A functional currency is the main currency that a company conducts its business. As companies transact in many currencies but report their financial statements in one currency, the foreign currencies have to be translated into the functional currency.

What is meant by a functional currency?

A functional currency is the main currency that a company conducts its business. As companies transact in many currencies but report their financial statements in one currency, the foreign currencies have to be translated into the functional currency.

What determines the functional currency?

The functional currency is the currency in which an entity records and measures its transactions, in other words, the currency in which it maintains its accounting records. It is determined by reference to the currency of the primary economic environment in which that entity operates.