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I am trying to find how to account for the change in exchange rate and the rate given to me by my bank. I understand the rate change between two dates is a foreign exchange gain or loss, but what about the difference between the market rate, and the bank rate that if given to me?

Example: I sold a product for 100 Pounds (GBP). On the date of the sell the Dollar (USD) amount was $144.42. So I accounted for a $144.42 sale on that date, with a debit to my foreign denominated bank $144.42. This is because I am in the US and my books need to be in Dollars.

A few days later I transfer this 100 pounds to my bank in the US, the market exchange at the time is $150.63 (this is from the exact source I took the sales data from), but the bank gives me $143.51. I know this is because of the difference in Interbank rate, and I will not be given the market rate.

The difference between the two market rates is $6.21 gain, but there is a difference of $7.12 between the market rate of the day and the rate given by the bank. Which means that I have a foreign gain, but with the rate given I have a loss.

So my question is how do I account for that difference? The difference causes losses every time I account for foreign exchange, this is not correct because the bank given rate is not the rate of the market.

This is what I was thinking I should do:

Account for the $6.21 as a foreign gain, then the $7.12 as bank fee. Because, that is really what the difference is. The bank has no actual transfer fees stated on my statement, but the rate the give to me reflects the amount they collect from the transaction.

I hope this makes sense, I can't really find much information on this subject, but some simple examples of foreign exchange.

  • Your bank should be able to tell you exactly what their markup/spread is for such transactions. – Chris W. Rea Jun 14 '16 at 18:07
  • Chris, I asked my bank and they said it changes with every transaction. I can get that information, but how do I account for that? It's not a designated fee, it is a markup or spread added to the exchange rate. – Mullenb Jun 14 '16 at 20:18
  • Re: "It changes with every transaction". Yes, in absolute terms. But is there a percentage applied to the market rate to make the bank's buy/sell spread? – Chris W. Rea Jun 14 '16 at 22:50
  • I am sorry about that, I should have explained it better. The spread is what changes. It is determined on frequency and amount transferred. So, they said that it was a tiered system. Currently I am around the 2.5% range, but that can change once I transfer more, or less. – Mullenb Jun 14 '16 at 23:05
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This is because I am in the US and my books need to be in Dollars.

If you are dealing in multiple currencies your books need to be in multiple currencies. You have to use a notional rate while reporting.

I sold a product for 100 Pounds (GBP). On the date of the sell the Dollar (USD) amount was $144.42. So I accounted for a $144.42 sale on that date, with a debit to my foreign denominated bank $144.42.

You shouldn't be doing this. You shouldn't be debiting the foreign bank yet. You can recognize the GBP 100 sale by debiting a notional receivables account and crediting a GBP sales account. Re-Value this amount every day to arrive at USD eq. On first day you can use $144.42 ... etc

I transfer this 100 pounds to my bank in the US, the market exchange at the time is $150.63 (this is from the exact source I took the sales data from), but the bank gives me $143.51

On receipt on the Money, you would have to reverse; i.e Cr the Notional receivables and Debit the GBP sales for 100. You now need to debit the Foreign bank account for 143.51 and credit your sales USD account.

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