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.

RELATED TERMS
  1. Exchange Rate

    The price of a nation’s currency in terms of another currency. ...
  2. Volatility

    1. A statistical measure of the dispersion of returns for a given ...
  3. Net Income - NI

    1. A company's total earnings (or profit). Net income is calculated ...
  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 ...
Related Articles
  1. Fundamental Analysis

    Inventory Valuation For Investors: FIFO And LIFO

    We go over these methods of calculating this component of the balance sheet, and how the choice affects the bottom line.
  2. Options & Futures

    A Primer On The Forex Market

    Moving from equities to currencies requires you to adjust how you interpret quotes, margin, spreads and rollovers.
  3. Economics

    Understanding Cost-Volume Profit Analysis

    Business managers use cost-volume profit analysis to gauge the profitability of their company’s products or services.
  4. Fundamental Analysis

    5 Basic Financial Ratios And What They Reveal

    Understanding financial ratios can help investors pick strong stocks and build wealth. Here are five to know.
  5. Investing Basics

    How to Analyze a Company's Inventory

    Discover how to analyze a company's inventory by understanding different types of inventory and doing a quantitative and qualitative assessment of inventory.
  6. Stock Analysis

    Understanding Chipotle's Financials (CMG)

    Learn about Chipotle Mexican Grill and its financial statements, including metrics such as comparable sales, operating margin and returns.
  7. Investing Basics

    How To Decode A Company’s Earnings Reports

    Earnings reports tell investors how a publicly-traded company is performing, but aren’t always easy to decipher.
  8. Economics

    The Basics Of Business Forecasting

    Whether business forecasts pertain to finances, growth, or raw materials, it’s important to remember that a forecast is little more than an informed guess.
  9. Investing Basics

    Analyzing A Bank's Financial Statement

    Investors should analyze a bank’s interest rate risk and credit risk when analyzing its financial statement.
  10. Investing Basics

    Analyze Cash Flow The Easy Way

    Cash flow statements reveal how a company spends its money and where that money comes from.
RELATED FAQS
  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 >>
  2. Are domestic and foreign subsidiaries included on a company's financial statements?

    A subsidiary is a company that is controlled by another 'parent' company. The subsidiary acts and operates like its own entity ... Read Full Answer >>
  3. What items are considered liquid assets?

    A liquid asset is cash on hand or an asset that can be readily converted to cash. An asset that can readily be converted ... Read Full Answer >>
  4. 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 >>
  5. 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 >>
  6. 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 >>
Hot Definitions
  1. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  2. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  3. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  4. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  5. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
Trading Center