TVET PROGRAM TITLE: Accounts and Budget Support Level –III

MODULE TITLE: Handling Foreign Currency Transactions

LEARNING OUTCOMES:
At the end of this module the trainer will be able to
LO1: Identify nature of customer's foreign currency needs
LO2. Verify that the proposed transaction can be conducted
LO3: Conduct the transaction
LO4. Maintain accurate records of transaction

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TABLE OF CONTENTS PAGE
LO1: Identify nature of customer's foreign currency needs ..................................................... 3
1.1 What is foreign exchange? .................................................................................................... 3
1.2 5 Ways to Maintain Clean and Accurate Customer Information .......................................... 4
1.3 Foreign currency translation.................................................................................................. 6
LO2 Verify that the proposed transaction can be conducted ................................................... 7
2.1 Foreign currency transactions and your bookkeeping........................................................... 7
2.2 Forex - Foreign Currency Transactions ................................................................................ 8
2.3 Foreign Currency Exchange Rates, Quotes, and Pricing ...................................................... 8
2.4 Risks of Forex Trading........................................................................................................ 11
2.5 Special Risks of Off-Exchange Forex Trading ................................................................... 13
2.6 Regulation of Off-Exchange Forex Trading ....................................................................... 13
LO3: Conduct the transaction ................................................................................................... 14
3.1 What is Journal Entry for Foreign Currency Transactions ................................................. 14
3.2 Requirements of membership.............................................................................................. 16
3.3 Developing Policies, Procedures, and Internal Controls ..................................................... 17
3.4 Detecting and Reporting Suspicious Activity ..................................................................... 19
3.5 Hiring Qualified Staff.......................................................................................................... 19
LO4 Maintain accurate records of transaction ........................................................................ 20
4.1 How to Account for Foreign Currency Transactions .......................................................... 20
4.2 How to Keep Accurate Records for a Small Business ........................................................ 21
4.3 The importance of maintaining accurate accounts .............................................................. 22
4.4 Balance sheets: .................................................................................................................... 24
4.5 Use accounting ratios to assess business performance........................................................ 29
4.6 Customer Statements ........................................................................................................... 31
4.7 Recordkeeping ..................................................................................................................... 33

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LO1: Identify nature of customer's foreign
currency needs
1.1 What is foreign exchange?
Foreign exchange, or Forex, is the conversion of one country's currency into that of another. In a
free economy, a country's currency is valued according to factors of supply and demand. In other
words, a currency's value can be pegged to another country's currency, such as the U.S. dollar, or
even to a basket of currencies. A country's currency value also may be fixed by the country's
government. However, most countries float their currencies freely against those of other
countries, which keep them in constant fluctuation.

The value of any particular currency is determined by market forces based on trade, investment,
tourism, and geo-political risk. Every time a tourist visits a country, for example, he or she must
pay for goods and services using the currency of the host country. Therefore, a tourist must
exchange the currency of his or her home country for the local currency. Currency exchange of
this kind is one of the demand factors for a particular currency. Another important factor of
demand occurs when a foreign company seeks to do business with a company in a specific
country. Usually, the foreign company will have to pay the local company in their local currency.
At other times, it may be desirable for an investor from one country to invest in another, and that
investment would have to be made in the local currency as well. All of these requirements
produce a need for foreign exchange and are the reasons why foreign exchange markets are so
large.
Foreign exchange is handled globally between banks and all transactions fall under the auspice
of the Bank of International Settlements.
Foreign exchange
The foreign exchange market (forex, FX, or currency market) is a global decentralized market
for the trading of currencies. In terms of volume of trading, it is by far the largest market in the
world. The main participants in this market are the larger international banks.

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The exchange of one currency for another or the conversion of one currency into another
currency, Foreign exchange also refers to the global market where currencies are traded virtually
around-the-clock. The term foreign exchange is usually abbreviated as "forex" and occasionally
as "FX."
Foreign exchange transactions encompass everything from the conversion of currencies by a
traveler at an airport kiosk to billion-dollar payments made by corporate giants and governments
for goods and services purchased overseas. Increasing globalization has led to a massive increase
in the number of foreign exchange transactions in recent decades. The global foreign exchange
market is by far the largest financial market, with average daily volumes in the trillions of
dollars.
Foreign exchange (Forex or FX)
1. Any currency other than the local currency which is used in settling international transactions.
Also called foreign currency
2. System of trading in and converting the currency of one country into that of another. See also
foreign exchange market.
'Foreign Exchange' The exchange of one currency for another, or the conversion of one
currency into another currency. Foreign exchange also refers to the global market where
currencies are traded virtually around-the-clock. The currency (i.e. money) of another country.
A foreign currency account is a bank account in the currency of another country (e.g. a dollar
account in the UK).
A currency printed in a different country. Generally speaking, a foreign currency may not be
used to buy goods and services in any country other than the one in which it is printed, unless the
government of that country agrees to use it. For example, the Federated States of Micronesia
uses the U.S. dollar, but if the Micronesian government had not agreed to this one would not be
able to use dollars in Micronesia. However, exceptions to this rule exist, particularly when the
domestic currency has a low value.

1.2 5 Ways to Maintain Clean and Accurate Customer Information

Has it ever happened that you make a follow-up call, only to find out that another member of
your team had already contacted the customer? That would be a little embarrassing but where

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was the confusion? After cross-checking you clearly noticed that there was no record of a call
being made to the contact, but there sure was a duplicate contact, assigned to another sales rep!

Inaccurate or incomplete CRM data often hamper sales and marketing performance. Many of
your contacts would have changed their phone number, email address or even their company,
leading to an accumulation of redundant and incomplete data in your CRM. So how are you
going to maintain clean CRM data? Help yourself with these 5 tips to not only get your CRM
system under control but also to save time and headache down the road.

1 Maintain Complete Data

ask yourself one question: How complete are my records? Believe it or not, incomplete
information is not a good sign for data quality. The CRM account requires you to fill in
numerous fields that are mandatory. It’s time-consuming! And as a sales rep, that becomes a
reason for you to neglect proper data entry. The best way to deal with this is to set important
fields as mandatory: like name, email address, phone numbers, and address. So, determine the
fields that are most important for complete information and encourage users to fill in those
important details.

