Romanian
Currency Update
Effective July 1, 2005, the official currency of Romania
became the New Leu. The three-letter currency code assigned to the new currency
by the International Standards Organization (ISO 4217) is RON (the ISO code of
the old leu was ROL). The subunit is the New Ban (plural Bani), equal to 1/100
of 1 RON. Until December 31, 2006, RON and ROL will coexist in the marketplace,
and ROL will be accepted for settlement of contractual obligations denominated
in RON. However, any transactions that take place in a physical currency of ROL
will be deemed to have occurred in RON. The statutory exchange rate of ROL to
RON is fixed at 10,000:1. The redenomination creates a break in history, which
needs to be handled carefully. We consider two possible approaches to handling
the redenomination.
Retain old security currency, transfer payments
to new currency
One option is to book coupon and principal payments
in ROL, and then transfer the booked ROL amounts to a RON cash balance. Where
practical, this solution is likely to be preferred since it involves no changes
in security setup and only small adjustments in operational procedures, and it
is unlikely to have side effects on activities such as portfolio performance measurement.
Change
security currency
In cases where it is not practical to retain the
old security currency, another option is to create a new security for the RON
version of an instrument (this is better than changing the currency of the original
security). At a convenient time, but in any case before the end of 2006, positions
in the ROL-denominated security can be converted to positions in the RON-denominated
security using paired Adds and Delivers. You might want to use the date on which
your price vendor changes over to the new standard as the effective date of the
Add and Deliver transactions.