Exchange reserve, often referred to as a currency translation reserve, is a component of a company's equity that arises when translating the financial statements of its foreign operations into the reporting currency. According to accounting standards, when a company has subsidiaries or operations in different countries, the financial statements of these foreign entities need to be translated into the parent company's reporting currency. Any differences resulting from this translation, due to fluctuations in exchange rates, are recorded in an exchange reserve. These differences are typically recognized in the "Other Comprehensive Income" section of the balance sheet until realized, at which point they may impact the income statement. The purpose of this reserve is to reflect the impact of exchange rate changes on the value of foreign currency-denominated assets, liabilities, and equity items.