

Periodic revaluation is performed for FX position related balance sheet accounts due to fluctuations in currency exchange rates, to ensure the account balances accurately reflect these changes.  Revaluation gains and losses are recorded for each foreign currency, with distinct gain and loss accounts allocated for each class of balance sheet account within each currency.

Business benefits include:

• Reduced Operational Costs: Streamline currency exchange and revaluation processes.
• Regulatory Compliance: Minimize risk of penalties and audits by complying with banking regulations.
• Data-Driven Decisions: Optimize investment strategies and pricing decisions with insights into currency fluctuations and exposures.

Steps to Enable

You don't need to do anything to enable this feature.

Key Resources

• Overview of Foreign Currency Valuation Accounting for Financial Services
• Set Up FX Transfer and FX Revaluation
• How Income Statement Account Balances Are Transferred to FX Position Accounts and Revalued
• Example of Income Statement Account Balance Transfer to FX Position Accounts and Revaluation

Access Requirements

No new privileges are required. Users with the Define Oracle Fusion General Ledger Revaluation (GL_SET_UP_GENERAL_LEDGER_CURRENCY_REVALUATION_PRIV) privilege and the Run Revalue Balances Program (GL_RUN_REVALUE_BALANCES_PROGRAM_PRIV) privilege can create the setup, define revaluations and generate them. These privileges are also assigned to the General Accounting Manager and General Accountant job role.