A tutorial on currency exchange¶

Jan 1¶

First, we’ll establish a ledger with the necessary columns. We needn’t define a currency trading account; that will be created for us:

ldgr = Ledger(ref=Cy.CAD)
ldgr.add_column("Canadian cash", Role.asset)
ldgr.add_column("US cash", Role.asset, currency=Cy.USD)
ldgr.add_column("Capital", Role.capital)
ldgr.add_column("Expense", Role.expense)

At this point, there’s no balance, and no rates defined for the currencies. ldgr.equation.status will evaluate to Status.failed.

The scenario begins with an opening balance of CAD 200. In double entry book-keeping, this becomes an asset on the left hand side, and capital on the right. We can define the opening balance like this:

for amount, col in zip(
    (Dl(200), Dl(0), Dl(200), Dl(0)), ldgr.columns.values()
):
    ldgr.commit(
        amount, col,
        ts=datetime.date(2013, 1, 1), note="Opening balance")

Jan 2¶

Let’s apply the initial currency exchange rate. We do that by instantiating an Exchange object, and creating a sequence of changes to apply to our ledger:

exchange = Exchange({(Cy.USD, Cy.CAD): Dl("1.2")})
for args in ldgr.adjustments(exchange):
    ldgr.commit(
        *args, ts=datetime.date(2013, 1, 2),
        note="1 USD = 1.20 CAD")

The next step is to buy CAD 120 worth of US dollars. How many USD will that give us?:

usd = exchange.convert(120, TradePath(Cy.CAD, Cy.CAD, Cy.USD))

So we add that to our US cash account:

ldgr.commit(usd, ldgr.columns["US cash"])

If we should check ldgr.equation.status we’d get Status.failed. Our book is unbalanced. We must remember to deduct from our Canadian cash:

ldgr.commit(-120, ldgr.columns["Canadian cash"])

And now, ldgr.equation.status will evaluate to Status.ok.

Jan 3¶

Our book holds both American and Canadian dollars, so it’s exposed to fluctuations in the exchange rate. On 3rd January, you can get 1.30 Canadian dollars for one American. Let’s apply that to our ledger:

exchange = Exchange({(Cy.USD, Cy.CAD): Dl("1.3")})
for args in ldgr.adjustments(exchange):
    ldgr.commit(
        *args, ts=datetime.date(2013, 1, 3),
        note="1 USD = 1.30 CAD")

At this point in the story, we spend forty US dollars. On the left hand side of the ledger, it’s clear that this needs to come from our US assets. But on the right hand side, our expense account is in Canadian dollars. So we need to make a calculation to determine how much to deduct from there:

cad = exchange.convert(40, TradePath(Cy.USD, Cy.CAD, Cy.CAD))

And so:

ldgr.commit(-40, ldgr.columns["US cash"])
ldgr.commit(cad, ldgr.columns["Expense"])

Jan 5¶

The exchange rate shifts a bit today in favour of the Canadian dollar. We don’t make any purchases, but we do convert all our US dollars back to Canadian. So there should be no change to the right hand side of our ledger, only movement of our assets on the left.

First we apply the new rate:

exchange = Exchange({(Cy.USD, Cy.CAD): Dl("1.25")})
for args in ldgr.adjustments(exchange):
    ldgr.commit(
        *args, ts=datetime.date(2013, 1, 5),
        note="1 USD = 1.25 CAD")

... then work out how much our US dollars are worth:

usd = ldgr.value("US cash")
cad = exchange.convert(usd, TradePath(Cy.USD, Cy.CAD, Cy.CAD))

... and finish by committing that to our book:

ldgr.commit(-usd, ldgr.columns["US cash"])
ldgr.commit(cad, ldgr.columns["Canadian cash"])

Jan 7¶

We are now back in Canada but stuck in the airport waiting for our transfer home. We want food. So we cough up twenty dollars for a tasty burger and a bottle of fizzy beer. Here’s the transaction for that:

ldgr.commit(-20, ldgr.columns["Canadian cash"], note="Buy food")
ldgr.commit(20, ldgr.columns["Expense"], note="Buy food")

How much money do we have left? ldgr.value("Canadian cash") says $135.00. Looking at the other columns it seems we spent CAD 72.00 during our trip. So we accidentally made CAD 7.00 due to the fluctuations in the exchange rate while we were away.