Losses and gains
When accounting in more than one currency, there is a risk that in accounting terms you will either lose or gain money through exchange rate fluctuations. The worked example demonstrates the principle.
In emergencies, the most likely outcome, as in this example, are exchange rate losses as the local currency is often devaluing against harder currencies.
In some instances, especially if a loss has been made, you may be held responsible for making good the loss, see case study.
As a general rule:
- Keep the majority of your funds in the most stable currency available.
- Only exchange into less stable currencies as and when payments have to be made in that currency.
- Make sure that the balance of any unstable currency is as low as practical at all times.