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Why Functional Currency Holds Importance Around the Globe?

  • July 2014
  • Posted By Ninoslav

“All for one and one for all” – this is not only applicable for The Three Musketeers, but here as well. Wondering how? That is just the briefest possible explanation that can be given about Functional Currency. Still not understood? Worry not, because if you manage to read till the end, everything will be as clear as the summer sky.

To start with, this term holds an important aspect for institutions which handle offshore business, which we call as multinational companies. Most MNCs take payments in various currencies, but at the end of the day, the finances and accounts have to be maintained in one. So, what to do in such circumstances? That is just exactly what this is all about.

Solution lies in singularity
To deal with such a situation, these companies adopt a very simple policy. Whatever currency may that firm use in business, at the end of the day, it gets converted to a single currency that shows on the balance sheets. It may or may not be the one of that company’s home nation from which it started its business.

So, what should it be? That depends on what an organization prefers. A company may choose one in which most of its payments are made, or transactions happen. Alternatively, you may also choose one which is strong and acceptable globally. As such, managing accounts and other financial aspects becomes an easy task as well.

Thus, choosing its Functional Currency for a company is as important as taking any other decision. And hopefully, you would have understood it clearly as well. But, this is not the end of this road, if you care to read upon “What importance does a currency holds as World Currency”.


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