Foreign currency account

What it means

A foreign currency account holds money in something other than euro. The books carry it in both the currency and euro, so every movement has two figures: the amount and its translation.

Translation uses the rate set in the internal policy, usually the previous day’s ECB rate. The balance is retranslated at the closing date, producing a foreign exchange difference.

A currency account does not change the currency of the books: the company keeps its accounts in euro, and the foreign balance is financial assets measured by translation. A transfer between the company’s own euro and currency accounts therefore produces no trading income, only the gap between the bank’s rate and the rate used in the books.

How it works in practice

An account in a currency the company both receives and pays in saves two conversions and the bank’s spread. On regular trade with Czechia, Poland or Britain that beats the account fee comfortably.

On larger amounts currency risk is managed by hedging or simply by keeping the money in the currency of future payments instead of converting at once.

On payments outside the eurozone via SWIFT, the bank takes a fee and sometimes an intermediary bank does too along the way. Less arrives than the invoice said, so when matching we separate the fee as a cost from the exchange difference, and the receivable is not left open by a few euros.

What to watch out for

Exchange differences must be booked as you go, not once a year. A company holding several currencies and translating them only in December runs all year on a result that means nothing.

The bank runs a currency account as a separate account with its own statement. If the company never passes it to the accountant, the foreign movements are missing from the books for months and surface only at year end, when the balance does not match the bank’s confirmation.