FOREIGN EXCHANGE (DOC) by coverbad

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									FOREIGN EXCHANGE

 FOREIGN EXCHANGE PRODUCTS
A. U.S. $ = United States Dollar
2. EUR = Euro European Union
3. GBP = Great Britain Pound
4. JPY = Japanese Yen
5. Franc CHF = Confederatio Helvetica (Swiss francs)
6. AUD = Australian Dollar

UNDERSTANDING FOREIGN EXCHANGE
According to Eng, Lees and Mauer (1995:84), the definition of foreign currency (foreign exchange) is: "Any asset
or financial claims denominated in a foreign currency."
Meanwhile, according to FASB 52, foreign exchange can be defined as: "Acurrency other than an entity's
functional currency" basically the definition above is the same, which can be concluded that foreign exchange is
the exchange of the currency of a country against other countries.
Comparison of values between a country's currency against another state leads to a value, called the foreign
exchange rate (foreign exchange).
Understanding of foreign exchange rate according to Eng, Lees and Mauer (1995:99) is, "The price of foreign
currency Measured in domestic money". Another sense of the foreign exchange rate by Floyd A. Beam is,
"Foreign exchange rates are essentially prices for currencies expressed in units of other currencies". (Floyd A.
Beam 2003:390)
From the definition above can be concluded that foreign exchange is the exchange value of the currency of one
country against another country. In foreign exchange transactions, there are several common forms of
transactions. Floyd A. Beam argues that: "There are three forms of foreign exchange trading: outright spot
(delivery now), outright forward (delivery in the future), and swaps." (Floyd A.Beam 2000:490) From the
statement can be deduced that There are three main forms of transactions, namely:
a. Spot exchange, in which the transaction occurs with the release on the value date, usually two business days
after the transaction occurred.
b. Foreign exchange, a transaction that occurred with the release at a particular moment in time to come.
c. Swap, which is the purchase and sale transactions simultaneously (continuous) on the due date is different.

Foreign Currency Exchange Rate System
At each state there is a system of foreign exchange rates are determined by the policy adopted by the
governments of each country.
According to Floyd A. Beam: "... Consider exchange rate behavior under three different Kinds of exchange
systems: floating, fixed, and controlled." (Floyd A. Beam 2003:390-391)
Opinion on the claim that there are three systems of foreign exchange rates used by a country, namely:
a. Free exchange rate system, in this system there is no government intervention to stabilize the exchange
rate. Exchange rate is determined by demand and supply of foreign exchange.
b. Fixed exchange rate system, in this system of government or central bank concerned to actively intervene in
the foreign exchange market by buying or selling foreign currency if its value deviates from a predetermined
standard.
c. Exchange rate system is controlled / uncontrolled, in this system of government or central bank of the country
concerned has the exclusive authority in determining the allocation of the use of available foreign
exchange. Citizens are not free to intervene in foreign exchange transactions. Capital inflows and exports of
goods led to the availability of foreign exchange.

Transactions in Foreign Currency
By SAK (1999:10.2), a transaction in foreign currency is: "A transaction is denominated or requires settlement in
a foreign currency."
Meanwhile, according to Frederick, foreign currency transactions (foreign exchange) is: "Whose terms are Stated
Transactions in a currency other than the entity's functional currency." (Frederick 2002:210)
Thus, foreign currency transactions are transactions that occur in different currencies, and also requires the
completion of the different currencies. Financial Accounting Standards classify transactions that are included in
the
foreign currency transactions. According to the Financial Accounting Standards: "foreign currency transactions,
including transactions arising when an entity:
a. Buy or sell goods or services whose price is denominated in a foreign currency.
b. Borrowed (debt) or lending (receivables) denominated funds in a foreign currency.
c. Become a party to an agreement in foreign currency that has not happened, or
d. Acquire or release of assets, raises or pay off liabilities, denominated in a foreign currency. "(Financial
Accounting Standards 1999:10.2)

