Gains and Losses from Movements in Exchange Rates


Movements in exchange rates cause the net asset value of a business to change.

This is the Gains and Losses from Movements in Exchange Rates ("GLMER").

FX P&L sounds as though it should be the same as GLMER.

But that is not always the case

FX P&L is the line in the Income Statement labelled "FX" - it is an Accounting concept.

Gains and Losses from Movements in Exchange Rates is how much Exchange Rates have changed the Economic value of the entity.

Most of the time the two are the same, but there are differences, which are sometimes material, and then confuse many people.

Various elements of GLMER are reported within other lines in the P&L.

So FX P&L may show only part of the story.

In the diagram at right the orange shaded elements are indeed an issue, but the elements in brown, which are not problems, also appear in the FX P&L.

When FX P&L shows a large apparent loss, the board may be worried, but whether exchange rates have caused an overall loss, or just various gains and losses in different lines of the P&L is an open question until the numbers have been better understood..

Indeed, trying to minimise "FX P&L" can increase the exposure of the net assets to movements in exchange rates.

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