Constant Currencies


DEFINITION of 'Constant Currencies'

An exchange rate that eliminates the effects of exchange rate fluctuations and that is used when calculating financial performance numbers. Companies with major foreign operations often use constant currencies when calculating their yearly performance measures.

BREAKING DOWN 'Constant Currencies'

For example, consider a French company that sells primarily abroad and sets its prices according to U.S. dollars. If sales increase 10% in dollar terms, but the dollar fell 5% against the franc during the year, only a 5% increase in sales will be reported in the accounts, unless a constant currency is applied in the calculation. In other words, the use of constant currencies allows companies to show performance unaffected by currency fluctuations.

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  1. What types of companies benefit from reporting results utilizing constant currencies ...

    Any company that does a substantial amount of business in foreign countries, and is therefore subject to foreign currency ... Read Full Answer >>
  2. How are foreign exchange rates affected by commodity price fluctuations?

    In the foreign exchange (forex) market, currency valuations move up and down as a result of many factors, including interest ... Read Full Answer >>
  3. Does working capital include salaries?

    A company accrues unpaid salaries on its balance sheet as part of accounts payable, which is a current liability account, ... Read Full Answer >>
  4. What is a profit and loss (P&L) statement and why do companies publish them?

    A profit and loss (P&L) statement, or balance sheet, is essentially a snapshot of a company's financial activity for ... Read Full Answer >>
  5. How do dividends affect the balance sheet?

    Dividends paid in cash affect a company's balance sheet by decreasing the company's cash account on the asset side and decreasing ... Read Full Answer >>
  6. Are dividends considered an expense?

    Cash or stock dividends distributed to shareholders are not considered an expense on a company's income statement. Stock ... Read Full Answer >>

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