2 Avoid Entry of Duplicate Leads & Contacts

Since email address is unique for each individual; one simple trick to prevent duplicate records is
by comparing the email address of the contacts. While adding a lead/contact in Zoho CRM, you
now have an option to check whether the newly added record already exists in your CRM
account. Now this will definitely save the effort of going through the records for duplicates

3 Existing Duplicate Records? Merge Them

Preventing duplicates work great when adding new contacts manually, collecting leads/contacts
using web forms, importing, etc. But what about eliminating duplicates from your existing data?
By now, you will surely agree with me when I say that duplicate records are not necessarily
identical. Let’s say, two contacts have the same last name, email address or company name but
one record has a phone number or address that is not found in the other. This is sometimes
frustrating as some of the crucial information that you are looking for is scattered in both the

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records. In that case, instead of blindly deleting one record and potentially losing important data,
you can merge the information into one contact.

4. Maintain a Style Sheet

while automation does most of the work, human efforts are essential for data quality. One way to
make data entry easy and maintain consistency, is by introducing naming conventions.
Sometimes you see the same country name in different formats. For example, USA, US, United
States of America. You can avoid this by creating a list of abbreviations and standard data entry
formats for data items like postal addresses, company names, designations, etc. Having a
standardized format for all the data helps you generate accurate reports and filter records based
on the exact criteria.

5. Use Roles for Security

With data pouring in from several sources and multiple users accessing it, maintaining a clean
CRM database is not that easy. One best practice is to restrict access to data in your CRM
account. Define Roles that will help you control the access rights of users while working with
CRM data. That way, users will modify only those records that are relevant to them.

We all realize how important it is to add clean data in the CRM system… and not just that, to
avidly maintain it too! Maintaining data quality is not a one-time event. If not taken care from
the beginning, you may end up having a tedious task ahead.

1.3 Foreign currency translation

Conversion of the accounting figures stated in one currency into another currency for financial
reporting requirements. According to the U.S. GAAP regulations, the balance sheet items are
converted at the exchange rate as on the balance sheet date, and income statement items are
converted at the weighted-average exchange rate for the that year. The gains and losses resulting
from the conversion are presented in the owners' equity section as a separate item. Any material
change in the exchange rate occurring during the period between the financial statement date and
the audit report date is disclosed in the following financial statement.

Currency

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A currency (from Middle English: curraunt, "in circulation", from Latin: currens, -entis) in the
most specific use of the word refers to money in any form when in actual use or circulation as a
medium of exchange, especially circulating banknotes and coins. A more general definition is
that a currency is a system of money (monetary units) in common use, especially in a nation.
Under this definition, British pounds, U.S. dollars, and European euro’s are examples of
currency. These various currencies are stores of value, and are traded between nations in foreign
exchange markets, which determine the relative values of the different currencies. Currencies in
this sense are defined by governments, and each type has limited boundaries of acceptance.

Other definitions of the term "currency" are discussed in their respective synonymous articles
banknote, coin, and money. The latter definition, pertaining to the currency systems of nations, is
the topic of this article. Currencies can be classified into two monetary systems: fiat money and
commodity money, depending on what guarantees the value (the economy at large vs. the
government's physical metal reserves). Some currencies are legal tender in certain jurisdictions,
which means they cannot be refused as payment for debt. Others are simply traded for their
economic value. Digital currency arose with the popularity of computers and the Internet

LO2 Verify that the proposed transaction can

be conducted
2.1 Foreign currency transactions and your bookkeeping

Carrying out business transactions in a foreign currency will have an effect on your normal
accountancy procedures since you'll need to convert foreign currency payments and deposits into
sterling.

Accounting procedures are complex and you should take professional advice on your own
circumstances. Generally speaking when you account for foreign currency transactions you
should calculate the amount in sterling, using the exchange rate that applied on the day of the
transaction.

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Any foreign currency held, as well as any amounts of currency that you owe or are owed, should
be converted into sterling using the rate in force on the date of the balance sheet.

If you make any gains or losses as a result of foreign currency transactions, you should include
these in your profit and loss account.

Bear in mind that holding assets in a foreign currency will have an impact on your balance sheet
since - owing to exchange rate movements - their value might differ radically from one year to
the next.

2.2 Forex - Foreign Currency Transactions

Individual investors who are considering participating in the foreign currency exchange (or
“forex”) market need to understand fully the market and its unique characteristics. Forex trading
can be very risky and is not appropriate for all investors.

It is common in most forex trading strategies to employ leverage. Leverage entails using a
relatively small amount of capital to buy currency worth many times the value of that capital.
Leverage magnifies minor fluctuations in currency markets in order to increase potential gains
and losses. By using leverage to trade forex, you risk losing all of your initial capital and may
lose even more money than the amount of your initial capital. You should carefully consider
your own financial situation, consult a financial adviser knowledgeable in forex trading, and
investigate any firms offering to trade forex for you before making any investment decisions.

2.3 Foreign Currency Exchange Rates, Quotes, and Pricing

A foreign currency exchange rate is a price that represents how much it costs to buy the currency
of one country using the currency of another country. Currency traders buy and sell currencies
through forex transactions based on how they expect currency exchange rates will fluctuate.
When the value of one currency rises relative to another, traders will earn profits if they
purchased the appreciating currency, or suffer losses if they sold the appreciating currency. As
discussed below, there are also other factors that can reduce a trader’s profits even if that trader
“picked” the right currency.

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Currencies are identified by three-letter abbreviations. For example, USD is the designation for
the U.S. dollar, EUR is the designation for the Euro, GBP is the designation for the British
pound, and JPY is the designation for the Japanese yen.

Forex transactions are quoted in pairs of currencies (e.g., GBP/USD) because you are purchasing
one currency with another currency. Sometimes purchases and sales are done relative to the U.S.
dollar, similar to the way that many stocks and bonds are priced in U.S. dollars. For example,
you might buy Euros using U.S. dollars. In other types of forex transactions, one foreign
currency might be purchased using another foreign currency. An example of this would be to buy
Euros using British pounds - that is, trading both the Euro and the pound in a single transaction.
For investors whose local currency is the U.S. dollar (i.e., investors who mostly hold assets
denominated in U.S. dollars), the first example generally represents a single, positive bet on the
Euro (an expectation that the Euro will rise in value), whereas the second example represents a
positive bet on the Euro and a negative bet on the British pound (an expectation that the Euro
will rise in value relative to the British pound).

There are different quoting conventions for exchange rates depending on the currency, the
market, and sometimes even the system that is displaying the quote. For some investors, these
differences can be a source of confusion and might even lead to placing unintended trades.

