Choosing Currency Rates To Use In Your ERP
So you have a multi-currency ERP/accounting application. It has a place to enter FX rates and great functionality to use them for converting transactions, revaluations, etc. But where should you get those rates from?
Most accounting principles allow a market rate to be used, for the date or month in question. Your auditors will want to see proof that a reasonable market rate has been used.
To complicate matters, certain statutory reports in some countries require use of ‘official’ rates published by the central bank of that country.
The FX markets around the world set Bid and Ask prices for currency pairs, based on buy and sell orders at a given time. Prices change continuously whilst a market is open; almost 24×7, given markets exist all around the world, in different time-zones.
Daily averages of market rates are published by a number of organizations, including newspapers such as the Wall Street Journal and Financial Times, and websites like Yahoo Finance and OANDA.
Paid subscription services are offered by the traditional big players Reuters and Bloomberg, plus more agile, modern API-based services from the likes of Xignite and OANDA.
All work out their rates by taking averages from multiple FX markets.
Official Central Bank Rates
Central banks and other official government bodies publish exchange rates. They usually only publish rates against a selected set of currencies.
Some publish via a web service or API, others only in a newspaper or on a web page. Popular sources include the European Central Bank, UK HMRC, Mexico, Brazil and China but there are many others.
Questions to consider in choosing your source of rates include
- Is your auditor familiar and comfortable with the source?
- Do you need a fully automated feed, or can you enter manually from a newspaper?
- What level of reliability and authenticity are you happy with? (free sources are great, but offer no guarantees)
- Do you have any statutory requirements to use central bank rates?