for the flow impact of currency change from 2007 to 2008 would it be 08 avg rate minus 07 avg rate or 08 avg rate minus 07 ending rate. i’ve seen differing explanations–schweser says the latter, CFAI says the former but i want to make sure we’re all on the same page.
For flow effect, it is Ending - Avg.
2 different things for balance sheet translation gain/loss its end-avg for income statement exchange effect/flow its avg-avg
miker2800 Wrote: ------------------------------------------------------- > 2 different things > for balance sheet translation gain/loss its > end-avg > > for income statement exchange effect/flow its > avg-avg Miker2800 thanks for bring that up with the income statements…i always seem to forget so for flow effects it is avg-avg…there would be no holding effects right? Does anything happen with the gain/loss?
gain/loss for temporal is on income statement and current is reported in S/E the operational and exchange/flow effect for the income statement is simply a measurement of effeciency…no gain/loss is reported -the flow effect is current IS number * (avg t- tvg t-1) -operational effect is change in IS * avg t-1
swapman, if you are talking about the q from the 2006 CFAi exam you take the 08 avg - 07 avg rate…BUT don’t forget to convert the currency… I cant remember the #'s but I think its: 4800 x 1.1 (1/1.1 - 1/.92)…something like that
Now wait just one minizzle. I thought the two equations were: Flow (Income Statement Effect): Change in exposure * (Ending rate - Average rate) Holding (Balance Sheet Effect): Beginning exposure * (Ending rate - Beginning rate) ???
kbakes Wrote: ------------------------------------------------------- > Now wait just one minizzle. I thought the two > equations were: > > Flow (Income Statement Effect): Change in exposure > * (Ending rate - Average rate) > Holding (Balance Sheet Effect): Beginning exposure > * (Ending rate - Beginning rate) > > ??? add those two together you get holding gain/loss effect the other ones are operational effect - isolates actual performance from currency moves
So then what is the Average to Average equation that is mentioned above?
exactly.
kbakes Wrote: ------------------------------------------------------- > So then what is the Average to Average equation > that is mentioned above? I think I glossed over this issue, but happy for this thread. I looked it up in Schweser. If you have Schweser see page 269 of book2. If not, I will post.
kbakes Wrote: ------------------------------------------------------- > So then what is the Average to Average equation > that is mentioned above? I think this applies to income statement…your other post applies to balance sheet data
so is this a good summary??? For INCOME STATEMENT stuff (i.e. sales), -the flow effect is current IS number * (avg t - avg (t-1)) -operational effect is change in IS * avg t-1 For BALANCE SHEET stuff (i.e. equity) -the holding effect is begin of year balance * (end t - begin t) -the flow effect is change in balance * (end t - avg t)
easy way to remember my g/f always says hold my bag or hold bag aka hold beg aka holding period = beginining exposure (avg rate - beginning rate)
whoops make that (ending rate - beginning rate) 1luv
schweser does give example at start of chapter, and then when they move forward they’ve changed how they do it. at start of chapter, i believe it’s ending vs. starting for both effects, which i believe is wrong.