“Foreign exchange gain or loss”
Foreign exchange gains and losses or FX gains and losses is an accounting concept referring to the impact of foreign exchange risk in the financial statements of businesses’ monetary assets and liabilities denominated in currencies other than their functional currency.
The origin of FX gains and losses
Companies importing products or services from foreign providers or those selling their products in foreign currencies are vulnerable to fluctuations of the value of their foreign exchange cash flows from the moment they make their first sale or purchasing agreement until the payment date. The differences in the value of those monetary assets and liabilities at the settlement date are registered in the books as foreign exchange gains and losses.
International companies frequently use FX derivatives to minimise FX gains and losses. By the same token, to protect the impact of the fair value of the derivative in their income statement, they can implement hedge accounting methods.
To find out more, please see FX gain / loss