For example, it is often the case that the Euro exchange rates are quoted in terms of U.S. dollars.
A quote for EUR of 1.4123 then means that 1,000 Euros can be bought for approximately 1,412
U.S. dollars. In contrast, Japanese yen are often quoted in terms of the number of yen that can be
purchased with a single U.S. dollar. A quote for JPY of 79.1515 then means that 1,000 U.S.
dollars can be bought for approximately 79,152 yen. In these examples, if you bought the Euro
and the EUR quote increases from 1.4123 to 1.5123, you would be making money. But if you
bought the yen and the JPY quote increases from 79.1515 to 89.1515, you would actually be
losing money because, in this example, the yen would be depreciating relative to the U.S. dollar
(i.e., it would take more yen to buy a single U.S. dollar).

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Before you attempt to trade currencies, you should have a firm understanding of currency
quoting conventions, how forex transactions are priced, and the mathematical formulae required
to convert one currency into another.

Currency exchange rates are usually quoted using a pair of prices representing a “bid” and an
“ask.” Similar to the manner in which stocks might be quoted, the “ask” is a price that represents
how much you will need to spend in order to purchase a currency, and the “bid” is a price that
represents the (lower) amount that you will receive if you sell the currency. The difference
between the bid and ask prices is known as the “bid-ask spread,” and it represents an inherent
cost of trading - the wider the bid-ask spread, the more it costs to buy and sell a given currency,
apart from any other commissions or transaction charges.

Generally speaking, there are three ways to trade foreign currency exchange rates:

1. On an exchange that is regulated by the Commodity Futures Trading Commission

(CFTC). An example of such an exchange is the Chicago Mercantile Exchange, which
offers currency futures and options on currency futures products. Exchange-traded
currency futures and options provide traders with contracts of a set unit size, a fixed
expiration date, and centralized clearing. In centralized clearing, a clearing corporation
acts as single counterparty to every transaction and guarantees the completion and credit
worthiness of all transactions.
2. On an exchange that is regulated by the Securities and Exchange Commission
(SEC). An example of such an exchange is the NASDAQ OMX PHLX (formerly the
Philadelphia Stock Exchange), which offers options on currencies (i.e., the right but not
the obligation to buy or sell a currency at a specific rate within a specified time).
Exchange-traded options on currencies also provide investors with contracts of a set unit
size, a fixed expiration date, and centralized clearing.
3. In the off-exchange market. In the off-exchange market (sometimes called the over-the-
counter, or OTC, market), an individual investor trades directly with a counterparty, such
as a forex broker or dealer; there is no exchange or central clearinghouse. Instead, the
trading generally is conducted by telephone or through electronic communications

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 networks (ECNs). In this case, the investor relies entirely on the counterparty to receive
funds or to be able to trade out of a position.

2.4 Risks of Forex Trading

The forex market is a large, global, and generally liquid financial market. Banks, insurance
companies, and other financial institutions, as well as large corporations use the forex markets to
manage the risks associated with fluctuations in currency rates.

The risk of loss for individual investors who trade forex contracts can be substantial. The only
funds that you should put at risk when speculating in foreign currency are those funds that you
can afford to lose entirely, and you should always be aware that certain strategies may result in
your losing even more money than the amount of your initial investment. Some of the key risks
involved include:

 Quoting Conventions Are Not Uniform. While many currencies are typically quoted
against the U.S. dollar (that is, one dollar purchases a specified amount of a foreign
currency), there are no required uniform quoting conventions in the forex market. Both
the Euro and the British pound, for example, may be quoted in the reverse, meaning that
one British pound purchases a specified amount of U.S. dollars (GBP/USD) and one Euro
purchases a specified amount of U.S. dollars (EUR/USD). Therefore, you need to pay
special attention to a currency’s quoting convention and what an increase or decrease in a
quote may mean for your trades.
 Transaction Costs May Not Be Clear. Before deciding to invest in the forex market,
check with several different firms and compare their charges as well as their services.
There are very limited rules addressing how a dealer charges an investor for the forex
services the dealer provides or how much the dealer can charge. Some dealers charge a
per-trade commission, while others charge a mark-up by widening the spread between the
bid and ask prices that they quote to investors. When a dealer advertises a transaction as
“commission-free,” you should not assume that the transaction will be executed without
cost to you. Instead, the dealer’s commission may be built into a wider bid-ask spread,
and it may not be clear how much of the spread is the dealer’s mark-up. In addition, some
dealers may charge both a commission and a mark-up. They may also charge a different
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 mark-up for buying a currency than selling it. Read your agreement with the dealer
carefully and make sure you understand how the dealer will charge you for your trades.
 Transaction Costs Can Turn Profitable Trades into Losing Transactions. For certain
currencies and currency pairs, transaction costs can be relatively large. If you are
frequently trading in and out of a currency, these costs can in some circumstances turn
what might have been profitable trades into losing transactions.
 You Could Lose Your Entire Investment or More. You will be required to deposit an
amount of money (usually called a “security deposit” or “margin”) with a forex dealer in
order to purchase or sell an off-exchange forex contract. A small sum may allow you to
hold a forex contract worth many times the value of the initial deposit. This use of margin
is the basis of “leverage” because an investor can use the deposit as a “lever” to support a
much larger forex contract. Because currency price movements can be small, many forex
traders employ leverage as a means of amplifying their returns. The smaller the deposit is
in relation to the underlying value of the contract, the greater the leverage will be. If the
price moves in an unfavorable direction, then high leverage can produce large losses in
relation to your initial deposit. With leverage, even a small move against your position
could wipe out your entire investment. You may also be liable for additional losses
beyond your initial deposit, depending on your agreement with the dealer.
 Trading Systems May Not Operate as Intended. Though it is possible to buy and hold
a currency if you believe in its long-term appreciation, many trading strategies capitalize
on small, rapid moves in the currency markets. For these strategies, it is common to use
automated trading systems that provide buy and sell signals, or even automatic execution,
across a wide range of currencies. The use of any such system requires specialized
knowledge and comes with its own risks, including a misunderstanding of the system
parameters, incorrect data that can lead to unintended trades, and the ability to trade at
speeds greater than what can be monitored manually and checked.
 Fraud. Beware of get-rich-quick investment schemes that promise significant returns
with minimal risk through forex trading. The SEC and CFTC have brought actions
alleging fraud in cases involving forex investment programs. Contact the appropriate
federal regulator to check the membership status of particular firms and individuals.

