5Define Currencies and Currency Rates

This chapter contains the following:

Manage Currencies

Defining Currencies: Points to Consider

When creating or editing currencies, consider these points relevant to entering the currency code, date range, or symbol for the currency.

Currency Codes

You can't change a currency code after you enable the currency, even if you later disable that currency.

Date Ranges

You can enter transactions denominated in the currency only for the dates within the specified range. If you don't enter a start date, then the currency is valid immediately. If you don't enter an end date, then the currency is valid indefinitely.

Symbols

Some applications support displaying currency symbols. You may enter the symbol associated with a currency so that it appears along with the amount.

Euro Currency Derivation: Explained

Use the Derivation Type, Derivation Factor, and Derivation Effective Date fields to define the relationship between the official currency (Euro) of the European Monetary Union (EMU) and the national currencies of EMU member states. For each EMU currency, you define its Euro-to-EMU fixed conversion rate and the effective starting date. If you have to use a different currency for Euro, you can disable the predefined currency and create a new one.

Derivation Type

The Euro currency derivation type is used only for the Euro, and the Euro derived derivation type identifies national currencies of EMU member states. All other currencies don't have derivation types.

Derivation Factor

The derivation factor is the fixed conversion rate by which you multiply one Euro to derive the equivalent EMU currency amount. The Euro currency itself must not have a derivation factor.

Derivation Effective Date

The derivation effective date is the date on which the relationship between the EMU currency and the Euro begins.

FAQs for Manage Currencies

When do I create or enable currencies?

Create or enable any currency for displaying monetary amounts, assigning currency to ledgers, entering transactions, recording balances, or for any reporting purpose. All currencies listed in the International Organization for Standardization (ISO) 4217 standard are supported.

The default currency is set to United States Dollar (USD).

What's the difference between precision, extended precision, and minimum accountable unit for a currency?

Precision refers to the number of digits placed after the decimal point used in regular currency transactions. For example, USD would have 2 as the precision value for transactional amounts, such as $1.00.

Extended precision is the number of digits placed after the decimal point and must be greater than or equal to the precision value. For calculations requiring greater precision, you can enter an extended precision value such as 3 or 4. That would result in the currency appearing as $1.279 or $1.2793.

Minimum accountable unit is the smallest denomination for the currency. For example, for USD that would be .01 for a cent.

In Setup and Maintenance work area, search for the Manage Currencies task to set these values for a currency.

What's a statistical unit currency type?

The statistical unit currency type denotes the Statistical (STAT) currency used to record financial statistics in the financial reports, allocation formulas, and other calculations.

Manage Conversion Rate Types

Creating Conversion Rate Types: Critical Choices

Maintain different conversion rates between currencies for the same period using conversion rate types. The following conversion rate types are predefined:

  • Spot

  • Corporate

  • User

  • Fixed

You can use different rate types for different business needs. During journal entry, the conversion rate is provided automatically based on the selected conversion rate type and currency, unless the rate type is User. For User rate types, you must enter a conversion rate. You can define additional rate types as needed. Set your most frequently used rate type as the default. Conversion rate types can't be deleted.

Assign conversion rate types to automatically populate the associated rate for your period average and period end rates for the ledger. For example, you can assign the conversion rate type of Spot to populate period average rates, and the conversion rate type of Corporate to populate period end rates. Period average and period end rates are used in translation of account balances.

Conversion rate types are used to automatically assign a rate when you perform the following accounting functions:

  • Convert foreign currency journal amounts to ledger currency equivalents.

  • Convert journal amounts from source ledgers to reporting currencies or secondary ledgers.

  • Run revaluation or translation processes.

When creating conversion rates, decide whether to:

  • Enforce inverse relationships

  • Select pivot currencies

  • Select contra currencies

  • Enable cross rates and allow cross-rate overrides

  • Maintain cross-rate rules

Enforce Inverse Relationships

The Enforce Inverse Relationship option indicates whether to enforce the automatic calculation of inverse conversion rates when defining daily rates. The following table describes the impact of selecting or not selecting the option.

