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When you use the two-step valuation methods, you determine the write-up/write-down amounts in two separate stages according to the security price and the exchange rate.

The valuation method you use determines the order in which you calculate the write-up/write-down amounts: on the basis of changes in the security price and then the exchange rate, or vice versa.

You can use the following valuation methods:

Process Flow

  1. Valuation method 2: Step 1 - security price, step 2 - exchange rate
    1. You determine the book values, acquisition values and key date values in position currency and local currency on the key date.
    2. Compare the amounts in position currency and choose the new book value in position currency. You make this decision on the basis of the write-up/write-down rules defined in the valuation principle.
    3. Calculate the security write-up or write-down in position currency:

      4. New book value in position currency - old book value in position currency = security write-up/write-down in position currency.

    4. Translate the security write-up/write-down to position currency using the old book exchange rate.
    5. Translate the new book value (in position currency) to local currency using the following three exchange rates:
      1. Acquisition exchange rate
      2. Book exchange rate
      3. Current exchange rate
    6. Compare the three values and choose the new book value in local currency according to the write-up/write-down rules defined in the valuation principle.
    7. Calculate the foreign currency write-up/write-down in local currency:

New book value in local currency - (new book value in position currency * old book exchange rate = foreign currency write-up/write-down in local currency.
  1. Valuation method 3: Step 1 - exchange rate, step 2 - security price
    1. You determine the book values, acquisition values and key date values in position currency and local currency on the key date.
    2. Translate the book value (in position currency) in local currency using the following three exchange rates:
      1. Acquisition exchange rate
      2. Book exchange rate
      3. Current exchange rate
    3. Compare the three values and choose one of them according to the write-up/write-down rules defined in the valuation principle.
    4. Calculate the foreign currency write-up or write-down in local currency:

      5. The difference between the chosen value and the old book value in local currency gives you the foreign currency write-up/write-down in local currency.

    5. Compare the book values, acquisition values and key date values in position currency and choose the new book value in position currency. You do this on the basis of the write-up/write-down rules defined in the valuation principle.
    6. Calculate the security write-up/write-down amount in position currency:

      7. New book value in position currency - old book value in position currency = security write-up/write-down in position currency.

    7. Translate the security write-up/write-down to position currency using the new book exchange rate in local currency to calculate the security write-up/write-down amount in local currency.
    8. You calculate the new book value in local currency by adding together the old book value in local currency, the foreign currency write-up/write-down in local currency and the security write-up/write-down in local currency.

Technical description: Two-Step Valuation Methods (Technical)

Example

Two-step valuation of a USD bond

Transaction basic data ( = purchase of USD bond)

Position value date: 01/01

Nominal amount: 1,000,000 USD

Security price: 110 %

Exchange rate: 2.00 DEM/USD

Prices/rates on key date of valuation (02/01)

Security price: 100 %

Exchange rate: 1.50 DEM/USD

Valuation class 1
  • Valuation method 2:

    Step 1 - security price
    Step 2 - exchange rate
  • Strict lowest value principle

Valuation class 2
  • Valuation method 3:

    Step 1 - exchange rate
    Step 2 - security price
  • Strict lowest value principle

Valuation results:

A) Valuation class 1

Security write-down amount in USD

100,000 USD

Write-down amounts in DEM:

  

Security write-down

200,000 DEM

Foreign currency write-down

500,000 DEM

Total write-down amount in DEM:

700,000 DEM

B) Valuation class 2

Security write-down amount in USD

100,000 USD

Write-down amounts in DEM:

Security write-down

150,000 DEM

Foreign currency write-down

550,000 DEM

Total write-down amount in DEM:

700,000 DEM

Graphical presentation:

This graphic is explained in the accompanying text

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