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2.5 Special Risks of Off-Exchange Forex Trading

As described above, forex trading in general presents significant risks to individual investors that
require careful consideration. Off-exchange forex trading poses additional risks, including:

 There Is No Central Marketplace. Unlike the regulated futures and options exchanges,
there is no central marketplace in the retail off-exchange forex market. Instead, individual
investors commonly access the forex market through individual financial institutions - or
dealers - known as “market makers.” Market makers take the opposite side of any
transaction; for example, they may be buying and selling the same foreign currency at the
same time. In these cases, market makers are acting as principals for their own account
and, as a result, may not provide the best price available in the market. Because
individual investors often do not have access to pricing information, it can be difficult for
them to determine whether an offered price is fair.
 There Is No Central Clearing. When trading futures and options on regulated
exchanges, a clearing organization can act as a central counter-party to all transactions in
a way that may afford you some protection in the event of a default by your counterparty.
This protection is not available in the off-exchange forex market, where there is no
central clearing.

2.6 Regulation of Off-Exchange Forex Trading

The Commodity Exchange Act permits persons regulated by a federal regulatory agency to
engage in off-exchange forex transactions with individual investors only pursuant to rules of that
federal regulatory agency. Keep in mind that there may be different requirements or treatment
for forex transactions depending on which rules and regulations might apply in different
circumstances (for example, with respect to bankruptcy protection or leverage limitations).

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LO3: Conduct the transaction
3.1 What is Journal Entry for Foreign Currency Transactions
Foreign currency transactions are denominated in a currency other than the company’s functional
currency. Foreign currency transactions may result in receivables or payables fixed in the amount
of foreign currency to be received or paid. A foreign currency transaction requires settlement in a
currency other than the functional currency! A change in exchange rates between the functional
currency and the currency in which a transaction is denominated increases or decreases the
expected amount of functional currency cash flows upon settlement of the transaction. This
change in expected functional currency cash flows is a “foreign currency transaction gain or
loss” that typically is included in arriving at earnings in the income statement for the period in
which the exchange rate is changed. An example of a transaction gain or loss is when an Italian
subsidiary has a receivable denominated in lira from a British customer.
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Similarly, a transaction gain or loss (measured from the transaction date or the most recent
intervening balance sheet date, whichever is later) realized upon settlement of a foreign currency
transaction usually should be included in determining net income for the period in which the
transaction is settled.
Example:
An exchange gain or loss occurs when the exchange rate changes between the purchase date and
sale date. Merchandise is bought for 100,000 pounds. The “exchange rate” is 4 pounds to 1
dollar. The journal entry is:
[Debit] Purchases = 25,000
[Credit] Accounts payable = 25,000
(Note: 100,000/4 = $25,000)
When the merchandise is paid for, the exchange rate is 5 to 1. The journal entry is:
[Debit] Accounts payable = 25,000
[Credit] Cash = 20,000
[Credit] Foreign exchange gain = 5,000
(Note: 100,000/5 = $20,000)

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The $20,000 using an exchange rate of 5 to 1 can buy 100,000 pounds. The transaction gain is
the difference between the cash required of $20,000 and the initial liability of $25,000.
Note that a foreign transaction gain or loss has to be determined at each balance sheet date on all
recorded foreign transactions that have not been settled.
Another example:
A U.S. company sells goods to a customer in England on 11/15/X7 for 10,000 pounds. The
exchange rate is 1 pound is $0.75. Thus, the transaction is worth $7,500 (10,000 pounds × 0.75).
Payment is due two months later. The entry on 11/15/X7 is:
[Debit] Accounts receivable—England = 7,500
[Credit] Sales = 7,500
Accounts receivable and sales are measured in U.S. dollars at the transaction date employing the
“spot rate“. Even though the accounts receivable is measured and reported in U.S. dollars, the
receivable is fixed in pounds. Thus, a “transaction gain or loss” can occur if the exchange rate
changes between the transaction date (11/15/X7) and the settlement date (1/15/X8).
Since the financial statements are prepared between the transaction date and settlement date,
receivables that are denominated in a currency other than the functional currency (U.S. dollar)
have to be restated to reflect the spot rate on the balance sheet date. On December 31, 20X7, the
exchange rate is 1 pound equals $0.80. Hence, the 10,000 pounds are now valued at $8,000
(10,000 × $.80). Therefore, the accounts receivable denominated in pounds should be upwardly
adjusted by $500. The required journal entry on 12/31/X7 is:
[Debit] Accounts receivable—England = 500
[Credit] Foreign exchange gain = 500
The income statement for the year-ended 12/31/X7 shows an exchange gain of $500. Note that
sales is not affected by the exchange gain since sales relates to operational activity.
On 1/15/X8, the spot rate is 1 pound = $0.78. The journal entry is:
[Debit] Cash = 7,800
[Debit] Foreign exchange loss = 200
[Credit] Accounts receivable—England = 8,000
The 20X8 income statement shows an exchange loss of $200.
Which Transaction Gain Or Loss Should Not Be Reported In The Income Statement?

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Gains and losses on the following foreign currency transactions “ARE NOT“ included in
earnings but rather are reported as translation adjustments:
Foreign currency transactions designated as economic hedges of a net investment in a foreign
entity, beginning as of the designation date.
Inter-company foreign currency transactions of a long-term investment nature (settlement is
not planned or expected in the foreseeable future),when the entities to the transaction are
consolidated, combined, or accounted for by the equity method in the reporting company’s
financial statements
A gain or loss on a forward contract or other foreign currency transaction that is intended to
hedge an identifiable foreign currency commitment (e.g., an agreement to buy or sell machinery)
should be deferred and included in the measurement of the related foreign currency transaction.
Losses should not be deferred if deferral is expected to result in recognizing losses in later
periods. A foreign currency transaction is deemed a hedge of an identifiable foreign currency
commitment if both of these conditions are met:
The foreign currency transaction is designated as a hedge of a foreign currency commitment.
The foreign currency commitment is firm.

3.2 Requirements of membership

Compliance Officer
Each Member must designate a qualified individual or individuals to monitor the firm's day-to-
day compliance with its anti-money laundering program. For example, a firm with a full-time
compliance officer could designate that compliance officer. The designated individual may not
be involved in any functional areas where money laundering or terrorist financing could occur
and must ultimately report to senior management. This individual does not, however, have to be
a principal of the firm or an Associate Member of NFA.
Employee Training Program
Members must provide ongoing training to employees who are involved in areas where money
laundering or terrorist financing could occur. These employees should receive annual or more
frequent training on their firm's policies and procedures, federal laws, and NFA requirements.
Your firm should maintain records to show it has met this training requirement.
Independent Audit Function

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A Member's anti-money laundering program must be audited at least annually. The audit may be
conducted by internal audit staff or other internal employees if the employees conducting the
audit do not have other anti money laundering responsibilities, are not involved in areas where
money laundering or terrorist financing could occur, and are independent of staff with these
responsibilities or involved in these areas (e.g., the internal audit staff may not report to a
compliance officer responsible for monitoring the firm's day-to-day compliance with the
program). In the alternative, the
Member may hire an independent outside party with experience in this type of auditing.
The audit staff or outside auditor should document the audit and report the results of the audit to
the firm's senior management or to an internal audit committee or department. If the audit reveals
any deficiencies, the audit staff, outside auditor, senior management, or internal committee or
department should follow up to ensure that the firm has addressed and corrected those
deficiencies.

