Functional currency
The currency of the primary economic environment in which an entity operates, judged by the currency of its sales prices, costs and financing. It decides which translation method applies.
Where you will meet it
Functional currency appears in 2 learning outcomes on the CFA syllabus. A few of them:
- Contrast presentation (reporting), functional and local currencies
“The functional currency is the currency of the primary economic environment in which it earns and spends cash, judged by the currency of its sales prices, costs and financing.”
- Contrast the current rate and temporal methods, assess the effect of each on the parent's income statement and balance sheet, and decide which method fits a given situation
“It applies when the subsidiary's functional currency is its own currency.”
Practise it
Practise functional currency until it is automatic: questions that explain every wrong option.
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