What is realized and unrealized foreign exchange?

Realized foreign exchange refers to the gains or losses that occur when a currency transaction is completed, such as when a company converts foreign currency into its home currency. Unrealized foreign exchange, on the other hand, pertains to potential gains or losses on currency that has not yet been exchanged, reflecting changes in exchange rates while holding foreign assets or liabilities. Essentially, realized gains or losses affect cash flow, while unrealized ones impact financial statements but do not affect cash until a transaction is executed.