Entering content frameBackground documentation Two-Step Valuation Methods (Technical)

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

OBER =

Old book exchange rate

NBER =

New book exchange rate

CER =

Current exchange rate

AER =

Acquisition exchange rate

Comparison =

Selection of new book value according to write-up/write-down rules

Steps involved in two-step valuations

A) Method 2: Security followed by foreign currency

  1. Determine the BV, AV and KDV in LC and in PC on the key date.
  2. Comparison 1: BV, AV and KDV in PC produce the following values:

    3. ® NBV (PC)

    ® NSP

  3. Calculate the security write-up/write-down amount:

    4. NBV (PC)

    - OBV (PC)

    SEC write-up/write-down (PC)

    SEC write-up/write-down (PC) x OBER = SEC write-up/down (LC)

  4. Translate the NBV (PC) using the OBER, the AER and the CER in LC.

    5. This gives you the following 3 amounts:

    - BV (LC, OBER)

    - BV (LC, AER)

    - BV (LC, CER)

  5. Comparison 2: Comparison of the 3 amounts results in the following:

    6. ® NBV (LC)

    ® NBER

  6. Calculate the foreign currency write-up/write-down amount

NBV (LC)

- NBV (LC, OBER)

= foreign currency write-up/write-down (LC)

B) Method 3: Foreign currency followed by security

  1. Determine the BV, AV and KDV in LC and in PC on the key date.
  2. Translate the BV (PC) using the OBER, the AER and the CER in LC.

    3. This gives you the following 3 amounts:

    - BV (LC, OBER)

    - BV (LC, AER)

    - BV (LC, CER)

  3. Comparison 1: Comparison of the 3 amounts gives you the following value:

    4. ® NBER

  4. Calculate the foreign currency write-up/write-down amount:

    5. Chosen amount (LC)

    - NBV (LC)

    = Foreign currency write-up/write-down (LC)

  5. Comparison 2: BV, AV and KDV in PC produce the following values:

    6. ® NBV (PC)

    ® NSP

  6. Calculate the security write-up/write-down amount:

    7. NBV (PC)

    - OBV (PC)

    SEC write-up/write-down (PC)

    SEC write-up/write-down (PC) x NBER = SEC write-up/down (LC)

  7. Calculate the NBV (LC):

OBV (LC)

+ Foreign currency write-up/write-down (LC)

+ SEC write-up/write-down (LC)


NBV (LC)

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