One-Step Valuation Sequence

On the key date of the valuation you determine the book values, acquisition values and current values in position currency and local currency.

You compare the amounts in local currency to determine which of the three values will become the new book value (in local currency). You make this decision on the basis of the write-up/write-down rules defined in the one-step valuation principle.

You calculate the security write-up or write-down in position currency.

You multiply the security write-up or write-down by the old exchange rate (book rate) to determine the security write-up or write-down amount in local currency.

You determine the write-up/write-down amount caused by changes in the exchange rate:

a. The total write-up/write-down amount in local currency is given by subtracting the old book value in local currency from the new book value in local currency.

b. The write-up/write-down in the foreign currency (on the basis of changes in the exchange rate) is given by subtracting the security write-up/write-down in local currency from the total security write-up/write-down in local currency.

Summary

Notation

BV	Book value
OBV	Old book value
NBV	New book value
AV	Acquisition value
KDV=	Key date value
LC =	Local currency
PC =	Position currency
SP =	Security price
ER =	Exchange rate
OER =	Old exchange rate
NER =	New exchange rate
Comparison =	Selection of the new book value according to the write-up/write-down rules

Valuation process:

Determine the BV, AV and KDV in local currency and in position currency on the key date.

Comparethe amounts in LC. This results in the following:

→NBV (LC)

→NSP

→NER

Calculate the Security write-down amount.

NBV (PC) (=NBV(LC) x NER)

- OBV (PC)

= Security write-down (PC)

Security write-down (PC) x OER = Security write-down (LC)

Calculate the total write-down amount

NBV

- OBV

= total write-down (LC)

Calculate the foreign exchange write-down amount

Total write-down (LC)

- Security write-down in LC

= Foreign currency write-down