Generally, the university encourages using US Dollars for all business transactions. There are several business cases in which using foreign currencies is appropriate, including foreign operations, reimbursing expenses to foreign visitors or to Stanford travelers who have incurred expenses directly in foreign countries in local currency, and making payments to non-U.S. vendors., and under rare circumstances, receiving payments in foreign currencies.
When making or receiving payments in a foreign currency, review Stanford-specific policies and procedures (including appropriate payment channels and rules for reimbursable expenses/receipts, especially payments made in cash) for proper revenue recognition, currency conversion costs and potential currency fluctuations against the US Dollar, country-specific currency rules or restrictions, and U.S. government compliance regulations for transactions with sanctioned parties, applicable to any currency.
The Office of the Treasurer (OOT) guides departments on foreign currency-denominated payments and receipts. OOT can execute foreign currency hedges to assist schools and departments in mitigating the impact of foreign currency fluctuations on their operating budget and maintain a stable cash flow.
Payment Services facilitates the Stanford-US based processes associated with certain foreign currency payments including payments for suppliers and visitors.
Supplier payments and visitor reimbursements
Wire transfers are a universal and quick payment option for payments in foreign currency for Stanford and the recipient although they cannot easily be recalled once issued. A wire transfer in a foreign currency flows through the banking system and is usually completed within one or two days depending on the time zone of the destination account, and the number of intervening correspondent banks.
When expenses are paid on a Travel Card (TCard), JP Morgan Chase automatically converts the currency to U.S. dollars when the transaction is processed. The cardholder/custodian does not need to upload a screenshot of the currency conversion. This is also true of other US issued credit cards.
For reimbursements, foreign receipts must be converted to U.S. dollars. The Oanda website is a currency converter that can be used to convert foreign receipts. The currency conversion result must be attached to the expense report in the Expense Request System.
For more information, see:
- Setting up a Supplier, Independent Contractor or Payee
- Inviting and Paying Foreign Visitors
- Purchase Order Invoice Processing
All payments made regardless of currency type are subject to the US Department of Treasury’s Office of Foreign Assets Control (OFAC) regulations that restrict payments to certain sanctioned individuals, groups, and countries. Payments are checked against the OFAC sanctions lists by both Stanford and the bank. Payments to otherwise sanctioned parties which are not authorized by an appropriate license can be frozen by the bank, are subject to OFAC control and can be difficult to recover. Some countries have currency control restrictions. For instance, the Chinese Yuan (CNY) cannot be used or traded outside of China.
For questions on currency restrictions, please submit a support request to the Office of the Treasurer.
Whenever possible, receipts to Stanford should be denominated in U.S. Dollars since foreign currency receipts carry foreign exchange risk, often additional cost to Stanford and require special handling. When depositing checks denominated in foreign currency at the bank, call attention to the fact that it is a foreign check, and it will be “rated” or assigned an initial exchange rate. Note that checks in foreign currencies or drawn on accounts in foreign banks may be rejected for deposit. If Wells Fargo agrees to accept the deposited foreign check for international clearing, the fees and principal charges are substantial. The processing time can take six weeks or more for funds to be available. When the bank fully processes the check/s, a final U.S. Dollar value will be assigned. The Office of the Treasurer will book the final U.S. Dollar amount to the general ledger in Oracle Financials, which may differ from the amount that was expected due to bank fees and currency fluctuations.
Checks denominated in foreign currency cannot be deposited with either a remote scanner or the mobile app.
Note that in the unusual circumstances that over $10,000 in cash or the equivalent cash in foreign currency are received for a single transaction, federal reporting obligations are triggered.
If a wire payment denominated in foreign currency is expected, to ensure prompt identification of the receipt and credit to the correct PTA and department, submit a support request to the Office of the Treasurer. Foreign currency receipts greater than $10,000 may be converted at a preferred exchange rate if the Office of the Treasurer is notified in advance.
Note that receipts can also be subject to OFAC sanctions, and university recipients of such funds should exercise appropriate due diligence in advance that payers are not identified on OFAC’s restricted parties lists. See DoResearch for more information.
As a global university, Stanford incurs foreign currency risk due to its international business activities. Exchange rate fluctuations impact the university’s consolidated financial statements and overseas operations’ cash flows. The university enters into currency hedging transactions for the sole purpose of reducing or eliminating the foreign exchange risk and budget impact of exchange rate fluctuations. Projected receipts and disbursements associated with a transaction may be hedged with two types of instruments:
- Foreign Currency Spot Contract is an agreement with a financial institution to buy one currency and sell another at or near the current market exchange rate (the spot rate). Spot transactions require an upfront cash payment and usually settle within two business days if a multi-currency account already exists for the currency. It can take an additional 2 - 3 weeks if a new multi-currency account will need to be opened.
Foreign Currency Forward Contract is an agreement with a financial institution to buy or sell a currency at a set exchange rate on a specific date in the future. A forward contract rate differs from the current market rate (spot rate) as it includes a premium or discount that is added to compensate for currency and interest rate volatility and the length of the contract. The cash payment is not required until the contract matures. Thus, the U.S. Dollar value of a future payment or receipt can be locked in without supplying the cash in advance nor does it require a multi-currency account.
Please note that the university does not use option contracts for hedging at this time.
For more information, refer to Administrative Guide Policy 11.6.1: Foreign Currency Hedging.
Procedures
The Treasurer’s Office consults on whether foreign exchange exposures are suitable for hedging and offers alternatives to mitigate risk. They can help clarify the hedging process, assist internal clients in developing a hedging strategy, offer current quotes, and model the impact of various strategies. To execute a hedge, complete the Hedge Request Form and attach it to a support request to the Treasurer’s Office. This form includes the currency and amount to be hedged, information about the underlying exposure being hedged, including executed contracts, and departmental information including the PTA to which the transaction should be charged. An authorized signer must execute the hedge request form with spending authority to cover the USD equivalent of the request.
Risks and Implications
Foreign exchange hedging for transactional exposures is offered as a tool to neutralize the budget risk posed by foreign exchange fluctuations associated with a specific activity. It should not be based on an expectation of foreign currency moves. The decision to hedge should be informed by the need to lock in a rate that will stabilize the value of a future commitment which is the sole responsibility of the requesting department.
Accounting Treatment
Foreign currency held at the end of an accounting period is subject to revaluation. The change in the US Dollar value of the foreign currency will be booked to the income statement at the Bloomberg PX MID daily market rate, as a realized gain or loss. This rate is available from the Office of the Treasurer or Investment Accounting.
The US Dollar value of the cash shown on the balance sheet will also change by an equal amount. Foreign denominated cash that results from a spot transaction will be subject to this accounting. However, the change in US Dollar value of a forward contract does not flow through the income statement until it matures. It is booked as an unrealized gain or loss until maturity.
Foreign currency held at the end of a fiscal year will be marked-to-market using the Bloomberg PX MID daily market rate on the last day of the period. The change in the US Dollar value will be booked to the income statement as an unrealized gain or loss and reversed in the subsequent accounting period.
The accounting rules are addressed by both the International Financial Reporting Standards (IFRS) and by the US Generally Accepted Accounting Principles (US GAAP) as well as other national accounting standards.
