Definitions of Terms

Closing rate

This refers to the spot rate (defined below) at the balance sheet date.

Conversion

The exchange of one currency for another.

Exchange difference

The difference resulting from reporting the same number of units of a foreign currency in the reporting currency at different exchange rates.

Exchange rate

This refers to the ratio for exchange of two currencies.

Fair value

The amount for which an asset could be exchanged, or a liability could be settled, between knowledgeable willing parties in an arm's-length transaction.

Foreign currency

A currency other than the reporting currency of the entity being referred to (e.g., the yen is a foreign currency for a US reporting entity). (Under US GAAP, composites of currencies such as the Special Drawing Rights on the International Monetary Fund [SDR] used to set prices or denominate amounts of loans, and so on, have the characteristics of foreign currency for purposes of applying SFAS 52. No such clarification or interpretation is found in the IAS.)

Foreign currency financial statements

Financial statements that employ as the unit of measure a foreign currency that is not the reporting currency of the enterprise.

Foreign currency transactions

Transactions whose terms are denominated in a foreign currency or require settlement in a foreign currency. Foreign currency transactions arise when an enterprise (1) buys or sells on credit goods or services whose prices are denominated in foreign currency, (2) borrows or lends funds and the amounts payable or receivable are denominated in foreign currency, (3) is a party to an unperformed foreign exchange contract, or (4) for other reasons acquires or disposes of assets or incurs or settles liabilities denominated in foreign currency.

Foreign currency translation

The process of expressing in the reporting currency of the enterprise amounts that are denominated or measured in a different currency.

Foreign entity

When the activities of a foreign operation are not an integral part of those of the reporting entity, such a foreign operation is referred to as a foreign entity.

Foreign operation

A foreign subsidiary, associate, joint venture, or branch of the reporting enterprise whose activities are based or conducted in a country other than the country where the reporting enterprise is domiciled.

Functional currency

A term used under US GAAP in relation to foreign currency translations wherein it is defined as the currency of the primary economic environment in which the entity operates; normally, that is the currency of the environment in which an entity primarily generates and expends cash.

Monetary items

Money held and assets and liabilities to be received or paid in fixed or determinable amounts of money. Stated differently, monetary items refer to cash, claims to receive a fixed amount of cash, and obligations to pay a fixed amount of cash.

Net investment in a foreign entity

This refers to the reporting enterprise's share in the net assets of that entity.

Nonmonetary items

All balance sheet items other than cash, claims to cash, and cash obligations.

Reporting currency

The currency in which an enterprise presents its financial statements.

Reporting enterprise

An entity or group whose financial statements are being referred to. Under this standard, those financial statements reflect (1) the financial statements of one or more foreign operations by consolidation, proportionate consolidation, or equity accounting; (2) foreign currency transactions; or (3) both of the foregoing.

Spot rate

The exchange rate for immediate delivery of currencies exchanged.

Transaction date

In the context of recognition of exchange differences from settlement of monetary items arising from foreign currency transactions, transaction date refers to the date at which a foreign currency transaction (e.g., a sale or purchase of merchandise or services the settlement for which will be in a foreign currency) occurs and is recorded in the accounting records.