What is meant by functional currency?

The functional currency of an entity can be understood literally as the currency in which entity functions. The choice of functional currency is the judgement which must be made under IAS 21. Judgement on determining functional currency involves assessing the facts, and deciding the currency on which the entity is most dependent economically. For the most entities the functional currency is clear judgement, in that most entities operate primarily within single economy or currency zone.

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