What it means
Currency codes are three-letter labels set by an international standard so that banks and businesses everywhere identify money in the same way. MUR stands for Mauritian rupee, just as USD stands for the United States dollar.
Using the code avoids confusion with other rupees, such as those of India, Pakistan, Nepal and Sri Lanka, which all have their own codes. Mauritius has a small, open economy built on tourism, financial services, textiles, sugar and a growing technology sector.
The country is also used as an international business and investment hub, and many companies route investment in Africa and Asia through it. This means that foreign firms often have to deal with the rupee even when their main business is elsewhere.
The value of the rupee against other currencies changes with market conditions. A business that earns in rupees but pays suppliers in dollars, or the reverse, faces exchange rate risk, which is the chance that a movement in the rate will turn a profit into a loss.
Tourism earnings, commodity prices and the central bank's policy choices all influence the rate. For finance teams, practical tasks include converting invoices, translating the accounts of a Mauritian subsidiary into the group's reporting currency, and deciding whether to hedge.
Hedging means using contracts such as forwards to fix an exchange rate in advance. Contracts should state the currency by its code and say which source of exchange rates is used and on which date.
One common nuance is that the rate used for converting transactions differs from the rate used to translate balance sheets at the year end. Accounting standards generally require transactions to be recorded at the rate on the transaction date, with monetary balances restated at the closing rate.
The resulting differences are reported as exchange gains or losses.
In practice
Real-world examples.
Example
A hotel group in Europe sells holiday packages to Mauritius and pays local suppliers in rupees. The finance team forecasts its rupee costs for the season and buys them forward, so that a sudden move in the rate does not wipe out the margin on the packages.
Example
A software firm in Dubai hires a contractor in Mauritius and agrees to pay MUR 180,000 a month. The finance manager converts the fee into dollars each month using the rate on the payment date and records any difference as an exchange gain or loss.
Example
An investor sets up a holding company in Mauritius to own a business elsewhere in Africa. The company reports in dollars, so its accountant translates rupee expenses such as audit fees and local salaries at the average rate for the period.
Formula
Calculation
Amount in dollars = Amount in MUR / MUR per $1
Amount in MUR = Amount in dollars x MUR per $1
Suppose a rate of MUR 45 per $1 (an illustrative figure). An invoice of MUR 4,500,000 is worth 4,500,000 / 45 = $100,000. If the rupee weakens so that the rate becomes MUR 50 per $1 before the invoice is paid, the same invoice is worth 4,500,000 / 50 = $90,000. The exporter who is paid in rupees receives $10,000 less than expected, which shows the exchange rate risk.Case study
Seen in the real world.
Coral Bay Exports is an illustrative, fictional Mauritian company that sells textiles to customers in Europe and the United States. It invoices in dollars but pays its workers and landlords in rupees, so a stronger rupee squeezes its profit.
The finance director calculated that costs of MUR 36,000,000 a year, at MUR 45 per $1, equal $800,000. If the rupee strengthens to MUR 40 per $1, the same costs equal 36,000,000 / 40 = $900,000, which is $100,000 more in dollar terms.
To protect the margin, the company agreed forward contracts covering about half its expected rupee needs for the year. The illustrative lesson is that a business whose income and costs are in different currencies should decide in advance how much of the gap to hedge.
Watch out
Common mistakes.
- Confusing MUR with the rupees of other countries, which each have a separate code and value.
- Dividing when you should multiply, and so getting an amount in dollars that is far too large or small.
- Using today's rate to restate an old transaction when the accounts require the rate on the transaction date.
Questions
People also ask.
How many cents are in a rupee?
There are 100 cents in one rupee, just as there are 100 cents in a dollar.
Who issues the currency?
The country's central bank issues the notes and coins and sets monetary policy.
Do I need to hedge rupee exposure?
It depends on how large the exposure is compared with your margins, and many firms hedge when a rate move would hurt profits significantly.
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