How does Xero handle multi-currency transactions in graphs?

Xero handles multi-currency transactions by using the exchange rate on the day of the transaction. This method ensures that all transactions reflect the accurate exchange rate that was in effect at the time of the transaction, providing a precise financial representation for reporting and analysis purposes. This practice helps businesses to maintain the integrity of their financial records when dealing with multiple currencies, allowing for accurate profit and loss calculations and better financial decision-making.

In contrast, the other options do not align with Xero's approach. Using average exchange rates can obscure the actual value of transactions, as it does not account for fluctuations that can occur on specific transaction dates. Automatically converting to a base currency lacks the specificity that day-of-transaction exchange rates provide, as it ignores the variability in exchange rates that can significantly affect financial outcomes. Dollar-for-dollar conversion is not applicable in the context of multi-currency transactions as it neglects the complexities of foreign exchange dynamics.