Constant currency is a financial concept that refers to exchange rates devoid of the effects of currency market fluctuations so that their value remains steady over time.
The purpose of constant currencies is to obtain “cleaner” financial statements that provide international companies with a more precise outlook of the evolution of their yearly performance, without the impact of currency risk that can distort the overall results.
For instance, a UK travel operator might sell their packages to customers in the UK and the EU. Therefore, a significant percentage of their revenue is in euro. If during a specific reporting period the company’s sales in the eurozone countries have increased by 5%, but over the same period the value of the euro has dropped 6%, the financial statement will reflect a 1% decline on sales in the region. To isolate the impact of the euro exchange rate from the evolution of the sales, the company will have to measure them in constant currency.