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foreign currency revaluation

Foreign currency revaluation is a treasury concept defining the method by which international businesses translate the value of all their foreign currency-denominated open accounts – i.e. payable and receivable transactions – into the company’s reporting currency.

The challenges of Foreign currency revaluation

Accounting regulations require international businesses to keep an updated record of the value of all open transactions in their reporting currency. In the case of payables and receivables due to be settled in foreign currency, these are subject to transaction risk, which refers to the adverse impact that movements in the exchange rate could have on the companies’ account books.

The company runs a foreign currency revaluation process to solve this issue. At the end of each accounting period, the value of all open transactions is translated into the reporting currency using the current spot exchange rate. These revaluations generate differences in the value of the company’s monetary assets and liabilities, which get recorded under “unrealised gains and losses”.

When the transaction is settled, the differences in value between the firm sale or purchase commitment and the payment date are recorded as realised FX gains/losses on the balance sheet.