3.3 Developing Policies, Procedures, and Internal Controls

Members must establish and implement policies, procedures, and internal controls reasonably
designed to assure compliance with anti-money laundering provisions of the Bank Secrecy Act
(BSA) and related regulations.
A firm's procedures must cover four key areas:
identifying customers;
Detecting and reporting suspicious activity;
hiring qualified staff; and
Recordkeeping
Customer Identification Program
The anti-money laundering program must include procedures to obtain information about the
customer and to verify its identity. Unlike NFA's "know your customer" requirements, these
requirements apply to all customers, not just individuals.
A Member must obtain the following minimum information before it transacts business (e.g.,
introduces or opens an account or acts as counterparty) with a customer:
For individuals, the customer's name, date of birth, and personal or business address;
for customers that are not individuals, the customer's name, principal place of business, local
office or other physical location;

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 For U.S. persons, the customer's social security number or taxpayer identification number; and
for non-U.S. persons, a U.S. taxpayer identification number, a passport number and the issuing
country, an alien identification card number, or the number and issuing country for any other
government-issued document that shows nationality or residence and contains a photograph or
similar safeguard.
In addition to obtaining this minimum information, the Member must take steps to verify the
customer's identity. You do not have to verify the customer's identity before transacting business
with the customer but must do so within a reasonable time before or after the first business
transaction.
The procedures for verifying the customer's identity should:
describe those situations where documents will be used to verify identity and list the
documents that will be used (e.g., drivers license, passport, certified articles of incorporation,
government-issued business license);
explain when non-documentary methods will be used either instead of or in addition to
looking at documents and describe those non documentary methods (e.g., contacting the
customer at the
telephone number or address provided by the customer, comparing the information provided by
the customer with information from a consumer reporting agency, checking references with other
financial institutions);
include a mechanism for identifying customers that may be high money laundering or terrorist
financing risks (such as customers from particular geographic locations);
provide a means for notifying customers that the Member will ask them for information to
verify identity; and
describe what the Member will do if it cannot form a reasonable belief that it knows the
customer's true identity.
If a Member cannot identify a customer that is not an individual using its normal procedures, the
Member may need to obtain information about the individual with authority or control over the
account. Your firm's customer identification procedures should describe those situations where
the firm will obtain this information.
Members are not required to determine whether a document used to verify identity is valid. If a
document appears to be a forgery or there is other evidence of fraud, however, your firm must

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decide whether it has enough information to form a reasonable belief that it knows the customer's
true identity. The same is true if the information provided by the customer is inconsistent (e.g., a
home address in New York and a telephone number in
California or a birth date that isn't consistent with the customer's apparent age). A Member may
rely on another U.S. financial institution to conduct the customer identification procedures. The
law provides a safe harbor if the
BSA requires the other financial institution to have an anti-money laundering program, that
financial institution enters into a contract with the Member agreeing to annually certify that it has
implemented an anti-money laundering program and will perform the required steps and reliance
is reasonable under the circumstances. Your firm's procedures must describe any circumstances
where it will rely on another financial institution.
Although the safe harbor does not apply unless all of the above conditions are satisfied, firms
may also choose to rely on U.S. financial institutions in other reasonable circumstances. Your
firm should conduct a risk-based analysis before relying on those institutions.

3.4 Detecting and Reporting Suspicious Activity

A Member's anti-money laundering program must also include systems and procedures designed
to detect and report suspicious activity, such as transactions that do not appear to have a business
or other lawful purpose, that are unusual for the customer, or that cannot be reasonably
explained.
Your firm and appropriate personnel should know the nature of the customer's business and the
customer's purpose in entering into the transactions. Your firm should also provide employees
with examples of activities that raise red flags.
Each firm's program must require employees to promptly notify specified firm personnel of
potentially suspicious activity.

3.5 Hiring Qualified Staff

A Member's procedures should describe its policies for ensuring that employees in areas
susceptible to money laundering or terrorist financing are properly qualified and trained. Your
firm should perform background checks on key employees to screen those employees for
criminal and disciplinary histories.

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LO4. Maintain accurate records of transaction
4.1 How to Account for Foreign Currency Transactions

A foreign-currency transaction is one that requires settlement, either payment or receipt, in a

foreign currency. When the exchange rate changes between the original purchase or sale
transaction date and the settlement date, there is a gain or loss on the exchange. Whoever views
the denominated currency (the currency the transaction takes place in) as the foreign currency
takes the gain or loss. Companies that make many foreign-currency transactions may buy a
forward currency contract to get a guaranteed rate. Businesses with few foreign-currency
transactions are more likely to convert currency on the spot, or current, rate.
Step 1
Record the value of the transaction in dollars at the exchange rate current at the time of purchase
or sale. For example, a United States company buys plant and equipment from the United
Kingdom when the exchange rate is $1.50 to £1 and agrees to pay £10,000. Convert £10,000 to
dollars by multiplying by 1.5 and enter the transaction in the company's ledgers as $15,000.
Debit the plant and equipment account and credit accounts payable with $15,000.
Step 2

Calculate the value of the payment in dollars at the exchange rate current when the transaction is
settled. In the example, at the time of settlement the exchange rate is $1.55 to £1. The cost to the
company in dollars is therefore £10,000 multiplied by 1.55, or $15,500.
Step 3
Post the payment of the accounts receivable at the original rate and record the loss on exchange
by accounting for the difference between the original transaction value and the settlement
amount. In the example, credit the bank account with the actual amount paid of $15,500. Debit
accounts payable with the original debt of $15,000 and debit the loss on foreign exchange
account with the difference of $500.
Step 4

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Calculate the value of foreign-currency accounts receivable or payable at the spot rate at the end
of the accounting year. Record any change in value from the original transaction date as a
foreign-currency gain or loss in the year and post the other side of the entry to accounts payable
or accounts receivable, as appropriate. In the example, if the amount of £10,000 remains unpaid
at year end and the spot rate at that date is $1.55, debit loss on foreign exchange account with the
change in value of $500 and credit accounts payable with $500.

