What it means
Every major currency has a code set by an international standard known as ISO 4217, and SEK is the one for Sweden. The krona is divided into 100 ore.
Sweden is a member of the European Union but has kept its own currency rather than adopting the euro. The Riksbank, Sweden's central bank, issues the currency and sets interest rates with the aim of keeping inflation low.
Like most currencies of its size, the krona has a floating exchange rate, which means its value against other currencies changes with market supply and demand. Movements can be driven by interest rate decisions, trade flows and global risk sentiment.
For businesses, SEK matters whenever there is trade with or investment in Sweden. A company selling to Swedish customers in kronor receives money whose dollar value can change before payment arrives.
This is called foreign exchange risk, and companies may reduce it with hedging tools such as forward contracts. Accountants must translate amounts in SEK into the reporting currency when preparing accounts.
Transactions are usually converted at the exchange rate on the transaction date, and balances held at the period end are converted at the closing rate. Differences that arise are recorded as exchange gains or losses.
The code appears on price lists, loan documents and market data screens, so it is worth knowing how to read it. A quote such as USD/SEK means the number of kronor needed to buy one dollar.
Always check which currency is the base and which is the quote. Interest rates add another layer.
Because rates in Sweden can differ from those in the United States, borrowing or saving in kronor can cost more or less than in dollars. Forward exchange rates reflect that difference, which is why a hedge rate is not always the same as today's rate.
In practice
Real-world examples.
Example
A US furniture retailer buys Swedish-made chairs and agrees to pay SEK 500,000 in 60 days. At the time of the order the dollar cost is $50,000 at an assumed rate of 10 SEK per $1. If the krona strengthens by the payment date, the retailer will pay more dollars.
Example
A Swedish software company invoices a US client $20,000. Its costs are in SEK, so it follows the exchange rate closely. A stronger krona reduces the amount of SEK it receives from each dollar invoice, which cuts its profit unless it raises prices or hedges the exposure.
Example
A global fund manager reviews her holdings in Swedish shares priced in SEK. Her reporting is in dollars, so she translates each position. A fall in the krona reduces the dollar value of her holdings even if the share prices in SEK are unchanged.
Formula
Calculation
Amount in SEK = amount in USD x exchange rate (SEK per $1)
Suppose, for illustration, that the exchange rate is 10 SEK per $1. A buyer converting $10,000 receives $10,000 x 10 = SEK 100,000. If the rate later moves to 11 SEK per $1, the same SEK 100,000 is worth SEK 100,000 / 11 = $9,090.91 (rounded), so the dollar value has fallen by $909.09.Case study
Seen in the real world.
Northlight Outdoor Gear is a fictional US company that buys jackets from a Swedish supplier, with invoices in SEK. The finance manager, Carlos, noticed that his costs varied month to month because of exchange rate swings.
He asked his bank for a forward contract that fixed the exchange rate for the next six months of purchases. This is an illustrative story, but it shows a practical approach. The forward locked in a rate of 10 SEK per $1 for an agreed amount, so a SEK 2,000,000 order would cost $200,000 whatever the market did, and the company could set its selling prices with more confidence.
Carlos kept a portion of the exposure unhedged to benefit if the krona weakened. He reviewed the decision each quarter and reported gains and losses on the contracts separately in the management accounts.
Watch out
Common mistakes.
- Reading an exchange rate the wrong way round. A USD/SEK quote tells you how many kronor one dollar buys, not the opposite.
- Assuming Sweden uses the euro. Sweden is in the European Union but has kept the krona as its own currency.
- Ignoring exchange rate risk on invoices. A rate move between order and payment dates can change the real cost or revenue, and on thin margins it can turn a profitable sale into a loss.
Questions
People also ask.
What does SEK stand for?
It is the ISO 4217 currency code for the Swedish krona.
What is the subunit of the krona?
One krona is divided into 100 ore. In practice, prices are usually quoted in whole kronor.
Who controls the krona?
The Riksbank, Sweden's central bank, issues the currency and sets monetary policy. Its decisions on interest rates can move the exchange rate.
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