FX Rate


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FX Rate

Exchange Rate

The value of two currencies relative to each other. For example, on a given day, one may trade one U.S. dollar for a certain number of British pounds. A currency's exchange rates may be floating (that is, they may change from day to day) or they may be pegged to another currency. A floating exchange rate is dependent on the supply and demand of the involved currencies, as well as the amount of the currency held in foreign reserves. On the other hand, a government may peg its currency to a certain amount in another currency or currency basket. For example, the Qatari riyal has been worth 0.274725 dollars since 1980.

An advantage to a floating exchange rate is the fact that it tends to be more economically efficient. However, floating exchange rates tend to be more volatile, depending on the particular currency. Pegged exchange rates are generally more stable, but, since they are set by government fiat, they may take political rather than economic conditions into account. For example, some countries peg their exchange rates artificially low with respect to a major trading partner to make their exports to that partner artificially cheap. See also: Currency pair, Eurodollar.
References in periodicals archive ?
Table 35 Americas Pricing and FX Rate, Tarceva Annual Cost, Currency Conversion Rates 2011-2014
The home country subsidiary functions as a control to contrast the effects of FX rate fluctuations on the foreign subsidiary's reported results.
All subsidiaries qualify and have chosen to translate each month's earnings at the average monthly FX rate.
Reported earnings are affected by both the pattern of earnings recognized in the functional currency and the pattern of FX rate fluctuations during the year.
Income of 36,801 is assumed to be earned in November when the monthly average FX rate had declined to its lowest average.
Table 4: Examples Showing Effect of Timing on Earnings AMOUNTS COMPUTED FOR TABLE 1 GERMAN (EUROZONE) SUBSIDIARY'S TRANSLATED EARNINGS NET AT 2008 AT 2009 INCOME/(LOSS) RATES RATES MONTH AMOUNT AVERAGE IN USD AVERAGE IN USD IN EUR FX RATE COLUMN FX RATE COLUMN B*C B*E A B C D E F 1 566.
In cases 1, 5, and 6, the average FX rate is greater than or equal to the beginning-of-the-year rate, so the effect on earnings is by definition positive, but the reported change in OCI-CTA may be positive, negative, or undetermined without more information.
In cases 4 and 6, knowledge of the FX rate relationships and the amount of the change in OCI-CTA doesn't provide definitive information, so supplemental information would be necessary.
52 was passed, the Statement encouraged, but didn't mandate, disclosing the effect of FX rate fluctuations on earnings.
Because different FX rates are used, a currency translation adjustment (CTA), or "plug," is included in other comprehensive income (OCI) in equity to make debits equal credits.
As a general rule, when the parent company's currency weakens (strengthens) during the year, the consolidated reported earnings are higher (lower) than they would have been had FX rates remained constant during the year.