4.2 How to Keep Accurate Records for a Small Business

All small businesses are required to keep accurate records of their cash flow for tax purposes. In
addition, it is vital for proper management to track other measures of business success. The best
way to ensure proper record-keeping is to automate as much of these processes as possible, so no
human effort is required.
Step 1
Record immediately any income incurred by your business. Most sales transactions can be
computerized and automatically recorded; for example, use cash registers that time stamp and
date all sales, and keep an internal computerized record for later download into accounting
software. Older cash registers will maintain these records for the business on paper tape;
however, requiring manual entry of this information we almost certainly cause data entry errors,
or the loss of data because it is too tedious to maintain every transaction.
Step 2
Track business outflows by making as many purchases as possible with electronic payments.
Your online banking service will then keep perfect records of all payments. By comparison,
paper checks must be reconciled against the account at a later date, and introduces a lag time
between the time a purchase is made, and when the purchase is debited from the account. This
can be useful for cash flow purposes, but this benefit is greatly outweighed by the immediacy
and convenience of always up-to-date accounting.
Step 3
Measure worked hours on the part of all salaried and hourly employees, using means which do
not impact upon their workflow or morale. For example, the old-fashioned time clock can lower
worker morale by making them “punch a clock,” but this impact is
lessened if their time is tracked by requiring a log-in to the cash register when they arrive at their

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counter station. Do not use time tracking to penalize employees--unless you suspect deliberate
fraud--but rather for general efficiency measures.
Step 4

Keep additional records on the number of customers you have each day, in addition to their sales
volume. Walk-in traffic and repeat business should be correlated to marketing efforts, as well as
uncontrollable externalities, such as weather, temperature and humidity, and economic factors
which may improve or depress the business climate. A door sensor may be used to measure the
number of customers in the store, and compared with the number of sales. Some of these factors
will have no impact on your business, while others may cause massive sales fluctuations.
Learning which factors are correlated to your business is the key to driving and increasing sales
volume.

4.3 The importance of maintaining accurate accounts

It's important that your accounts are accurate and up to date so you can draw up 'true and fair'
annual accounts. Your accounts should be backed up with full and detailed records of all
business income and expenditure, such as receipts, invoices and purchase orders, payments in
and out, etc.

Why you should keep records and documents

Following careful record keeping procedures can also help you with tax returns and prevent
fraud or theft. Using a good record keeping system will keep you up to date and help you to:

 track expenses, debts and creditors

 apply for additional funding - eg a bank loan or overdraft facility
 save time and accountancy costs
 pay tax, accurately and on time, avoiding penalties
 apply for and receive the correct amount of benefits or credits

If you are starting a new business it is essential that you get a proper record keeping system in
place immediately.

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You can use various storage methods to keep records - such as a computer, hard disc drive or CD
- as long as they:

 show all information contained within a document

 allow information to be presented in a readable format

You should try to keep all original documents, and must keep any which show that tax has been
deducted - eg your end of year certificate for PAYE (form P60).

Detailed and up-to-date records will help you comply with tax legislation, deal with mistakes and
avoid penalties. You can be penalized for:

 not keeping adequate records

 failing to keep records for required periods of time
 inaccurate tax returns

Analytical accounting tools

Analyzing your financial accounts enables you to compare your performance against previous
years and with its competitors.

Ratios enable you to quickly compare relative values - eg two items on the balance sheet.

Ratio analysis can also be applied to non-financial data. For ease of reference, ratios are often
split into the following areas of common control:

 liquidity ratios - these are used to measure solvency and short-term survival prospects
 capital structure ratios - these measure the adequacy of owners' funding in relation to
long-term debt
 activity and efficiency ratios - these measure the operating efficiency of the business in
non-financial terms
 profitability ratios - these measure overall profitability and how well the business is using
its assets and covering overhead costs

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4.4 Balance sheets:

Your balance sheet is a financial statement at a given point in time. It provides a snapshot
summary of what your business owns or is owed - assets - and what it owes - liabilities - at a
particular date.

The balance sheet therefore shows how your business is being funded and how you are using
these funds.

There are three ways you may use your balance sheet:

 for reporting purposes as part of a limited company's annual accounts

 to help you and other interested parties such as investors, creditors or shareholders to
assess the worth of your business at a given moment
 as a tool to help you analyze and improve the management of your business

This guide explains who needs to produce balance sheets and when, the different elements within
them and how to use the information from a balance sheet to assess and manage business
performance.
Balance sheet reporting - who, when and where?
Limited companies and limited liability partnerships must produce a balance sheet as part of
their annual accounts for submission to:
 Companies House
 HM Revenue & Customs (HMRC)
 shareholders - unless agreed otherwise
As well as the balance sheet, annual accounts include the:
 profit and loss account
 auditor's reports - unless exemptions apply
 directors' report
 notes to the accounts - these should provide any information you think may be relevant,
eg supplementary financial information or additional detail
Other parties who may wish to see the accounts - and therefore the balance sheet - are:
 potential lenders or investors

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  potential purchasers of the business
 government departments carrying out inspections
 employees
 trade unions
There are strict deadlines for submitting annual accounts and returns to Companies House and
HMRC - you may have to pay a fine if you send them in late.
Reporting requirements for other business structures
Self-employed people, partners and partnerships are not required to submit formal accounts
and balance sheets on their tax return. However, the returns do require the relevant financial
details to be entered in a set format, so you may find it beneficial to prepare the figures in a
balance sheet format.
Other key benefits of producing a balance sheet include:
 if you want to raise finance, most lenders or investors will want to see three years'
accounts
 if you want to bid for large contracts, including government contracts, the client will
probably want to see audited accounts
 producing formal accounts - including a balance sheet - will help you monitor the
performance of your business
Contents of the balance sheet
A balance sheet shows:
 fixed assets - long-term possessions
 current assets - short-term possessions
 current liabilities - what the business owes and must repay in the short term
 long-term liabilities - including owner's or shareholders' capital
The balance sheet is so-called because there is a debit entry and a credit entry for everything (but
one entry may be to the profit and loss account), so the total value of the assets is always the
same value as the total of the liabilities.
Fixed assets include:
 tangible assets - eg buildings, land, machinery, computers, fixtures and fittings - shown
at their depreciated or resale value where appropriate

