Matching using forward currency contracts

Where a company accounts for a derivative contract on an amortised cost basis, exchange gains or losses are defined by CTA09/S705 in terms of the profits or losses that arise when comparing the currency valuations placed on the derivative at two different times. There is no explicit requirement in the legislation that the same exchange rate should be used at both the earlier and the later time.

This means that exchange gains or losses on a forward currency contract will fall within the S705 definition regardless of whether they are computed on a ‘spot to spot’ or a ‘forward to spot’ basis.

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