Assuming a client with two Accounts, one in DKK and another in EUR, and that the client's default/ Client Currency is DKK. The cash holding associated with the EUR account is, therefore, a foreign currency cash holding. When making an analysis of the aggregated accounts (the two Accounts combined), the values are presented in the Client Currency, which is DKK in this case.
Foreign currency cash holdings (the EUR Account) are affected by foreign exchange movements when valued in the Client Currency (DKK). This means that when converting the EUR Account to the Client Currency which is DKK, the foreign exchange rate movements affect the value of the EUR Account when converted to DKK. The value of the EUR Account could either decrease or increase in value when the exchange rate moves upwards or downwards. The cash balance currency movements include:
- Changes in the rate of exchange between client currency (DKK in this example) and the cash holding currency (EUR in this example)
- Adjustments associated with currency movements
For example, changes in the conversion of EUR/DKK will result in a currency movement. Thus a cash holding of EUR 50,000 will be affected by a EUR/DKK move from EUR 1 = DKK 7 to EUR 1 = DKK 6 (given the client currency is quoted in DKK).
Before the currency change, the EUR account quoted in DKK is =
After the currency change, the EUR account quoted in DKK is =
The cash balance currency movement on the cash holding is DKK 350 000 - DKK 300 000 = DKK 50 000. The total Cash Balance Currency Movements are calculated as:
The screenshot below shows the cash balance currency movements on an Account:
And using the figures above, the cash balance currency movements can be calculated as:
See how the cash balance currency movements affect the Account Value.