Exchange rate effect on cash

The exchange rate effect on cash is a line on the cash flow statement showing how much a company's cash balance changed because of currency movements, not because of any cash coming in or going out.

A company that holds cash in other currencies reports it in its home currency. If the euro strengthens against the dollar, euro cash held by a US company is worth more dollars, even though nothing was spent or received.

This line reconciles operating, investing and financing cash flows with the change in the cash balance. It is usually small, but for companies with large overseas cash holdings it can swing the reported cash balance noticeably in a year when currencies move sharply.