Page 84 - P6 Slide Taxation - Lecture Day 4
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FORWARD EXCHANGE CONTRACTS (FEC’S)
• See definition in s 24I(1) BANK
• Purpose?
→ To hedge against the risk of exchange rate fluctuations.
• Is the holder of the FEC obliged to exercise it or not?
→ Yes, no choice. Not an option. Compulsory to exercise
• Is it possible to pay a premium on a FEC?
• How will this premium be treated for income tax purposes?
• Ruling exchange rates?
→ TD = FEC forward rate [See def. of premium/discount on FEC – s 24I(1)]
→ TLD = Market related FEC forward rate for remaining period of FEC
starting on year-end and there after
→ RD = Spot rate
