# Functional currency

> The currency of the main economic environment in which a company operates. It is usually the currency the company records its transactions in.

Source: https://finconsol.com/blog/glossary/functional-currency/ (updated 28 October 2026)

## Why does it matter in a group?

Each company, not the group, has a functional currency, and it keeps its books in it. It is a judgement about the company's economic environment: the currency that mainly drives its selling prices and its costs, and in which it raises funds.[1](#src-1) If the functional currency differs from the group's [presentation currency](/blog/glossary/presentation-currency/), the company is translated using the [closing rate](/blog/glossary/closing-rate/) for the balance sheet and the [average rate](/blog/glossary/average-rate/) for profit. It is set company by company, and changes only when the underlying facts change, not because the group wants a different result.

## A small example

Fernhollow sells and pays mainly in US dollars, so dollars are its functional currency. At 30 September 2026 its net assets are USD 500,000. At a closing rate of 0.7560, the group shows GBP 378,000.

## Sources

## Sources

1. IAS 21 [The Effects of Changes in Foreign Exchange Rates](https://www.ifrs.org/issued-standards/list-of-standards/ias-21-the-effects-of-changes-in-foreign-exchange-rates/), paragraphs 8 to 12.