Value Date

What is Value Date?

A value date is a date in future when the value of assets or security becomes effective or when a transaction is settled. It is used to determine the present value of a volatile asset or security and also used in calculating the cost of financial products and accounts, such as option contracts, forward currency contracts and the interest payable or receivable on personal accounts, where there can be inconsistency because of variations in the timing of valuations.

However, in forex markets the value date is known as “valuta” which is used to determine that value of a currency with another currency that is expressed in terms of its exchange rate. In other word, it is the date when a transaction is expected to take place.  

Value Date in different businesses

The value dates are used slightly differently in various scenarios and businesses such as in trading, banking and accounting. 

Value Date in Trading

The value date is used when there is some inconsistency due to variations in timing of asset valuation. In foreign exchange markets, the value of date refers to the delivery date on which the future contract settles its respective obligations by transferring ownership and making necessary payments.   

In spot trading or those involve in trading of currency for another, due to variation in time zones and bank processing delays the value date is generally set two businesses days, that do not include public holidays and weekends, after the date at which the transaction and exchange rates were agreed. The value date is the not a date at which the transaction was agreed at an exchange rate but at which the currencies are traded. In spot trading, the value date can be any date including non-business dates after the contract is signed.  

In bond market, the value of date is used to determine the accrued interest on a bond, which consider three key dates into account that are value date, trade date and settlement dat. the value date is generally settlement date, but not always and it can be any day including non-business days. The trade date is the date in which the transactions are executed, and the settlement date is a date on which the transaction is settled but it can only be a business day.

It is also used while assessing the value of coupon bonds that make semi-annual interest payments and who’s the value date comes after every six months. It reduces the risk for investors as its interest payments are determined same as the governments bonds.  

Value Date in Banking

The value date refers to the date when the account holders can the money deposited through check and that has been passed through the bank’s clearing cycle.

Assuming that the payee and payor have accounts in different banks, when a payee deposits a check at their bank, the bank will credit the payee’s account with the deposit amount which usually takes days to receive the amount from the payor’s bank. In case the payees immediately use the check amount the bank faces a risk of recording a negative cash flow so to avoid such risk the bank determine a day to collect the amount from the paying bank that is known as Value date. Then the bank holds the amount in payee’s account and until the value date the payee can’t use the amount.

However, payee may negotiate for early use of amount before the value date, which is few days after the book date.

Similarly, when a wire transfer is made from one bank to another the value date is a date when the amount wire becomes available to the customer and the receiving bank.

Value Dates in Accounting

In accounting, the value date is a date depends on the assets that can be used by the account holder when the credit entry comes to an end to become available to the account holder in case of debt entries. It refers to the date when an account becomes effective and is legally binded for an operational flow transaction. The value date is also used determines the start date for estimating deferral interest, accrual interest and other items, but it needs to be well defined from the posting date.