About Exchange Rates

You use exchange rates to convert values from one currency to another. You can enter rates from any source currency to any destination currency. To specify exchange rates, you must set up multiple currencies when creating an application.

See Creating Currencies and Translating Data.

Financial Consolidation and Close supports two system exchange rates - Average and Ending. The system translates Flow accounts using the Average rate and the Balance account using the Ending rate.

Financial Consolidation and Close provides the ability to enter direct exchange rates, indirect exchange rates and cross-rates.

See Entering Exchange Rates.

Direct Exchange Rates

A direct exchange rate is the rate by which an untranslated amount is multiplied in order to calculate the translated amount.

GBP to USD: 2.00

GBP 100 x 2.00 = USD 200

Note that the direct rate between a currency and itself is always assumed to be 1.

Indirect Exchange Rates

An indirect exchange rate is the reverse of a direct exchange rate. The untranslated amount is divided by the rate to calculate the translated amount. The indirect rate for currency 1 to currency 2 is also the direct rate for currency 2 to currency 1.

USD to GBP = 0.50

GBP 100/ 0.50 = USD 200

USD 200 x 0.50 = GBP 100

Cross-Rates

Generally, exchange rates are quoted and entered in terms of a common or system currency. When a translation is to be calculated with that system currency, the direct or indirect rate is applied. When a translation is to be calculated between two other currencies (for example, neither currency is the system currency), then the required cross-rate can be triangulated through the system currency.

Using USD as the system currency:

GBP to USD: 2.00 direct rate

EUR to USD: 0.80 direct rate

USD to EUR: 1.25 indirect rate

GBP to EUR = GBP to USD/ USD to EUR = 2.00 / 1.25 = 1.60

If only direct rates are entered to Financial Consolidation and Close, based on the system currency, the system will calculate the indirect rates and all of the cross-rates used in translations. If indirect rates or cross-rates are entered, Financial Consolidation and Close will not overwrite the entered rates.

It is recommended that only direct rates be entered to Financial Consolidation and Close in order for the most accurate indirect and cross-rates to be generated. If for example, an indirect rate is entered and it is not the reciprocal of the direct rate, then a translation from currency 1 to currency 2 and then back to currency 1 will incorrectly not yield the original amount. A similar issue can occur if cross-rates are entered.