Types of Foreign Exchange Currency Value Change
Changes in the value of foreign exchange rates generally in the form:
A. Appreciation or depreciation
Increase or decrease the value of a country's currency against foreign currency exposure is fully dependent on
market forces (demand and supply of foreign exchange) both domestically and abroad.
2. Devaluation or revaluation
Increase or decrease the value of a country's currency against foreign currency is influenced by government
policy.
The fall in the value of a country's currency against foreign currencies that occurred daily (depreciation) actually
has a definition as devaluations, but because these changes are very small, it is not perceived as a
devaluation. Which is considered a devaluation is a decrease in the value of a country's currency against foreign
currencies declared officially by the government, carried out suddenly, and there is a large foreign exchange
differences between the before and after the devaluation. This applies also to the appreciation and revaluation.

Basic Use of Currency in the Translation of Foreign Currency Transactions
Understanding of foreign exchange by the Financial Accounting Standards (1999:10.1) is: "The difference
resulting from reporting the number of units of the same foreign currency in the reporting currency at different
exchange rates."
Thus, foreign exchange arising from foreign exchange transactions (foreign exchange contract) should be
reported in the rupiah currency.
Recognition of exchange difference determined under GAAP as follows:
"... If there are changes in the exchange rate between the transaction date and settlement date (settlement date)
monetary item arising from transactions in foreign currencies. When the onset and completion of a transaction is
in the same accounting period, then the exchange difference is recognized in the period. However, if the onset
and completion of a transaction is in some of the accounting period, then the foreign exchange should be
recognized for each accounting period to take into account changes in exchange rates for each period.
"(Financial Accounting Standards 1999:10.3)
From the above it can be concluded that the settlement in a foreign currency transaction should be done in the
accounting period in question and also need to take into account the foreign exchange differences arising from
the transaction. Foreign exchange transactions recorded on the date of the transaction and the exchange rate at
balance sheet date, the balance of assets and liabilities denominated in foreign currency must be translated at
the exchange rate at balance sheet date, and foreign exchange differences arising from the calculation of income
are accommodated in the corresponding business period. While foreign exchange transactions that occur when
as a result of the devaluation or revaluation can be either charged or credited directly in the current period or
deferred and amortized over several periods.
FOREIGN EXCHANGE MARKET ACTORS / FOREX
A. Central Bank of each country
2. Commercial Bank
3. Bank Foreign Exchange
4. Investment Institutions
5. Non-Bank Financial Institutions
6. Exporters and Importers




TIME TRADE
State Summer Winter
Open Close Open Close
Australia 05.30 12.30 05.30 12.30
Chicago 21.30 05.30 20.30 04.30
Frankfurt 14.00 22.00 14.00 22.00
Hong Kong 07.45 15.30 07.45 15.30
London 14.30 23.30 14.30 23.30
New York 20.30 04.00 19.30 03.00
New Zealand 04.30 12.00 04.30 12.00
Tokyo 07.00 14.25 07.00 14.25

FOREIGN EXCHANGE MARKET FACTOR DRIVE
The main factors affecting the exchange rate a country's balance of trade, economic conditions, political factors
and the implications caused by the analysis results graphically and psychologically market. The ebb and flow of
capital flows between countries, known as Purchasing Power Parity (PPP) is the main factor that determines
market momentum.Fundamental economic powers such as inflation and interest rates are examples of two
factors that affect currency prices. This is done in two ways: controls and intervention.
Control, limiting citizens to do something that has a negative effect on the exchange rate (such as sending money
to other countries). Interventions to change the interest rate to make it less attractive to foreigners, or buying /
selling the currency to raise / lower the market value.
If economic conditions change, it will cause a dramatic change to the value of a country's currency. This suggests
that the basic concepts of currency movements is to anticipate an economic condition.
Exchange rate movements also influenced by the results of technical analysis / graphics made by the financial
manager / investment manager. In this case the behavior of the market becomes more technical and the reaction
of the manager is often similar and predictable.

