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    of 8

    FOREX TRANSACTIONS, DERIVATIVES & HEDGING

    I. About the Organizer and Speaker

    The webinar was organized by the Real Excellence Online CPA Review. I recently had the
    honor of listening to a talk given by Sir Louie Gene Marsigan, CPA, CMA, MBA. Sir Louie serves
    as the Chairperson of the BS Accounting Information System at the University of Santo Tomas. He
    is also a co-author of 'A Closer Look at Fundamentals of Accounting' and a Board of Trustee
    member at the National Association of CPAs in Education. Additionally, he is an exclusive CPA
    Reviewer at REO.

    II. Summary of the Webinar

    a. Foreign currency transactions are those denominated in foreign currencies.


    b. Denominated may be think as the settlements or the currency that will you pay.
    c. Foreign Currency is all currency that is other than” PESO” or functional currency. It is the
    currency of the primary economic environment in which the entity operates.
    d. Derivative instruments are financial instruments characterized by the following features:
     They possess value that fluctuates in response to an underlying asset or event.
    Examples of underlying factors include interest rates, stock prices, commodity prices
    (such as oil and minerals), and foreign exchange rates. The underlying is typically an
    event beyond the control of any single individual.
     They typically require either no initial net investment or a smaller net investment
    compared to other instruments.
     Settlement of derivative instruments typically occurs on a future date.
    e. Example of derivative instruments:
     Forward Contract- A commitment or over the counter(customized)
     Futures Contract- A commitment or traded in an exchange. (standard)
     Option Contracts- Call options- to buy and Put options-to sell.
     Swap- exchanging with another.
    f. Derivative Instrument:
    - For hedge- to reduce risk exposure
    - For speculate- enter for no reason
    - Direct Quotation- 1Foreign Currency = How many peso
    - Indirect Quotation- 1 Peso = How many foreign currency
    g. During the webinar, Sir Louie generously offers examples to enhance the understanding of
    the audience. These practical illustrations serve to clarify complex ideas and facilitate better
    comprehension among viewers.

    EXAMPLES PROBLEMS:

    1. Illustration no. 1: On November 10, 2024, Louie Jean acquired 1000 units of inventory from
    LGM corporation. Selling price is 2,000 Korean won per unit. From November 10 to
    December 31 the rate changed from 0.035 to 0.043 so the peso weakened. To be settled on
    March 9, 2025. Louie Jean is risk averse which is why he entered a forward contract on the
    same date with the financial institution to purchase 2 million Korean won on March 9,2025.
    Answer:

    November 10, 2024 Purchases (2,000,000x0.035) 70,000

    Accounts Payable 70,000

    December 31, 2024 Foreign Exchange Loss 16,000

    Accounts Payable (2,000,000x (0.035-0.043) 16,000

    March 9, 2025 Accounts Payable 86,000

    Foreign Exchange loss 10,000

    Foreign Currency (2,000,000wonx0.048) 96,000


    November 10,2024 Forward Contract receivable (2 million won x 0.045) 90,000

    Forward Contract Payable 90,000

    December 31, 2024 -NO ENTRY-

    March 9, 2025 Forward Contract Payable 90,000

    Cash 90,000

    Foreign Currency 96,000

    Forward Contract Receivable 90,000

    Gain 6,000

    2. Illustration No. 2: On December 7, 2024, Wency Sold Inventory To WMG (Wency Medina
    Gueron Company) For An Invoice Price Of Korean Won 1 Million To Be Paid On February 9,
    2025. To Protect Mr. Wee From Expected Unfavorable Fluctuations In Foreign Currency
    Exchange Rates, He Entered A Forward Contract On The Same Date.
    Answer:
    HEDGED ITEM
    ACCOUNTS RECEIVABLE
    12/7/24 44,000
    12/31/24 43,000(1,000 loss)
    2/9/25 39,000(4,000 loss)
    HEDGING INSTRUMENT

    FORWARD CONTRACT PAYABLE

    12/7/24 42,000(0.042x1M) Forward Contract Receivable 42,000

    Forward Contract Payable 42,000

    12/31/24 40,000(2,000 gain) Loss on forward Contract 2,000

    Forward Contract Payable 2,000

    2/9/25 39,000(1,000 gain)

    3. Illustration No. 3: November 10, 2024, Corporation Is Anticipating A Purchase. On The Same
    Day, Dahyun Entered A Forward Contract To Purchase 20 Million Korean Won From A
    Financial Institution On February 9.
    Answer:

    ITEM

    11/10/24 -NO ENTRY-

    12/31/24 -NO ENTRY-

    2/9/25 Equipment 820,000

    Foreign Currency 780,000

    OCI 40,000

    INSTRUMENT

    FORWARD CONTRACT RECEIVABLE

    11/10/24 820,000

    12/31/24 800,000(20,000loss-OCI)

    2/9/25 780,000(20,000loss)
    4. Illustration No. 4 On December 7, 2024, Grg Entered Into Our Purchase Commitment With Dj
    Corporation To Purchase A Piece Of Machinery Due For Delivery And Payment On March 9.
    The Invoice Price Of Machinery Is 10 Million Korean Won. On The Same Date, Grg Entered
    A Forward Contract With Financial Institution To Purchase 10 Million Korean Won On March
    9.
    Answer:
    ITEM

    12/7/24 -NO ENTRY-


    12/31/24 FOREX Loss 10,000
    Firm Commitment 10,000

    3/9/25 Machinery 440,000


    OCI 40,000
    Foreign Currency 480,000

    INSTRUMENT

    12/7/24 Forward Exchange Receivable 440,000

    Forward Exchange Payable 440,000

    12/31C/24 Forward Contract Receivable 10,000

    Gain on Forward Contract 10,000

    3/9/25 Forward Contract Payable 440,000

    Cash 440,000

    Foreign Currency 480,000

    Forward Contract Receivable 450,000


    Gain on Forward Contract 30,000

    III. What I have learned from the webinar

    In the webinar, I gained knowledge about foreign currency transactions and derivatives.
    Foreign currency transactions involve dealing with currencies other than the entity's principal
    currency, such as the peso. Forward contracts and options are examples of derivative instruments
    that help control risks associated with foreign exchange rate swings. These instruments feature
    characteristics such as changing values and future settlement dates. They can be used to manage
    risk exposure or to speculate for no apparent purpose. During the webinar, Sir Louie gave practical
    examples to assist us comprehend these topics better. For instance, he presented a scenario in
    which Louie Jean bought inventory in Korean won and entered into a forward contract to protect
    against currency rate changes. This example demonstrated how foreign currency transactions and
    derivative instruments operate in real-world scenarios. These examples made complex topics easy
    to understand, allowing viewers to improve their understanding of the subject.

    In conclusion, Sir Louie Gene Marsigan has provided useful information into derivative
    instruments, enhancing our understanding of this complex topic. Attending this webinar has been
    particularly beneficial for me, as derivative instruments are the upcoming focus of my accounting
    studies. By gaining insights from the webinar, I am better prepared to delve into this subject in my
    accounting course.
    IV. E-CERTIFICATE & DOCUMENTATION

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