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The Loan Relationships and Derivative Contracts (Exchange Gains and Losses using Fair Value Accounting) Regulations 2005

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Exchange gain or loss arising from derivative contracts

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7.—(1) Paragraphs (2) and (3) set out the rules for calculating the exchange gain or loss arising from derivative contracts where such a contract is accounted for at fair value.

(2) Where—

(a)an amount is recognised in the company’s profit and loss account or income statement which arises from comparing at different times the fair value of the derivative contract, and

(b)that change in fair value is attributable to any extent to fluctuations in the spot rate of exchange between the base currency of the company and one or more currencies that form part of—

(i)the underlying subject matter of the derivative contract, or

(ii)in a case in which that currency or those currencies do not form part of the underlying subject matter of the contract, the currency or currencies in which payments under the contract fall to be made,

the exchange gain or loss is calculated as set out in paragraph (3).

(3) The exchange gain or loss for any accounting period is the change in fair value between the earlier and the later time in that period that is attributable only to fluctuations in the spot rate of exchange between the currency or currencies and the base currency.

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