TERMS & CONDITIONS OF FOREIGN EXCHANGE TRADING
A. Trading Hours: Monday 06:30 - 4:30 Saturday morning (winter) and 3:30
 (Summer)
2. Month of Contract: SPOT
3. Final Trading Day: No Limit
4. Contract Retail: U.S. $ 100,000
5. Warranty Fund / Lot: U.S. $ 1,000
6. Commission / Lot: U.S. $ 50
7. Minimum Spread: 8 points
8. Maximum Lot / DQ: 30 Lot
9. Rate GBP: £ 6000, 8000, 10,000 and a floating exchange rate
 (Floating Rate)

PROFIT & LOSS calculation FOREIGN EXCHANGE
(Selling Price - Buying Price) x Lot x value Σ - (Σ x commission Lot)
Description:
• Lot: The large volume of transactions
• Value: The value per point are different from each currency
 • EURO = 10 USD / Lot
 • GBP = 10 USD / Lot
 • AUD = $ 10 / Lot
 • JPY = $ 9.5 / Lot (Indirect Currency)
 • CHF = $ 8.5 / Lot (Indirect Currency)



ILLUSTRATION PROFIT
Examples of EURO currency trading transactions.
On 3 Jan 2005, the FOMC (Federal Open Market Committee) announced that interest rates in the United States
will be increased from 2.25% to 3.5% in 2005. This was done in order to reduce the rate of inflation caused by too
rapid economic growth.
On January 3, 2005, the euro value of 1.3580 against U.S. $. It means to buy one Euro is required of U.S. $
1.3580.
After the FOMC announced it would raise interest rates to 3.5%, the market responded positively to the news,
causing strengthening of U.S. $ against the Euro. This news caused the euro to move down from 1.3580 to
1.3380 (euro fell 200 points).
How to do a transaction on the above information?
Based on the above information and supported by technical analysis it was decided to enter the market by taking
a position SELL (Sell) Euro for 1 lot at 1.3530 at 14:00 pm.Later that day continues to experience weaker Euro to
1.3450 at 17:00 pm, it was decided to liquidate / close a position (out of the market) to take a position BUY (Buy
Liquid) as much as 1 lot at 1.3480. How the benefits?
The calculation formula Profit / Loss
(Sell-Buy) x Value / Lot Total points x - (x Commission Lot)
= (1.3530-1.3480) x $ 10 x 1 lot - ($ 50 x 1 lot)
= 50 points x $ 10 x 1 lot - $ 50
= $ 450

Rupiah exchange rate against U.S. $ (USD) = USD. 9300, -
Profit on the transaction date of January 3, 2005 is $ 450 or equivalent to Rp. 4.185 million, -
ILLUSTRATION LOSS
How to calculate the loss?
In the event of an error in the analysis of the example above, which was decided by investors and traders to enter
the market by taking the starting position BUY (BUY OPEN) Euro for 1 lot at 1.3530 at 14:00 pm with a plan of
the transaction are: profit target at 1.3580 and the price loss at 1.3500 target price.
Euro continues to weaken and was up to 1.3480 level. Transactions in accordance with the plan, then do the
action out of the market and stop the transaction, by taking a closed position Selling (SELL LIQUID) Euro for 1 lot
at 1.3500. How Loss / Loss happened?
The calculation formula Profit / Loss
(Sell-Buy) x Value / Lot Total points x - (x Commission Lot)
= (1.3530-1.3530) x $ 10 x 1 lot - ($ 50 x 1 lot)
= -30 Points x $ 10 x 1 lot - $ 50
= - $ 350

Rupiah exchange rate against U.S. $ (USD) = USD. 9300, -
Transaction loss on January 2, 2005 is $ 350 or equivalent to Rp. 3.255 million, -
ADVANTAGES OF FOREX TRANSACTIONS
• When trade 24 hours a day.
• Two-Way Opportunity, can take long positions (open-Buy) at the time of rising prices and short positions (open
Sell) when the price drops.
• Fluctuation, transactions can be done several times a day because of the large fluctuations in the market.
• Liquid, the position taken in the market may be closed (liquidated) at any time in accordance with the wishes of
investors.
• Margin Trading, the initial capital deposited is not large when compared to other businesses.
• Risks can be minimized by using risk management.
________________________________________




