Page 7 - PowerPoint Presentation

THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES

Definitions

• Functional currency – the currency of the primary economic

environment in which the entity operates.

• Presentation currency – the currency in which the financial
statements are presented.

• Foreign currency – a currency other than the functional

currency of the entity.

• Exchange rate – the ratio of exchange for two currencies.

• Direct rate : domestic currency per foreign currency unit e.g. R13/US$
• Indirect: foreign currency per domestic currency unit e.g. US$0.077/R

• Exchange difference – the difference resulting from translating

a given number of units of one currency into another currency

at different exchange rates.

• Spot exchange rate – the exchange rate for immediate delivery.

• Closing rate – the spot exchange rate at the end of the

reporting period.

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