Four way equivalence model and Off-balance sheet finance: Difference between pages

Revision as of 08:18, 25 July 2014

Any form of finance that does not result in a corresponding liability appearing on the entity's published balance sheet.

On double-entry bookkeeping principles the asset being financed cannot appear either.

The effect of such financing and accounting methods is to show the company's borrowings and financial risk at a lower level than they really are.

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-A model that proposes a number of related conceptual linkages between differences in:
+Any form of finance that does not result in a corresponding liability appearing on the entity's published balance sheet.
-(i) Interest rates;
+On double-entry bookkeeping principles the asset being financed cannot appear either.
-(ii) Spot and forward foreign exchange rates;
+The effect of such financing and accounting methods is to show the company's borrowings and financial risk at a lower level than they really are.
-(iii) Expected inflation rates;  and
-(iv) The expected change in spot foreign exchange rates.
-The related individual linking theories are:
-#Interest rate parity theory - linking interest rates & spot and forward foreign exchange rates.
-#The Fisher Effect - linking interest rates with expected inflation rates.
-#Expectations theory - forward foreign exchange rates and future out-turn spot foreign exchange rates.
-#The International Fisher Effect - interest rate differentials and expected change in spot foreign exchange rates.
-#Purchasing power parity theory - inflation rate differentials and expected change in spot foreign exchange rates.
 == See also ==
-* [[Expectations theory]]
+* [[Balance sheet]]
-* [[Fisher Effect]]
+* [[Double entry]]
-* [[Interest rate parity]]
+* [[ED 2010/9]]
-* [[International Fisher Effect]]
+* [[Finance lease]]
-* [[Purchasing power parity]]
+* [[Gearing]]
+* [[IAS 17]]
+* [[Liabilities]]
+* [[Off balance sheet]]