Understanding Currency Cross-Rate Relationships
If some of the exchange rates with which you work are not quoted in a financial market publication, you must create currency relationships to link existing exchange rates from one currency to another. These are called currency cross-rate relationships. You create a cross-rate relationship for two currencies based on a common currency.
First you locate a common currency that is quoted for the two currencies for which you need the exchange rate. Then you create a cross-rate relationship so that the system can calculate an exchange rate based on that cross-rate relationship. The system stores cross-rate relationships in the Currency Cross Rates Calculation Master table (F11151).
For example, assume there is no exchange rate quoted between the Mexican Peso (MXP) and Colombian Peso (COP) in a financial market publication. However, exchange rates exist between these two currencies and the U.S. dollar (USD). To transact business between MXP and COP, you create a currency cross-rate relationship to USD on the Set Up Currency Exchange Rate Calculations form based on these exchange rates:
Exchange Rate Currencies |
Exchange Rate |
|---|---|
MXP to USD |
Quoted in the London Financial Times. |
USD to COP |
Quoted in the Wall Street Journal. |
After you create the currency cross-rate relationship, you run the Calculate Cross Currency Rates program (R11153) to calculate the exchange rate. Using the previous example, the program would calculate the MXP to COP rate.
As an alternative to creating currency cross-rate relationships, consider setting up currency relationships using the triangulation calculation method.