How do FX effects flow through the cash flow statement?
FX effects in the cash flow statement arise when a group consolidates subsidiaries in a foreign currency. Standard: the FX effect is shown as a separate line at the end ('effect of exchange rate changes on cash').
Cash at a foreign-currency subsidiary is translated at the current period-end rate — the difference from the prior-year period-end rate is the FX effect on cash.
Deep diveShow more details
Inputs:
- US subsidiary cash balance: $100m
- EUR/USD rate prior year: 1.10
- EUR/USD rate current: 1.05
Calculation:
```
EUR value prior year: $100 / 1.10 ≈ EUR 91m
EUR value current: $100 / 1.05 ≈ EUR 95m
FX effect on cash: +EUR 4m
```
There was no operating cash movement — the effect is purely FX-driven.
At multinationals with large US or UK operations (Bayer, Linde, BASF), FX effects are often EUR 50–200m per year — shown separately, NOT included in OCF.