Transactions of Islamic banks : forex transaction accounting in Islamic banks

السؤال

[Question One] : In a spot FX transaction on interbank currency exchange.. Do you take the spot exchange rate on trade date or value date ? For example, Money committed to exchange on 16 / 4 / 07 for USD100 @ rate of euro, 2 days later, i.e. 18 / 4 / 07, on value date, we receive the money. Qn : so to book the transaction, do i take the currency exchange date base on trade date on 16 / 4 / 07 or do I use the exchange rate base on 18 / 4 / 07 ? If the answer is on trade date, that means, my entry would be to book USD100 @ rate of Euro using 16 / 4 / 07's spot rate on 18 / 4 / 07 (value date). I was asked to comment whether AAOIFI FAS16 on foreign currency exchange in compliance with FRS21 of FX. on its treatment and recognition. I have reviewed a few different Islamic bank's foreign currency policies. So far not many follows IDB's way of keeping the exchange difference on balance sheet date to a foreign exchange reserve fund in equity or balance sheet account. Most of them would charge the gain or loss in exchange to income statement. That is referring to monetary assets and liability at balance sheet date. As for transaction, most practise recognition of spot FX on date of transaction. International financial reporting standards recommend that the exchange gain or loss to be charged to profit and loss account. There should not be any foreign exchange reserve fund in balance sheet. (That's what my colleague told me when I told her that some banks use forex reserve fund to maintain exchange difference in equity account) Can you please enlighten me on the treatment. Best regards and thanks., [Question Two] : Thanks for your answer. According to common practice of the bank, the transaction is booked on trade date. Thereafter, on value date, this foreign currency will be reversed on value date and settlement of FX contract at the same time. As for reporting to MAS regulators, the transaction is reported base on trade date. Base on your answer, when we say spot prevailing rate, does it mean that we have to take the exchange rate base on trade date? 2 days later (T+2), when settlement of foreign currency, we still use the same rate as trade date but there will be an exchange difference as 2 days later rate may fluctuate and change. Therefore, derive an exchange gain or loss. Or if the currency is in Euro, do we book it as Euro but exchange rate kick in only on value date ? However, if the recording currency is in USD, then we still need to translate the Euro to USD during reporting ? end result would be an exchange difference again. Can you explain "one SDR of the IMF" ? Has it to do with Saudi money and international monetary fund ? then how IMF define SDR? Thanks and best regards [Question Three] : Honestly, I am not too sure how the bank trade foreign currency. but from the journal entries for accounting base on foreign exchange contracts given to me, are as follows : On trade date, eg. 23 / 4 / 07 1) Dr FX bought, Cr forward exchange position and 2) Dr forward exchange position, Cr FX sold. On Value date, eg 25 / 4 / 07 A) Reverse entries passed on trade date : 1) Dr forward exchange position, Cr FX bought and 2)Dr FX sold, Cr forward exchange position ; B) Record settlement of FX contract 1) Dr Bank A / c, Cr exchange position and 2) Dr excchange position, Cr bank A / c Daily MTM on outstanding deals and/or outstanding position : -Accounting system will value outstanding deals and positions and recognize the FX gain / loss in USD. FX gain : Dr accrued exchange P ? L Cr exchange P / L FX loss: Dr exchange P / L Cr accrued exchange P / L. I've no work experience in bank nor how forex is done. It is very different from trading company's account. As this is dealing with money itself. Whereas in trading company, we purchase goods at a foreign currency and we convert base on invoice date's rate. Then when we settle payment we use the settlement date's exchange rate. This banking forex is very complicated for me. Therefore, I need your help to explain. If we say only spot FX is permissible, then my reasoning would be the forex should base on the trade date's exchange rate. I cannot rationalise the extra 2 days' entries as to why they have to record that way to reverse out the entry.

جواب الفتوى

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تاريخ النشر

2007-04-28

التخصصات الرئيسية

العلوم الاقتصادية والمالية وإدارة الأعمال
الدراسات الإسلامية

عدد الصفحات

4

نوع البيانات

فتاوى

لغة النص

الإنجليزية

رقم السجل

BIM-785021

• APA
• MLA
• AMA