# Net investment in a foreign operation

> The parent's interest in the net assets of a foreign subsidiary, including long-term loans that will not be repaid in the foreseeable future.

Source: https://finconsol.com/blog/glossary/net-investment-in-a-foreign-operation/ (updated 28 October 2026)

## Why does it matter in a group?

A loan to a foreign subsidiary that will not be repaid in the foreseeable future is, in substance, part of the parent's net investment.[1](#src-1) In the group accounts, exchange differences on it do not go to profit or loss. They go to other comprehensive income and build up in the [translation reserve](/blog/glossary/translation-reserve/). They are released only when the subsidiary is sold (see [deconsolidation](/blog/glossary/deconsolidation/)).

## A small example

Zenvara has a long-term dirham loan to Palmridge of AED 5,000,000 with no plan to repay. The closing rate moves from 0.2010 to 0.2040, a gain of GBP 15,000 (5,000,000 times 0.0030). Zenvara books it in its own profit and loss. The group moves it to other comprehensive income.

## 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 15 and 32.