When you maintain foreign currency (FC) business partners and/or accounts, SAP Business One conducts all related bookkeeping in FC. Since you also conduct the bookkeeping system in local currency (LC), SAP Business One expresses every FC transaction in LC according to the FC exchange rate on the date of transaction. Daily fluctuations in FC exchange rates may cause mismatches between the balances in LC and FC.
The Exchange Rate Differences function periodically recalculates the LC and FC balances according to the exchange rate on the day the differences are calculated.