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Dealing With Turmoil In Currency RatesDealing With Turmoil In Currency Rates

A quick look at the exchange rate graph between the pound (GBP) and the Euro (EUR) shows some dramatic changes during the first part of 2013.


 This is perhaps not surprising with the UK's recent downgrade from its treasured AAA rating by Moody's and the turmoil in the banking system going on in Cyprus, part of the Eurozone. The dollar - pound situation is not quite as volatile but there has been a shift downwards in the value of the pound since the turn of the year.

It's essential that any company doing business with overseas customers and/or suppliers can keep track of how their debtor and creditor ledgers are looking in sterling terms. Since there may be a delay between transaction and settlement (i.e. payment) - considerable in some cases - then it would be a great benefit if your accounting system could monitor both unrealised and realised exchange gains and losses.

For those of you who are wondering, unrealised exchange gains and losses are the difference between the sterling value between the date the invoice was processed and the current exchange rate. So, in this example (using real exchange rates):

  • A purchase invoice received for EUR 1,000.00 on 6 Jan 2013 with the then exchange rate of 1.2293 would be GBP 813.47
  • Today the rate is 1.1742, which equates to the invoice now being valued at GBP 851.64
  • This means an exchange LOSS of GBP 38.17; in other words you will have to pay this extra amount if you were to pay the invoice today

Realised gains and losses are calculated using the actual amounts paid or received when the transaction is settled.

If your business trades extensively in foreign currencies then it's important to keep an eye on these gains or losses as they can have a significant impact on your overall business profits.

Fortunately, Aqilla stands out as it can deal with these calculations automatically and keep you up-to-date with the latest position on realised and unrealised exchange gains and losses. Additionally Aqilla can help with management reporting where specific exchanges are used for reporting - typically a subsidiary will have monthly and sometimes annual reporting rates for a financial year - as a number of different currency rate types can be held and used.

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