Page 8 - Finac1 Test 2 slides - 2. The Effects Of Changes In Foreign Exchange Rates

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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