Difference between unrealized and realized foreign exchange

[Former Member]

Can anyone please tell me the difference between unrealized and realized foreign exchange. If you can provide with example the explanation, that will help a great deal in understanding.

I know theere is a report F.05, does it help in calculting the unrealized foreign exchang also?/

[Former Member]

Hi Lakshmi,

I can try to explain this financial funda more claraly as below:-

Realized Exchnage rate Diffrence Gain/ Loss:-

When the foreign currency transaction has actually completed and you have gained/lossed due to that transaction is called as realized gain/loss.

For example you have purchased the goods on 01 Jan, 2008 for 5000 INR (100 USD) on credit. Now on 16th Jan, 2008 you paid the invoice by paying 100 USD and clear it off. But on 16th Jan, the exchange rate between INR: USD came down to 45. So you gained by amount 500 INR (100 USD * (50-45)). This is the realized gain when you clear of the invoice againest the payment.

UnRealized Exchnage rate Diffrence Gain/ Loss:-

Here the foreign exchange rate diffrence appear but not realized, because the transaction is not cleared up.

Taking the scenario above, if you do not pay on 16th jan and invoice remains open. You run the F.05 at month end to revaluate the open items and on 31st Jan, the exchange rate came down at 48 INR per USD. Then F.05 will show the unrealized gain of 200 INR (100 USD * (50-48)).

I hope that this clarifies the things. if yes, please assign some points.

Regards,

Gaurav

[Former Member]

HI,

F.05 - is for the foreign currency valuation.

the foreign currency valuation - if u have invoice in the foreign currency on 1 of the month .

and the payment is done on the end of the month. and on the end of the month exchange rate has been chenaged. based on the rate changes loss or profit will be account.

if u have account the foreign valuation that is realizaed on and it is not still no done it is unrealized on and at the month we do the valuation and it will be reseaval entry.

hope this is clear assign points.

with regards

krishna

[Former Member]

Hi Krishna,

I am not able to understand. Please clarify:

Through F.05 we can bring out both realized and unrealized foreign exchange differences?

The open items that are not cleared are unrealized foreign exchange and the cleared item are realized foreign exchange??

How do you reverse unrealized foreign exchange and how is it done?/

If you can explain little clearly, it will really help

Thanks

Lakshmi

[Former Member]

HI,

At the end of the month we do F.05 for the valuation of foreign currency.

this will pass the entry at the end of the month and at the start of the next month it will be reversed.

So, for the month end system will show the gain or loss of the open item .

hope it is clear assign some points.

with regards

krishna