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  intangible assets - eg goodwill, intellectual property rights (such as patents, trade marks
and website domain names) and long-term investments
Current assets are short-term assets whose value can fluctuate from day to day and can include:
 stock
 work in progress
 money owed by customers
 cash in hand or at the bank
 short-term investments
 pre-payments - eg advance rents
Current liabilities are amounts owing and due within one year. These include:
 money owed to suppliers
 short-term loans, overdrafts or other finance
 taxes due within the year - VAT, PAYE (Pay As You Earn) and National Insurance
Long-term liabilities include:
 creditors due after one year - the amounts due to be repaid in loans or financing after one
year, eg bank or directors' loans, finance agreements
 capital and reserves - share capital and retained profits, after dividends (if your business
is a limited company), or proprietors capital invested in business (if you are an
unincorporated business)
By law the balance sheet must include the elements shown above in bold. However, what each
includes will vary from business to business. The firm's external accountant will usually decide
how to present the information, although if you have a qualified accountant on staff, they may
make this decision.
Interpreting balance sheet figures
A balance sheet shows:
 how solvent the business is
 how liquid its assets are - how much is in the form of cash or can be easily converted into
cash, i.e. stocks and shares
 how the business is financed
 how much capital is being used

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A balance sheet is only a snapshot of a business' financial position on one particular day. The
individual figures can change dramatically in a short space of time but the total net assets (assets
less liabilities) would only change dramatically if the business was making large profits or
losses. For example:
 If you hold large inventories of finished products, a change in market conditions might
mean their value is reduced. You may even need to sell at a loss.
 Customers sometimes have payment problems. If they are unable to pay, you may need to
revalue your assets by making allowances for bad debts.
Current liabilities - money you owe
This section might include money owed for goods or services received but not yet paid for.
Debtors - money owed to you
This figure assumes that debtors will pay up on time. Where there are doubts about being paid, a
provision can be made to reduce the value of the debts in the business' accounts.
Intangible assets
The value of goodwill, patents and intellectual property can fluctuate with market trends, so the
balance sheet value should be updated annually.
Fixed assets
These are shown at their depreciated rates. There are two main approaches to calculating
depreciation of an asset:
 Write off the same charge over the calculated life of the asset. For example, you may
decide that a computer bought for £2,000 has a useful life of five years and that you will
write off 20 per cent of its value each year.
 Apply a steeper depreciation rate in the first few years of an asset's value. For example,
you may decide to offset 30 per cent of the value of the same computer in the first two
years, 20 per cent in the third year and 10 per cent in the final two years. This method
may allow your business to keep pace with trends in the market value and replacement
cost of assets where value falls rapidly at the beginning.
Depreciation costs must be realistic and you may wish to approach your accountant for further
help.
You cannot offset the annual depreciation charge against taxable profits, but you can claim
capital allowances, using rates fixed by HM Revenue & Customs

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The relationship between balance sheets and profit and loss accounts
The profit and loss (P&L) account summaries a business' trading transactions - income, sales
and expenditure - and the resulting profit or loss for a given period.
The balance sheet, by comparison, provides a financial snapshot at a given moment. It doesn't
show day-to-day transactions or the current profitability of the business. However, many of its
figures relate to - or are affected by - the state of play with P&L transactions on a given date.
Any profits not paid out as dividends are shown in the retained profit column on the balance
sheet.
The amount shown as cash or at the bank under current assets on the balance sheet will be
determined in part by the income and expenses recorded in the P&L. For example, if sales
income exceeds spending in the period preceding publication of the accounts, all other things
being equal, current assets will be higher than if expenses had outstripped income over the same
period.
If the business takes out a short-term loan, this will be shown in the balance sheet under current
liabilities, but the loan itself won't appear in the P&L. However, the P&L will include interest
payments on that loan in its expenditure column - and these figures will affect the net
profitability figure or 'bottom line'.
Using balance sheet and P&L figures to assess performance
Many of the standard measures used to assess the financial health of a business involve
comparing figures on the balance sheet with those on the P&L.
Balance sheets: the basics
Compare balance sheets to assess business performance
There are some simple balance sheet comparisons you can make to assess the strength or
performance of your business against earlier periods, or against direct competitors. The figures
you study will vary according to the nature of the business. Some comparisons draw on figures
from the profit and loss (P&L) account.
Internal comparisons
If inventory (stock) levels are rising from one period to the next, but sales in your P&L are not,
some of your stock might be out of date. You may also have a cash flow problem developing

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If the amount trade debtors owe you is growing faster than sales, it could indicate poor internal
credit controls. Find out whether any of your customers are having problems with cash flow,
which could pose a threat to your business.
A positive relationship with your trade creditors is essential. Key to this is managing your cash
flow effectively, so that payments can be made on time. For example, trade creditors are more
likely to be flexible about extending terms of credit if you have built up a good payment record.
Making early payments may qualify you for a discount. However, early payment for the sake of
it will have a negative impact on your cash flow. Good payment controls will help prevent
imbalances in what you owe suppliers and in levels of stock and inventory.
Borrowing as a percentage of overall financing (gearing) is important - the lower the figure,
the stronger your business is financially. It's common for start-up businesses to have high
borrowing requirements, but if the gearing figure reaches 50 per cent you may have difficulty
getting further loans.
External comparisons
You can also compare the above balance sheet figures with those of direct or successful
competitors to see how you measure up. This exercise will highlight weaknesses in your business
operation that may need attention. It will also confirm strong business performance.

4.5 Use accounting ratios to assess business performance

Ratio analysis is a good way to evaluate the financial results of your business in order to gauge
its performance. Ratios allow you to compare your business against different standards using the
figures on your balance sheet.
Accounting ratios can offer an invaluable insight into a business' performance. Ensure that the
information used for comparison is accurate - otherwise the results will be misleading.
There are four main methods of ratio analysis - liquidity, solvency, efficiency and profitability.
Liquidity ratios
There are three types of liquidity ratio:
 Current ratio - current assets divided by current liabilities. This assesses whether you
have sufficient assets to cover your liabilities. A ratio of two shows you have twice as
many current assets as current liabilities.
 Quick or acid-test ratio - current assets (excluding stock) divided by current liabilities.
A ratio of one shows liquidity levels are high - an indication of solid financial health.

