Foreign Exchange and Currency Exchange

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According to Eng, Lees and Mauer (1995:84), the definition of foreign currency (foreign exchange) is: "Any asset or financial claims denominated in a foreign currency."

Meanwhile, according to FASB 52, foreign exchange can be defined as: "Acurrency other than an entity's functional currency" basically the definition above is the same, which can be concluded that foreign exchange is the exchange of the currency of a country against other countries.

Comparison of values ​​between a country's currency against another state leads to a value, called the foreign exchange rate (foreign exchange).

Understanding of foreign exchange rate according to Eng, Lees and Mauer (1995:99) is, "The price of foreign currency Measured in domestic money". Another sense of the foreign exchange rate by Floyd A. Beam is, "Foreign exchange rates are essentially prices for currencies expressed in units of other currencies". (Floyd A. Beam 2003:390)

From the definition above can be concluded that foreign exchange is the exchange value of the currency of one country against another country. In foreign exchange transactions, there are several common forms of transactions. Floyd A. Beam argues that: "There are three forms of foreign exchange trading: outright spot (delivery now), outright forward (delivery in the future), and swaps." (Floyd A.Beam 2000:490) From the statement can be deduced that There are three main forms of transactions, namely:

a. Spot exchange, in which the transaction occurs with the release on the value date, usually two business days after the transaction occurred.

b. Foreign exchange, a transaction that occurred with the release at a particular moment in time to come.

c. Swap, which is the purchase and sale transactions simultaneously (continuous) on the due date is different.

Foreign Currency Exchange Rate System

At each state there is a system of foreign exchange rates are determined by the policy adopted by the governments of each country.

According to Floyd A. Beam: "... Consider exchange rate behavior under three different Kinds of exchange systems: floating, fixed, and controlled." (Floyd A. Beam 2003:390-391)

Opinion on the claim that there are three systems of foreign exchange rates used by a country, namely:

a. Free exchange rate system, in this system there is no government intervention to stabilize the exchange rate. Exchange rate is determined by demand and supply of foreign exchange.

b. Fixed exchange rate system, in this system of government or central bank concerned to actively intervene in the foreign exchange market by buying or selling foreign currency if its value deviates from a predetermined standard.

c. Exchange rate system is controlled / uncontrolled, in this system of government or central bank of the country concerned has the exclusive authority in determining the allocation of the use of available foreign exchange. Citizens are not free to intervene in foreign exchange transactions. Capital inflows and exports of goods led to the availability of foreign exchange.

Transactions in Foreign Currency

By SAK (1999:10.2), a transaction in foreign currency is: "A transaction is denominated or requires settlement in a foreign currency."

Meanwhile, according to Frederick, foreign currency transactions (foreign exchange) is: "Whose terms are Stated Transactions in a currency other than the entity's functional currency." (Frederick 2002:210)

Thus, foreign currency transactions are transactions that occur in different currencies, and also requires the completion of the different currencies. Financial Accounting Standards classify transactions that are included in the

foreign currency transactions. According to the Financial Accounting Standards: "foreign currency transactions, including transactions arising when an entity:

a. Buy or sell goods or services whose price is denominated in a foreign currency.

b. Borrowed (debt) or lending (receivables) denominated funds in a foreign currency.

c. Become a party to an agreement in foreign currency that has not happened, or

d. Acquire or release of assets, raises or pay off liabilities, denominated in a foreign currency. "(Financial Accounting Standards 1999:10.2)

Types of Foreign Exchange Currency Value Change

Changes in the value of foreign exchange rates generally in the form:

A. Appreciation or depreciation

Increase or decrease the value of a country's currency against foreign currency exposure is fully dependent on market forces (demand and supply of foreign exchange) both domestically and abroad.

2. Devaluation or revaluation

Increase or decrease the value of a country's currency against foreign currency is influenced by government policy.

The fall in the value of a country's currency against foreign currencies that occurred daily (depreciation) actually has a definition as devaluations, but because these changes are very small, it is not perceived as a devaluation. Which is considered a devaluation is a decrease in the value of a country's currency against foreign currencies declared officially by the government, carried out suddenly, and there is a large foreign exchange differences between the before and after the devaluation. This applies also to the appreciation and revaluation.

Basic Use of Currency in the Translation of Foreign Currency Transactions

Understanding of foreign exchange by the Financial Accounting Standards (1999:10.1) is: "The difference resulting from reporting the number of units of the same foreign currency in the reporting currency at different exchange rates."

Thus, foreign exchange arising from foreign exchange transactions (foreign exchange contract) should be reported in the rupiah currency.

Recognition of exchange difference determined under GAAP as follows:

"... If there are changes in the exchange rate between the transaction date and settlement date (settlement date) monetary item arising from transactions in foreign currencies. When the onset and completion of a transaction is in the same accounting period, then the exchange difference is recognized in the period. However, if the onset and completion of a transaction is in some of the accounting period, then the foreign exchange should be recognized for each accounting period to take into account changes in exchange rates for each period. "(Financial Accounting Standards 1999:10.3)

From the above it can be concluded that the settlement in a foreign currency transaction should be done in the accounting period in question and also need to take into account the foreign exchange differences arising from the transaction. Foreign exchange transactions recorded on the date of the transaction and the exchange rate at balance sheet date, the balance of assets and liabilities denominated in foreign currency must be translated at the exchange rate at balance sheet date, and foreign exchange differences arising from the calculation of income are accommodated in the corresponding business period. While foreign exchange transactions that occur when as a result of the devaluation or revaluation can be either charged or credited directly in the current period or deferred and amortized over several periods.