What is 'Reference Currency for Triangulation'?
ERP: AX 2012
Module: General
Ledger Module
Sub Section: Currency and
Exchange Rate Setup
This option / radio button is available under
General Ledger > Setup > Currency > Currencies
Non-finance professionals may have some trouble deciphering the meaning
of the term 'Reference Currency for Triangulation' and equally why we
need such a currency. I almost decided to do a write-up from scratch after
finding no great help from online AX resources but PeopleSoft (ERP) website had something as below.
Triangulation is the process by which
a conversion between two currencies takes place by way of a third reference
currency. This process may be used
in hyper-inflationary environments, where all conversions to the
local currency are done by way of a stronger, more stable currency. This
process may also be used when a country is undergoing a currency revaluation.
To support triangulation, an ERP
system provides a means to define that you want a currency pair to triangulate
through a fixed reference currency. The actual conversion process is done in a
two-step procedure in which the from-currency amount is first converted to the
reference currency and then to the destination currency, using the appropriate
exchange rates. Supporting triangulation also affects the user interface, as
there are now two or possibly three exchange rates that are relevant to the
conversion. When viewing a triangulated conversion at a detailed level, users
access three visual rates:
· A
rate for converting the from-currency to the reference currency.
· A
rate for converting the reference currency to the to-currency.
· A
cross rate indicating the rate that would be required to convert the
from-currency directly into the to-currency.
The cross rate in a triangulated
conversion is not typically maintained directly. The system enables you to
maintain those non-triangulated rates that are components of the triangulated
rate, then run a process to generate the triangulated exchange rate. However,
you can override the cross rate, which causes one of the other exchange rate
values to be recalculated to synchronize it with the overridden cross rate.
For example, suppose an
implementation was using triangulation to convert from USD to FRF. You would
directly maintain the visual rate from the USD to euros (1.25 in the example
table) and rate from euros to FRF (6.8 in the example table). You could then
run the relevant application engine process to derive the triangulated rate for
converting from USD to FRF. The results are shown in the following table:
Currency Pair
|
Quote Method
|
Quote Units
|
Primary Visual Rate
|
RATE_MULT
|
RATE_DIV
|
USD to Euro
|
Indirect
|
1
|
1.25
|
1
|
1.25
|
Euro to FRF
|
Direct
|
1
|
6.8
|
6.8
|
1
|
USD to FRF
|
Direct/Triangulate/Euro
|
1
|
5.44
|
6.8
|
1.25
|
It is quite simple mathematics. Using above example
1.25 USD = 1 EUR (Set-up 1)
1 EUR = 6.8 FRF (Set-up 2)
If you want to work out the new / undefined currency mix
1 USD = ? FRF, with EUR as the nominated middle currency/ reference
currency for triangulation, AX 2012 would perform this calculation (1/1.25*6.8)
= 5.44
MS Technet fell short in adequately describing this process (at least none that i could find) and I hope this explanation is a
degree better.