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  Defensive interval - liquid assets divided by daily operating expenses. This measures
how long your business could survive without cash coming in. This should be between 30
and 90 days.
Solvency ratios
Gearing is a sign of solvency. It is found by dividing loans and bank overdrafts by equity, long-
term loans and bank overdrafts.
The higher the gearing, the more vulnerable the company is to increasing interest rates. Most
lenders will refuse further finance where gearing exceeds 50 per cent.
Efficiency ratios
There are three types of efficiency ratio:
 Debtors' turnover - average of credit sales divided by the average level of debtors. This
shows how long it takes to collect payments. A low ratio may mean payment terms need
tightening up.
 Creditors' turnover - average cost of sales divided by the average amount of credit that
is taken from suppliers. This shows how long your business takes to pay suppliers.
Suppliers may withdraw credit if you regularly pay late.
 Stock turnover - average cost of sales divided by the average value of stock. This ratio
indicates how long you hold stock before selling. A lower stock turnover may mean
lower profits.
Profitability ratios
Divide net profit before tax by the total value of capital employed to see how good your return
on the capital used in your business is. This can then be compared with what the same amount of
money (loans and shares) would have earned on deposit or in the stock market.
You could also use the net profit ratio to evaluate your profitability. Divide the net profit before
tax by the total value of net sales (sales less returns) to see how good your net profit is. This can
then be compared with the same ratio in other periods or with the ratio of competitors. Net profit
ratio is one of the ratios used by analysts to determine whether a business is making progress.
Accounting periods
A balance sheet normally reflects a company's position on its accounting reference date
(ARD), which is the last day of its accounting reference period. The accounting reference period,
also known as the financial year, is usually 12 months. However, it can be longer or shorter in

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the first year of trading, or if the ARD is subsequently changed for some reason. The end of the
first financial year is the first anniversary of the last day of the month in which the company was
formed. If you decide to change this, you will need to notify Companies House.
You should also notify HM Revenue & Customs (HMRC) if you change your ARD. Self-
employed people and partnerships can choose their first accounting period. Subsequent accounts
are usually prepared a year after the first balance sheet date.
Internal accounts
Your business may decide to draw up accounts to help you monitor business performance as
frequently as monthly. In this case the figures - often known as management accounts - are for
internal use only. You do not need to file them with Companies House or HMRC.
Foreign exchange rate
Price at which the foreign currency can be acquired
Recordkeeping and Reporting
Each Member must maintain books and records necessary to conduct their business and must
provide forex customers with timely and accurate notice of the status of their accounts.

4.6 Customer Statements

Written Confirmations
NFA Compliance Rule 2-36(k) requires Members and Associates to provide daily and monthly
written confirmations of all account activity to customers that comply with CFTC Regulation
Account activity includes offsetting transactions, rollovers, deliveries, option exercise, option
expirations, trades that have been reversed or adjusted, and monetary adjustments. In those cases
where a customer's account had either no open positions at the end of the monthly statement or
any changes to the account balance since the prior statement, the Member is must still provide a
monthly statement at least once every three months.
The monthly confirmation must clearly show the following:
the open retail forex transactions with prices at which acquired;
The net unrealized profits or losses in all open retail forex transactions marked to the market;
Any money, securities or other property carried with the FDM; and
A detailed accounting of all financial charges and credits to such retail forex accounts during the
monthly reporting period, including money, securities or property received from or disbursed to

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such customer and realized profits and losses; If the customer engages in forex options
transactions, the monthly confirmations must also show:
All forex options purchased, sold, exercised, or expired during the monthly reporting period,
identified by the underlying retail forex transaction or underlying currency, strike price,
transaction date, and expiration date;
All open forex option positions marked to the market and the amount each position is in the
money, if any;
Any money, securities or other property carried with the FDM; and
A detailed accounting of all financial charges and credits to such retail forex account(s) during
the monthly reporting period, including money, securities and property received from or
disbursed to such customer, premiums charged and received, and realized profits and losses.
Daily Confirmation Statements
Each FDM must, not later than the next business day after any retail forex or
forex option transaction, furnish the retail customer with the following:
For retail forex transactions:
A written confirmation, including all offsetting transactions executed during the same business
day and the rollover of an open retail forex transaction to the next business day;
For retail forex option transactions:
The retail forex customer's account identification number;
A separate listing of the actual amount of the premium, as well as each mark-up thereon, if
applicable, and all other commissions, costs, fees and other charges incurred in connection with
the forex transaction;
The strike price, the underlying retail forex transaction or underlying currency, the final
exercise date of the forex option purchased or sold, the date the forex option transaction was
executed; and
Upon the expiration or exercise of any forex option, the date of such occurrence, a description
of the forex option involved, and in the case of exercise, the details of the retail forex or physical
currency positions which resulted, including, if applicable, the final trading date of the retail
forex transaction underlying the option. Members may provide confirmations and
monthly/quarterly statements online or by other electronic means with the customer’s prior
consent and after obtaining a signed acknowledgement from the customer that it received the

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prescribed disclosure regarding, among other things, the electronic medium to be used, the
duration of the effectiveness of the consent, and any fees associated with such delivery. The
FDM should maintain a hard copy of the customer’s signed consent and acknowledgement.

4.7 Recordkeeping
The Member's trading system must record and maintain essential information regarding customer
orders and account activity. The electronic system must record and maintain information
regarding:
Transaction records for orders (which must include the types of information contained on
orders for exchange-traded commodities, such as the date and time an order was received) and
rollovers;
Account records showing the financial status of each account; and
Time and price records similar to those maintained by the futures exchanges
The Member's trading system must also produce daily exception reports showing price
adjustments and orders filled outside of the price range displayed by the system when the
customer order reached the platform. The Member should review these reports for suspicious or
unjustifiable activity.
The Member's trading system must also produce daily reports showing each price change on the
platform, the time of the change to the nearest second, and the trading volume at that time and
price as well as the method used to determine the price for any forex transactions.
Records
Depending upon the circumstances, FDM assignor/transferor must provide NFA with all
pertinent records pertaining to the transaction. Prior to the transaction, the FDM must provide:
Representative copies of the customer agreements;
a list of the affected accounts; including:
o Customer names;
o Account numbers; and
o Account values as of the end of the previous day:
if an assignment or transfer, documentation regarding the FDM's investigation of the
assignee/transferee's status as an authorized counterparty and its financial ability to honor its
commitments to the customers.

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Immediately after the bulk assignment, liquidation or transfer, the assignee/transferee must
provide a list of the affected accounts and the value of each account as of the date of the
transaction.
Ceasing Business
In order to permit NFA to oversee an orderly winding down, an FDM must notify NFA seven
days before it ceases its forex business. All NFA Members must comply with the federal privacy
laws and NFA's business continuity and disaster recovery requirements.
Recordkeeping
The procedures must also describe the firm's recordkeeping policies regarding information and
documents obtained during the identification process. Members must keep records of all
identifying information obtained from customers, including a copy or detailed description of
each document viewed and a description and the results of each non-documentary method used.
Your firm must keep records of the information obtained from customers for five years after the
account is closed and of the information used to verify identify for five years after those records
are made.

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