Currency and exchange rates play a fundamental and often over looked part of SAP financials.

For companies that do business abroad this is essential FI configuration. Invoices may come in from a vendor in the UK, and so a conversion from British pounds to U.S. dollars might need to happen. How do you convert so that the invoice posts and updates your accounts payable properly? SAP uses currency keys to represent each type of currency and most are pre-defined for you already. For example the most common one you'll deal with if you're in the U.S. is the USD currency key. GBP is the currency key for British pounds, EUR for euro, and so on. Maintaining the relationship between each currency key, or the exchange rate, will pose the majority of your customizing workload. If you've traveled abroad you'll have had experience with the concept of an exchange rate already. Most international airports will have a booth with a board displaying how much they will buy and sell a given currency. The buying/selling rate is based on values determined by currency markets and fluctuates constantly. In SAP the exchange rate between two currencies is identified by an exchange rate type and translation ratio. It sounds more complex than it really is a translation ratio is simply a ratio between the currencies. So the translation ratio between USD and GBP would be: USD/GBP = 1/1 Exchange rates fluctuate constantly and require updates that range from daily to real-time. SAP provides a few tools at your disposal to help automate this task: inversion, base currency, and exchange rate spreads. Each exhange rate type would use one of these tools, but exchange rate types can use different tools. Of these tools inversion is the oldest kind and is not really used often today. Base currency is assigned to an exchange rate type and makes life easier for you due to the fact that you only have to set up the exchange rate between the currency and the base currency. For example, let's say you select USD as your base currency. Therefore you only need to update the exchange rates between USD and all foreign currencies. USD to GBP USD to EUR If the system requires a conversion between two foreign currencies, like the pound and the euro, it would use USD for conversion. EUR to USD to GBP = EUR to GBP Exchange rate spreads work by creating an average spread between the rates banks buy and sell a given exchange rate for. These spreads typically remain fairly constant. A recommendation for efficiency from SAP is to use base currency and exchange rate spreads together. The average rate would use the base currency and the exchange rate spreads would be calculated by adding or subtracting the spread from or to the average rate. There are programs that can help maintain exchange rate type as well. If your company requires real-time updating, than program RFTBDF07 using RFC (remote function call like Y_CURRENCY_CONVERT), could be used. Another option is program RFTBFF00, which can be scheduled to periodically upload an input file sitting on a desktop or server. Currency values can be quoted directly or indirectly and SAP supports both methods. You will be

required to assign a standard notation to each exchange rate. To use direct quotation, which changes names based on where you read, price notation in SAP documentation and price currency via wikipedia, means to express a local currency (home currency) in terms of the foreign currency. Indirect quotation (or volume notation) is to express foreign currency in terms of local currency. Direct quotation example, where USD is local currency: 0.7000 EUR = 1 USD. Indirect quotation, where USD is local currency: 1 USD = 0.7000 EUR. Indirect quotation has risen in popularity due to requirements by the European Monetary Union (EMU) and the proliferation of the euro. You can maintain exchange rates in table TCURR via the IMG area General Settings => Currencies => Enter exchange rates for both direct and indirect quotations. Unless you specify otherwise when entering a value into an input field, like the amount field on an invoice, SAP will assume that you mean for direct quotation exchange rate. You can configure alpha prefixes so that you can specify indirect quotation at time of numeric input. If you do not, then entering a back-slash "\" is the default method to use indirect quotation. Of course you can configure the reverse or differently based on your business requirements. I recommend heading over to wiki.sdn.sap.com for further information identifying tcodes, configuration areas, and tables that touch upon currency configuration. Coupled with help.sap.com you'll be on your way to configuring currencies.

Sources TFIN10 Documentation Currency customizing at wiki.sdn.sap.com Exchange rate customizing at wiki.sdn.sap.com /wikipedia/en/wiki/Exchange_rate help.sap.com's Direct and Indirect Quotation Guide