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Reporting Currency is the functional currency of the parent organization. We have introduced this
term to clarify which functional currency is ultimately being used for the financial reporting of the
parent company.
Foreign Currency is recorded for specific transactions that are not in the functional currency. For
example, if a Japanese company purchases computer chips from a Singapore supplier priced in
Singapore dollars, the foreign currency would be Singapore dollars.
Risks
Hedging Risks: Accounting standards outline a number of risks that may be hedged. For example,
market price risk, credit risk, foreign currency risk, and interest rate risk.
Foreign Currency Risk: This type of risk arises from the change in price of one currency against
another. When companies have foreign currency assets (for example, cross-border sales or business
operations across national borders) or foreign currency liabilities (for example, imports), they face
currency risk if their foreign currency exposures or positions are not hedged.
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