Foreign exchange

Foreign exchange: Foreign exchange means the money of the other country i.e foreign currency bank balance, bank notes, checks and drafts.

A foreign exchange transaction is an agreement between a buyer and a seller that a given amount of currency is to be delivered at a specified rate for some other currency.

Functional Currency: The Functional currency is the currency of the primary economic environment in which the entity operates.

 

Foreign currency: Foreign currency is any currency not normally used in a particular region or country. A foreign currency is any currency other than the reporting currency. The functional currency could be either the reporting currency or the foreign local currency.

Direct rate: A direct rate is a home currency price of a unit of foreign currency. An example- a direct rate between the US dollar and the Bangladesh Tk. Where the Bangladesh is designed as the home country. Using united states and the Bangladesh (home country) is-

Current- Noncurrent Method: Under the current no current method, as shown in exhibit current assets and liabilities are translated at current exchange rates and noncurrent assets and liabilities and stock holders equity are translated at historical exchange rates. This method was generally accepted in the US from the early 1930 until FASB statement and was issued in October 1975.

Temporal method: The temporal method was originally proposed in accounting research study. According to the temporal method cash receivables and paybles are translated at the current rate. Other assets and liabilities may be translated at current or historical rates, depending on their characteristics.