Definition
An FX (foreign exchange) gain or loss is the difference caused by exchange-rate movements between the date a foreign-currency transaction is recorded and the date it is settled or revalued.
FX gain and loss meaning: realised vs unrealised
If you invoice a customer in euros and the rate moves before they pay, you receive a different amount in your own currency. The difference on settlement is a realised gain or loss. An unrealised gain or loss arises when open balances are revalued at period-end before they’re settled.
A realised FX loss
Example- Invoice: EUR 10,000 at 4.00
- AED 40,000
- Payment: EUR 10,000 at 3.95
- AED 39,500
Realised FX loss
AED 500
Because the AED and SAR are pegged to the US dollar, the largest swings for UAE and Saudi traders usually come from other currencies, such as the euro or the rupee. Each company measures FX against its functional currency.