If the PO is in foreign currency, you specify the exchange rate at the time of creation of PO in the Exchange Rate field in the PO header (Delivery/Invoice tab). Right next to that field, you will see a check box titled "Exch. Rate Fixed". If you fix the exchange rate by checking this check box, the purchase order currency and the exchange rate cannot be changed during invoice verification. If you do not check it, the exchange rate that applies on the date of entering the invoice will get picked when you enter the invoice.
Now let's say this invoice is not paid by the end of the month. To close your books for the month, you perform foreign currency valuation for this open item to remeasure the foreign currency amount due by you into local currency. This valuation difference (unrealized gain/loss) is reversed on the first day of the next month. Now your numbers are back to the values entered during invoice entry. If the item gets paid now, you may incur realized gain/loss depending on the exchange rate that your bank gives you. If this rate is different from the rate as of the invoice entry, you will have realized exchange rate gain/loss. Else, there is no realized gain.
Execute t code FAGL_FC_VAL and click on the blue information icon on the initial screen and read the program documentation. There is a very nice example in there that should clarify your question on foreign currency valuation.
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