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The currency in which a foreign branch keeps its books is called its functional currency. Although the functional currency of a foreign branch is generally the U.S. dollar, a QBU may elect to use a foreign currency as its functional currency if a significant part of its operations takes place in a commercial environment in which the foreign currency is used. Analysis of the commercial environment is based on the following:

 The currency of the country in which a QBU is formed

 The currency of a QBU’s cash flows

 The currency in which a QBU typically borrows and lends

 The currency received by a QBU from the sale of goods

 The currency of a QBU’s principal items of income and expense

 The duration of a QBU’s business operations

 The size and nature of a QBU’s independent operations

Notwithstanding qualifying to use a foreign currency as its functional currency, a QBU may elect to use the U.S. dollar as its functional currency if it keeps its books in U.S. dollars and if it uses a separate transaction method of accounting. This U.S. dollar election is made on Form 8819.