![]() ![]() ![]() Of course exchange rates vary over time, at a later date if the exchange rate changes such that USD 1 is worth GBP 0.75, the calculation would be as follows.ĭue to the change in exchange rates USD 1,200 is now only worth GBP 900, a fall of GBP 24. This shows that at the exchange rate of 0.77 USD 1,200 is worth GBP 924. If a business wanted to convert say USD 1,200 into GBP the calculation would be as follows. For example if the exchange rate of US Dollars (USD) to British Pounds Sterling (GBP) is quoted as 0.77 it means that USD 1 is worth GBP 0.77. The exchange rate simply expresses the value of one currency in terms of the other. When a foreign currency transaction takes place an exchange rate is used to translate one currency into another currency. ![]() For example the business might export to customers overseas giving rise to revenue and accounts receivable in a foreign currency or it might purchase imported goods from suppliers overseas giving rise to expenses and accounts payable in a foreign currency. A foreign currency transaction is necessary when a business undertakes an accounting transaction in a currency other than its own reporting currency.
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