FOREIGN EXCHANGE PRODUCTS

A. U.S. $ = United States Dollar
2. EUR = Euro European Union
3. GBP = Great Britain Pound
4. JPY = Japanese Yen
5. Franc CHF = Confederatio Helvetica (Swiss francs)
6. AUD = Australian Dollar

UNDERSTANDING FOREIGN EXCHANGE
Forex (Foreign Exchange) or the foreign currency market is the world's largest derivative market. This trade
began in 1971 under the Bretton Woods agreement that establishes a change of the currency of a country's fixed
exchange rate to a floating exchange rate whose value is determined by the market.

A simple definition of forex is the change in the value of one currency to another currency.The amount of the
foreign exchange market transactions based on a survey conducted by the Bank of International Settlements
(BIS) is U.S. $ 80 million per day in 1980 and currently increased to U.S. $ 1.5 trillion per day, of which more than
50% of the amount transacted in the market of London.
FOREIGN EXCHANGE MARKET ACTORS / FOREX
A. Central Bank of each country
2. Commercial Bank
3. Bank Foreign Exchange
4. Investment Institutions
5. Non-Bank Financial Institutions
6. Exporters and Importers

TIME TRADE
State Summer Winter
Open Close Open Close
Australia 05.30 12.30 05.30 12.30
Chicago 21.30 05.30 20.30 04.30
Frankfurt 14.00 22.00 14.00 22.00
Hong Kong 07.45 15.30 07.45 15.30
London 14.30 23.30 14.30 23.30
New York 20.30 04.00 19.30 03.00
New Zealand 04.30 12.00 04.30 12.00
Tokyo 07.00 14.25 07.00 14.25

FOREIGN EXCHANGE MARKET FACTOR DRIVE
The main factors affecting the exchange rate a country's balance of trade, economic conditions, political factors
and the implications caused by the analysis results graphically and psychologically market. The ebb and flow of
capital flows between countries, known as Purchasing Power Parity (PPP) is the main factor that determines
market momentum.Fundamental economic powers such as inflation and interest rates are examples of two
factors that affect currency prices. This is done in two ways: controls and intervention.
Control, limiting citizens to do something that has a negative effect on the exchange rate (such as sending money
to other countries). Interventions to change the interest rate to make it less attractive to foreigners, or buying /
selling the currency to raise / lower the market value.
If economic conditions change, it will cause a dramatic change to the value of a country's currency. This suggests
that the basic concepts of currency movements is to anticipate an economic condition.
Exchange rate movements also influenced by the results of technical analysis / graphics made by the financial
manager / investment manager. In this case the behavior of the market becomes more technical and the reaction
of the manager is often similar and predictable.
TERMS & CONDITIONS OF FOREIGN EXCHANGE TRADING
A. Trading Hours: Monday 06:30 - 4:30 Saturday morning (winter) and 3:30
 (Summer)
2. Month of Contract: SPOT
3. Final Trading Day: No Limit
4. Contract Retail: U.S. $ 100,000
5. Warranty Fund / Lot: U.S. $ 1,000
6. Commission / Lot: U.S. $ 50
7. Minimum Spread: 8 points
8. Maximum Lot / DQ: 30 Lot
9. Rate GBP: £ 6000, 8000, 10,000 and a floating exchange rate
 (Floating Rate)

PROFIT & LOSS calculation FOREIGN EXCHANGE
(Selling Price - Buying Price) x Lot x value Σ - (Σ x commission Lot)
Description:
• Lot: The large volume of transactions
• Value: The value per point are different from each currency
 • EURO = 10 USD / Lot
 • GBP = 10 USD / Lot
 • AUD = $ 10 / Lot
 • JPY = $ 9.5 / Lot (Indirect Currency)
 • CHF = $ 8.5 / Lot (Indirect Currency)

