Average rate

Why does it matter in a group?

A group translates a foreign subsidiary’s income and expenses at the rates on the dates of the transactions. That is impractical for every entry, so a rate for the period is used, often the average for the month, unless rates swing widely within it.¹ The balance sheet is translated at the closing rateClosing rateThe spot exchange rate on the last day of the reporting period, used to translate a foreign subsidiary's assets and liabilities.Open the glossary entry. The two rates differ, and the gap goes to the translation reserveTranslation reserveThe part of group equity that holds exchange differences from translating a foreign subsidiary into the group's currency.Open the glossary entry. One average rate per currency for the whole group keeps every company on the same number. If the rate moved sharply during the month, the rate on the date of a large transaction gives a better answer than the average.

A small example

Palmridge earns AED 1,905,000 in September 2026. At the group’s average rate of 0.2025, the profit in the group accounts is GBP 385,763.