Base currency and ESG Relevance Score: Difference between pages

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''Foreign exchange.''
''Credit ratings - ESG - Fitch Ratings.''


(ESG.RS)


1. ''Rate quotation.''
ESG Relevance Scores - issued by Fitch Ratings - identify the relevance and materiality of environmental, social and governance elements to credit rating decisions.


The base currency in a foreign exchange rate quotation is the currency which there is one of.


The highest ESG.RS score is 5.


<span style="color:#4B0082">'''Example 1: Foreign exchange rate quotation'''</span>
This indicates that a factor is unambiguously causing a change to a current rating level.


In the quotation GBP/USD 1.3600; or 1 GBP = 1.3600 USD,


the base currency is GBP;
The lowest ESG.RS score is 1.


meaning one British pound would be exchanged for a variable number of USD, depending on the rate quoted.
A score of 1 means a factor is currently irrelevant - both to the issuer and the sector - from a credit perspective.
 
 
The base currency is also known as the Reference currency or the Fixed currency.
 
 
'''Base calculation rule'''
 
A rule of thumb in applying foreign exchange rates is to consider whether the calculation is from, or to, the base currency.
 
When calculating:
*From the base, multiply by the exchange rate
*To the base, divide by the exchange rate
 
 
<span style="color:#4B0082">'''Example 2: Calculating from the base currency'''</span>
 
We need to exchange between GBP 10m and USD.
 
Use the exchange rate GBP/USD 1.3600 to calculate the number of USD.
 
 
GBP is the base currency.
 
We're calculating '''''from''''' the base currency.
 
So <u>multiply</u> by the exchange rate:
 
USD amount = 10m x 1.3600
 
= '''USD 13.6m'''
 
 
<span style="color:#4B0082">'''Example 3: Calculating to the base currency'''</span>
 
We need to exchange between USD 10m and GBP.
 
Use the exchange rate GBP/USD 1.3600 to calculate the number of GBP.
 
 
GBP is the base currency.
 
We're calculating '''''to''''' the base currency.
 
So <u>divide</u> by the exchange rate:
 
GBP amount = 10m / 1.3600
 
= '''GBP 7.35m'''
 
 
 
 
2. ''Currency comparison.''
 
More generally, a 'base currency' means the currency with which other currencies are compared. 
 
 
<span style="color:#4B0082">'''Example 4: Multicurrency liquidity arrangement'''</span>
 
In a multicurrency liquidity arrangement, 'base currency' refers to the currency in which the master account is denominated and to which all other currencies are converted. 
 
The base currency also serves as the basis for all interest rate calculations in the multicurrency liquidity arrangement.
 
 
<span style="color:#4B0082">'''Example 5: Foreign exchange gains and losses'''</span>
 
In calculating a foreign exchange gain or loss, a 'base' currency means the currency which is not considered to be 'foreign' currency for the purpose of calculating foreign exchange (FX) movements.
 
In this context, FX movements arise when an organisation enters into a transaction in a foreign currency.
Gains and losses are recognised, either on an [[accruals basis]] or a [[realisation]] basis, between the value of the transaction in the ‘home’ (or base) currency at two different points in time.  




== See also ==
== See also ==
* [[Accruals basis]]
* [[Corporate governance]]
* [[Foreign exchange]]
* [[Credit rating]]
* [[Functional currency]]
* [[Credit rating agency]]
* [[Indirect quote]]
* [[Credit risk]]
* [[Realisation ]]
* [[CSR]]
* [[Terms currency]]
* [[Environmental concerns]]
* [[Variable currency]]
*[[ESG]]
 
* [[ESG investment]]
 
* [[ESG ratings]]
== Other resources ==
* [[ESG stock]]
[[Media:June_16_TT_Base_jumper.pdf| Base jumper - applying base currencies, direct and indirect exchange rates, The Treasurer]]
* [[Fitch]]
* [[Green]]
* [[Green Finance Initiative]]
* [[Issuer]]
* [[Social concerns]]
* [[Sustainability]]


[[Category:The_business_context]]
[[Category:Corporate_finance]]
[[Category:Investment]]
[[Category:Long_term_funding]]
[[Category:Identify_and_assess_risks]]
[[Category:Manage_risks]]
[[Category:Manage_risks]]
[[Category:Trade_finance]]
[[Category:Risk_frameworks]]
[[Category:Risk_reporting]]

Revision as of 12:01, 14 April 2021

Credit ratings - ESG - Fitch Ratings.

(ESG.RS)

ESG Relevance Scores - issued by Fitch Ratings - identify the relevance and materiality of environmental, social and governance elements to credit rating decisions.


The highest ESG.RS score is 5.

This indicates that a factor is unambiguously causing a change to a current rating level.


The lowest ESG.RS score is 1.

A score of 1 means a factor is currently irrelevant - both to the issuer and the sector - from a credit perspective.


See also