Action Results

Selected

When you enter a daily rate to convert currency A to currency B, the inverse rate of currency B to currency A is automatically calculated and entered in the adjacent column. If either rate is changed, the application automatically recalculates the other rate.

You can update the application calculated inverse rate, but once you do, the related rate is updated. The option enforces the inverse relationship is maintained but doesn't prevent you from updating the rates.

Not Selected

The inverse rate is calculated, but you can change the rate and update the daily rates table without the corresponding rate being updated.

Select Pivot Currencies

Select a pivot currency that is commonly used in your currency conversions. A pivot currency is the central currency that interacts with contra currencies. For example, you set up a daily rate between the US dollar (USD) and the Euro currency (EUR) and another between the USD and the Canadian dollar (CAD). USD is the pivot currency in creating a rate between EUR and CAD. EUR and CAD are the contra currencies. Select the pivot currency from the list of values which contains those currencies that are enabled, effective, and not a statistical (STAT) currency. The description of the pivot currency is populated automatically based on the currency definition.

If you want the application to create cross rates against a base currency, define the base currency as the pivot currency. Selected pivot currencies can be changed in the Rate Types page.

Select Contra Currencies

Select currencies available on the list of values as contra currencies. The available currencies are those currencies which are enabled, effective, not STAT currency, and not the pivot currency selected earlier. The description of the contra currency is populated automatically based on the currency definition. Add or delete contra currencies in the Contra Currencies region of the Rate Types page.

Enable Cross Rates and Allow Cross Rate Overrides

Check the Enable Cross Rates check box to calculate conversion rates based on defined currency rate relationships. General Ledger calculates cross rates based on your defined cross rate rules. Associate your cross rate rules with a conversion rate type, pivot currency, and contra currencies. Cross rates facilitate the creation of daily rates by automatically creating the rates between contra currencies based on their relationship to a pivot currency. If the Enable Cross Rates option is deselected after entering contra currencies, the application stops calculating cross rates going forward for that particular rate type. All the earlier calculated cross rates for that rate type remain in the database unless you manually delete them.

For example, if you have daily rates defined for the pivot currency, USD to the contra currency, EUR, and USD to another contra currency, CAD, the application automatically creates the rates between EUR to CAD and CAD to EUR. You don't have to manually define the EUR to CAD and CAD to EUR rates.

Check the Allow Cross Rates Override check box to permit your users to override application generated cross rates. If you accept the default of unselected, the application generated cross rates cannot be overridden

Maintain Cross Rate Rules

Define or update your cross rate rules at any time by adding or removing contra currency assignments. Add a contra currency to a cross rate rule and run the Daily Rates Import and Calculation process to generate the new rates. If you remove a cross rate rule or a contra currency from a rule, any cross rates generated previously for that contra currency remain unless you manually delete them. Changes to the rule aren't retroactive and don't affect previously stored cross rates. The Cross Rate process generates as many rates as possible and skips currencies where one component of the set is missing.

Note: With a defined web service that extracts daily currency conversion rates from external services, for example Reuters, currency conversion rates are automatically updated for the daily rates and all cross currency relationships.

Using Rate Types: Examples

The four predefined conversion rate types are:

  • Spot

  • Corporate

  • User

  • Fixed

Scenario

You are the general ledger accountant for Vision US Inc. You are entering a journal entry to capture three transactions that were transacted in three different foreign currencies.

  • Canadian Dollar CAD: A stable currency

  • Mexican Peso MXP: A fluctuating currency

  • Hong Kong Dollar HKD: An infrequently used currency

You enter two journal lines with accounts and amounts for each foreign currency transaction. Based on your company procedures, you select the rate type to populate the rate for Corporate and Spot rate types from your daily rates table. You manually enter the current rate for the User rate type.

The following table lists the currency, the rate type that you select, and the reasons for the rate type selection.

Selected Currency Selected Rate Type Reason

CAD

Corporate

Entered a periodic type of transaction. Your company has established a daily rate to use for the entire month across divisions for all transactions in Canadian dollars, a stable currency that fluctuates only slightly over the month.

MXP

Spot

Entered a periodic type of transaction. Your company enters daily rates each day for the Mexican peso because the currency is unstable and fluctuates.

