November 8, 1995
TO: ACCOUNTING/TREASURERS MEMBERS No. 51-95
INDEPENDENT ACCOUNTANTS ADV. GROUP No. 8-95
RE: ICI WHITE PAPER ON FOREIGN CURRENCY EXCHANGE CONTRACTS
______________________________________________________________________________
The attached paper describes the accounting, financial reporting, tax and operational issues
related to foreign currency exchange contracts (“FX Contracts”). The paper was developed by the
Accounting Policy Subcommittee of the InstituteGs Accounting/Treasurers Committee (“A/TC”) and
was unanimously approved for dissemination to the ICI membership by the A/TC and the Independent
Accountants Advisory Group.
The paper is intended to provide technical guidance to ICI members on FX Contracts, a type of
derivative security frequently used by investment companies to hedge currency exchange rate risk. An
FX Contract is an agreement between two parties to exchange foreign currency at a specified price, on
an agreed upon future date. Investment companies use FX Contracts for various reasons, including
converting interest and dividend payments on foreign currency denominated securities into US dollars,
settling foreign currency denominated security purchases and sales, and hedging exchange rate risk on
portfolio securities.
The Institute would like to recognize the contributions of the paperGs principal authors:
Kathryn J. Hyatt, The Vanguard Group
Marie K. Karpinski, Legg Mason Wood Walker, Inc.
Maryanne Roepke, Twentieth Century Mutual Funds
Bruce J. Smith, Van Eck Associates Corporation
Teresa S. Westbrook, Merrill Lynch Asset Management
Please feel free to contact the undersigned or those named above with any questions on the
paper.
Gregory M. Smith
Director - Operations/
Compliance & Fund Accounting
Attachment