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Mark To Market Losses and Financial Markets
Mark To Market Losses and Financial Markets
Mark To Market Losses and Financial Markets
Mark To Market Losses and Financial Markets
Mark To Market Losses and Financial Markets
Mark To Market Losses and Financial Markets
Mark To Market Losses and Financial Markets
Mark To Market Losses and Financial Markets
Mark To Market Losses and Financial Markets
Mark To Market Losses and Financial Markets
Mark To Market Losses and Financial Markets
Mark To Market Losses and Financial Markets
Mark To Market Losses and Financial Markets
Mark To Market Losses and Financial Markets
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Mark To Market Losses and Financial Markets

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  • Transcript

    • 1. IMPACT ON FINANCIAL MARKETS
    • 2. Mark to Market
      • Mark-to-Market accounting refers to the Accounting Standards of assigning a value to a position held in Financial Instrument based on the current fair Market Price for the instrument
    • 3. Difference in MTM Perspective, Global vs. Domestic
      • US - The problem is in valuation illiquid assets and that is not as per fair value accounting or MTM rules per se (IAS 1 – 21)
        • Mortgage Based Securities
      • India - In the case of Indian companies the problem is with forward contract related MTM losses (AS 2 – 11)
        • Due to exchange rate movements
        • Hybrid instruments
        • Bonds
        • Valuation of acquired assets
      1 International Accounting Standards 2 Accounting Standards
    • 4.
      • AS - 11
        • Accounting Standard (AS) 11 - Accounting for the Effects of Changes in Foreign Exchange Rates
        • AS 11 demands all foreign currency monetary transactions of companies to be reported at the end of accounting period
      • Impact / Bone of Contention
        • Companies had to book notional losses
        • Share prices - plummeted by ‘notional foreign exchange losses’ over the last three quarters
    • 5. Companies not making MTM provision Companies making MTM provision Qtr. July-Sep. 2008
    • 6. Is there a way out?
      • Schedule VI of the Companies Act
        • This allows capitalization of fixed assets acquired through foreign currency in case of fluctuations
      • Govt. has Amended AS-11 based on National Advisory Committee on Accounting Standards
    • 7. MTM Effect in Various Financial Instruments
      • Forex Transactions
      • FCCBs
    • 8. MTM in Forex Transactions
    • 9.
      • Outline a high-level financial plan that defines your financial model and pricing assumptions.
        • This plan should include expected annual sales and profits for the next three years.
        • Use several slides to cover this material appropriately.
      Notional Loss Rupee at appreciated value Present value of rupee Rate of foreword contract MTM in Forex Transactions Notional Gain
    • 10. MTM in Forex Transactions
      • The gain/loss arising due to exchange rate changes to be charged to the profit and loss account, as an income/expense
      • Exporting companies made handsome gains during rupee appreciation against the dollar
      • Heavy losses on hedging during rupee depreciation
      • Few Indian Companies which hedged their foreign currency revenues
        • TCS – 80 Cr. Loss
        • Mind Tree and Ranbaxy – 250 – 300 Cr. Loss
    • 11. FCCB
      • 185 companies issued FCCBs worth $20 billion from 2004-05 to 2007-08
      • As the rupee depreciates, their liability increases in rupee terms towards foreign currency borrowed money
      • Out of this, about $15 billion are still outstanding while the balance got converted into equity
        • JSW Steel, Tata Steel and Suzlon Energy, outstanding FCCBs MTM losses ranging from 500 to 100 Cr
    • 12. Redemption of FCCBs Sectors having high FCCB exposure
    • 13. Our Opinion
      • Consistency in accounting policies
      • Allocating the MTM losses in Capital for depreciation and amortization separately
      • Government measures like (reducing duties etc.) for export driven businesses during Rs. Appreciation and current rates reduction to boost up
    • 14.
      • Bibliography
      • www.fimmda.org
      • CRISIL Research
      • www.rbi.org
      • MTM Provisioning in Corporate Sector, Business Standard
      • www.livemint.com
      • www.economictimes.indiatimes.com
      • www.wikipedia.com

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