What exactly are currency effects?

Currency effects arise with comparisons from previous periods through exchange rate variations.

The following are differentiated:

  • The effect through the conversion of suppliers to the local currency – the transaction effect – and
  • Through the conversion from the local currency to the reporting currency or currencies – the translation effect.

They are calculated by converting the current value with the average rate of the comparison period and forming the difference. Thus, the question is answered as to how the currency would have been if the exchange would not have changed.

If we subsequently further calculate with the exchange rate-corrected figure, e.g. to account for the price, quantity, and structural effects, we obtain values adjusted by the fluctuations of the exchange rate. Both currency effects should always be disclosed to fully represent the dependency, which is not within the competency, e.g. of procurement. A price decrease in supplier currency can rapidly lead to an increase of reporting currency through rate variations.

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