ILLUSTRATION PROFIT
Examples of EURO currency trading transactions.
On 3 Jan 2005, the FOMC (Federal Open Market Committee) announced that interest rates in the United States
will be increased from 2.25% to 3.5% in 2005. This was done in order to reduce the rate of inflation caused by too
rapid economic growth.
On January 3, 2005, the euro value of 1.3580 against U.S. $. It means to buy one Euro is required of U.S. $
1.3580.
After the FOMC announced it would raise interest rates to 3.5%, the market responded positively to the news,
causing strengthening of U.S. $ against the Euro. This news caused the euro to move down from 1.3580 to
1.3380 (euro fell 200 points).
How to do a transaction on the above information?
Based on the above information and supported by technical analysis it was decided to enter the market by taking
a position SELL (Sell) Euro for 1 lot at 1.3530 at 14:00 pm.Later that day continues to experience weaker Euro to
1.3450 at 17:00 pm, it was decided to liquidate / close a position (out of the market) to take a position BUY (Buy
Liquid) as much as 1 lot at 1.3480. How the benefits?
The calculation formula Profit / Loss
(Sell-Buy) x Value / Lot Total points x - (x Commission Lot)
= (1.3530-1.3480) x $ 10 x 1 lot - ($ 50 x 1 lot)
= 50 points x $ 10 x 1 lot - $ 50
= $ 450

Rupiah exchange rate against U.S. $ (USD) = USD. 9300, -
Profit on the transaction date of January 3, 2005 is $ 450 or equivalent to Rp. 4.185 million, -
ILLUSTRATION LOSS
How to calculate the loss?
In the event of an error in the analysis of the example above, which was decided by investors and traders to enter
the market by taking the starting position BUY (BUY OPEN) Euro for 1 lot at 1.3530 at 14:00 pm with a plan of
the transaction are: profit target at 1.3580 and the price loss at 1.3500 target price.
Euro continues to weaken and was up to 1.3480 level. Transactions in accordance with the plan, then do the
action out of the market and stop the transaction, by taking a closed position Selling (SELL LIQUID) Euro for 1 lot
at 1.3500. How Loss / Loss happened?
The calculation formula Profit / Loss
(Sell-Buy) x Value / Lot Total points x - (x Commission Lot)
= (1.3530-1.3530) x $ 10 x 1 lot - ($ 50 x 1 lot)
= -30 Points x $ 10 x 1 lot - $ 50
= - $ 350

Rupiah exchange rate against U.S. $ (USD) = USD. 9300, -
Transaction loss on January 2, 2005 is $ 350 or equivalent to Rp. 3.255 million, -
ADVANTAGES OF FOREX TRANSACTIONS
• When trade 24 hours a day.
• Two-Way Opportunity, can take long positions (open-Buy) at the time of rising prices and short positions (open
Sell) when the price drops.
• Fluctuation, transactions can be done several times a day because of the large fluctuations in the market.
• Liquid, the position taken in the market may be closed (liquidated) at any time in accordance with the wishes of
investors.
• Margin Trading, the initial capital deposited is not large when compared to other businesses.
• Risks can be minimized by using risk management.
________________________________________

Information Foreign Exchange Rates against Rupiah

 Currency Buying Rate Selling Rate
AUD 7848.15 7685.15
8935.95 8745.95 CAD
CHF 8043.80 7891.80
CNY 1355.85 1331.65
DKK 1529.75 1488.95
EUR 1315.30 11105.30
GBP 13600.60 13324.60
HKD 1188.15 1166.85
JPY 100.19 97.69
NZD 6370.60 6212.60
SAR 2476.00 2417.00
SEK 1193.90 1164.60
SGD 6609.85 6479.85
USD 9250.00 9100.00

								
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