CHAPTER 18Dividending of Profit and Loss and FX Selldown

Dividending and FX selldown are two very important processes that impact the desk's trial balance each month. As these processes impact both the funding and FX profiles of the desk, it is imperative that product control understand both processes and their impact.

FX selldown is also the most common area where I have seen product control incur losses for their bank, where incorrect FX exposures are sold down. Consequently, it is important that each controller understands their roles and responsibilities regarding these processes to avoid the bank hedging the incorrect P&L exposures.

The profits and losses made by the sales and trading desks need to be dividended on a periodic basis, which usually occurs on a monthly basis. Dividending involves debiting (for profits) and crediting (for losses) the retained earnings accounts within each profit centre, with contra entries being made into treasury or the corporate centre.

As the profits and losses made by the sales and trading desks across the bank will eventually need to be remitted to the head office, the foreign currency P&L is usually sold down and converted into the functional currency of head office. The functional currency will typically be the currency of the country in which the head office is located; for example, EUR for the eurozone, USD for USA and GBP for British banks. However, some entities will have specific local or regulatory drivers that mean it wouldn't ...

Get Effective Product Control now with O’Reilly online learning.

O’Reilly members experience live online training, plus books, videos, and digital content from 200+ publishers.