Current Rate Method


DEFINITION of 'Current Rate Method'

A method of foreign currency translation where most items in the financial statements are translated at the current exchange rate. The exception would be income statements items, which are translated at actual exchange rates.

This method of is the most widely used currency translation method.

BREAKING DOWN 'Current Rate Method'

The gains and losses associated with this translation are reported on a reserve account instead of the consolidated net income account. This helps to reduce the volatility of consolidated earnings. It is also more helpful for management, shareholders and creditors in evaluating a company because losses and gains resulting from the exchange rate are excluded for the consolidate earnings.

  1. Exchange Rate

    The price of a nation’s currency in terms of another currency. ...
  2. Net Income - NI

    1. A company's total earnings (or profit). Net income is calculated ...
  3. Volatility

    1. A statistical measure of the dispersion of returns for a given ...
  4. Temporal Method

    A method of foreign currency translation that uses exchange rates ...
  5. Consolidated Financial Statements

    The combined financial statements of a parent company and its ...
  6. Translation Risk

    The exchange rate risk associated with companies that deal in ...
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  1. 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 >>
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  3. How can working capital affect a company's finances?

    Working capital, or total current assets minus total current liabilities, can affect a company's longer-term investment effectiveness ... Read Full Answer >>
  4. What are working capital costs?

    Working capital costs (WCC) refer to the costs of maintaining daily operations at an organization. These costs take into ... Read Full Answer >>
  5. How do I read and analyze an income statement?

    The income statement, also known as the profit and loss (P&L) statement, is the financial statement that depicts the ... Read Full Answer >>
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