HKD

User

Entered a one time transaction. Your company does not maintain daily rates for Hong Kong dollars.

Your company does not currently use the Fixed rate type. From January 1, 1999, the conversion rate of the French franc FRF against the Euro EUR was a fixed rate of 1 EUR to 6.55957 FRF. Your French operations were started in 2007, so you maintain all your French business records in the Euro.

FAQs for Manage Conversion Rate Types

What's the difference between spot, corporate, user, and fixed rate types?

Spot, corporate, user, and fixed conversion rate types differ based on fluctuations of the entered foreign currency and your company procedures for maintaining daily rates.

  • Spot: For currencies with fluctuating conversion rates, or when exact currency conversion is needed.

  • Corporate: For setting a standard rate across your organization for a stable currency.

  • User: For infrequent entries where daily rates for the entered foreign currency aren't set up.

  • Fixed: For rates where the conversion is constant between two currencies.

If you have infrequent foreign currency transactions, the User rate type can simplify currency maintenance. The User rate type can also provide an accurate conversion rate on the date of the transaction.

Manage Daily Rates

Entering Daily Rates Manually: Worked Example

You are required to enter the daily rates for currency conversion from Great Britain pounds sterling (GBP) to United States dollars (USD) for 5 days for your company InFusion America Inc.

In order to load rates using the Daily Rates Spreadsheet, you need to install Oracle ADF Desktop Integration client software. Oracle ADF Desktop Integration is an Excel add-in that enables desktop integration with Microsoft Excel workbooks. Users can download the installation files from Navigator > Tools > Download Desktop Integrator Installer.

Entering Daily Rates

  1. Navigator > Period Close.

    Use the Period Close work area to link to close processes and currency process.

  2. Click the Manage Currency Rates link.

    Use the Currency Rates Manager page to create, edit, and review currency rate types, daily rates, and historical rates.

  3. Click the Daily Rates tab.

    Use the Daily Rates tab to review and enter currency rates.

  4. Click the Create in Spreadsheet button.

    Use the Create Daily Rates spreadsheet to enter daily rates in a template that you can save and reuse.

  5. Click in the From Currency field. Select the GBP - Pound Sterling list item.

  6. Click in the To Currency field. Select the USD - US Dollar list item.

  7. Click in the Conversion Rate field. Select the Spot list item

  8. Click in the From Conversion field. Enter a valid value: 10/1/2014.

  9. Click in the To Conversion Date field. Enter a valid value: 10/5/2014.

  10. Click in the Conversion Rate field. Enter a valid value: 1.6.

  11. Click the Submit > OK twice.

  12. Review the Record Status column to verify that all rows were loaded successfully.

  13. Save template to use to enter daily rates frequently. You can save the spreadsheet to either a local drive or a shared network drive.

  14. Optionally, edit the rates from the Daily Rates user interface or resubmit the spreadsheet.

Updating Currency Rates: Worked Example

You are required to change today's daily rates that were already entered. The rates you are changing are for currency conversion from Great Britain pounds sterling (GBP) to United States dollars (USD) for your company InFusion America.

Currency conversion rates were entered by an automatic load to the Daily Rates table. They can also be entered through a spreadsheet.

Updating Currency Rates

  1. Navigate to the Period Close work area.

    Use the Period Close work area to link to close processes and currency process.

  2. Click the Manage Currency Rates link.

    Use the Currency Rates Manager page to create, edit, and review currency rate types, daily rates, and historical rates.

  3. Click the Daily Rates tab.

    Use the Daily Rates tab to review and enter currency rates.

  4. Click the From Currency list. Select the GBP - Pound Sterling list item.

  5. Click the To Currency list. Select the USD - US Dollar list item.

  6. Enter the dates for the daily rates that you are changing. Enter today's date.

  7. Click the Rate Type list. Select the Spot list item.

  8. Click the Search button.

  9. Click in the Rate field. Enter the new rate of 1.7 in the Rate field.

  10. Click in the Inverse Rate field. Enter the new inverse rate of 0.58822 in the Inverse Rate field.

  11. Click the Save button.