SAP Currency management

Currencies are legal means of payment in a country.

For each monetary amount that we enter in the SAP system, we must specify a currency. Currencies are entered as
per ISO standards, for example, USD for US dollar, INR for Indian Rupee
Few common terminologies associated with Currencies are as follows:
a)

Reporting currency is the currency used in presenting the financial statements.

b) Foreign currency - is the currency other than the enterprise currency.

c)

Group Currency - A group currency is used in the consolidated financial statements. Before the consolidation
process can be completed, all values in the individual financial statements must be translated from the local or
transaction currency into group currency

d) Company currency: A currency used for internal trading partner

e)

Hard Currency: A country specific second currency used in countries with high rate of inflation.

f)

Index currency: A country specific theoretical currency used in some countries with high inflation as a comparison
currency for purpose of statutory reporting.

g) Exchange rate is the ratio for exchange of two currencies as applicable to the realization of certain assets or the
payment of specific liability and even recording of specific transactions or group of transactions.
h) Average rate is the mean of exchange rates in force during a period.
i)
j)

Forward rate is the exchange rate established by the terms of an agreement for exchange of two currencies at a
specified future date.
Closing rate is the exchange rate at the balance sheet date.

k)

Monetary items - are money held and assets & liabilities to be received and paid in fixed or determinable amounts
of money e.g. cash receivables and payable.

l)

Non-monetary items are assets and liabilities other than monetary items e.g. fixed assets, inventories, investment
in equity shares.

m)
n)

Settlement date is the date at which receivable is due to be collected or payable is due to be paid.
Recoverable amount is the amount which the enterprise expects to recover from the use of asset including its
residual value on disposal
Below step explains configuration for currencies and foreign currency valuation

Check Currency codes

Set Decimal places for currencies
Check Exchange Rate Types
Define translation ratio for currency transactions
Currency Exchange Rates

Define Valuation Method

Prepare Automatic postings for foreign currency valuation
Define maximum exchange rate for difference per company code
Additional Local Currency for Company Code
Rounding Rules for Currencies
GL Master Data
Execute Foreign exchange valuation F.0

Check Currency codes T.Code OY03

You may use several SAP currency keys for the same ISO code. To ensure a unique assignment of the ISO code to
an SAP currency key, one of the SAP currency keys must be selected as the primary currency key for the ISO code.
If the assignment between SAP currency key and ISO code is unique, you do not need to select this field.

Set Decimal places for currencies T.Code OY04

Example: One OMR / INR =159.81832

Check Exchange Rate Types T.Code OB07

EMU Indicator: Exchange rate type uses special translation model
If you set this indicator it means that the SAP System internal translation modules calculate using a different
algorithm. The algorithm has been adjusted to meet the European Monetary Union statutory guidelines. The
indicator must be set if the statutory conversion rules agreed by the participating countries in the EMU are to be
used.
This procedure is not effective if calculation is to be undertaken using bank selling rates, bank buying rates and
exchange rate spreads.
If you set this indicator, you must specify a reference currency.
Fixed Indicator: Exchange rate type uses fixed exchange rates
Describes an exchange rate type that works with fixed exchange rates. Exchange rate fixing affects the application if
exchange rates are to be calculated from currency amounts you have entered. In this case, the system may continue
processing using the fixed exchange rate instead of the exchange rate calculated. If exchange rates other than the
fixed exchange rates are used, the system displays warning messages or error messages.
Example
1.
As from 01.01.1999, the currencies of the Member States of
2. European Monetary Union are fixed.
1.2. If the exchange rate type is G (which functions as the bank buying rate to the average rate M) and this indicator is
set, one fixed exchange rate only is used.

Define translation ratio for currency transactions T.Code OBBS

The
Currency
Translation
Ratio
identifies
the
relationship
of
the
units
of
one
currency to the units of another. It is not possible to maintain exchange rate in the system without maintaining the
translation ratio for the currency pair. It is essential to maintain these ratios for each exchange rate type & currency
pair

Currency Exchange Rates T.Code OB08

If you maintain the exchange rates on a daily basis, you should delete the exchange rates that you no longer
required, so that there are not too many entries in the system.
We do not have to enter all exchange rates. There are many tools that can be utilized to automatically determine
other exchange rates from existing ones.

Example:

Define Valuation Method T.Code OB59

SAP uses exchange rate type M to value all foreign currency items. M is the average rate for any foreign currency.
In this step, you define your valuation methods for the open items. With the valuation method, you group
specifications together which you need for the balance and individual valuation. Before every valuation run, you
specify the required valuation method. SAP provides various Valuation methods. We can also create our own key
starting with Z

Lowest Value Principle The Valuation is only displayed if the valuation difference between the local currency
amount and the valued amount is negative that is an exchange loss is taken place. The valuation is carried out per
item total.
Strict Lowest Value Principle The valuation is only displayed if, as a consequence, the new valuation class has a
greater devaluation and/or a greater revaluation at credit entries than the previous valuation. The valuation is
calculated per item total.
Always Valuate If you select this procedure, revaluations are also taken into consideration.
Revalue only if you select this procedure, system only does a revaluation if applicable but does not do devaluation
where there is exchange loss.
Reset- if you select this parameter, then the open items is valuated at the acquisition price. This way the valuation
difference is set to zero. The old valuation method is reset. The account determination is reversed. The revenue that
arises is posted to the expense account.
Exchange rates are types that are attached to the valuation methods.
Determine rate type from account balance- If you select this field, the account balance/group balance in the relevant
foreign currency is used to determine the exchange rate type. This is relevant for account balance revaluation
Prepare Automatic postings for foreign currency valuation T.Code OBA1

KDB: Exchange Rate difference in foreign currency balances e.g. bank accounts held in foreign currency

Exchange Rate Difference key:

Can be kept blank or you can enter a key with 4 digits e.g. 0001. In case you create this exchange rate key then the
same has to be updated in the GL code of the foreign currency account i.e. the control data tab which has the field
exchange rate difference key. Only when it is attached, the system will reevaluate the foreign currency account.
Expense account:
We need to enter the expense GL code for unrealized foreign exchange loss
E/R gains:
You need to enter the revenue GL coded for unrealized foreign exchange gain
Unrealized and will be automatically reversed in the next month
KDF: Here we will enter the GL codes for AR and AP (the reconciliation account)

GL account: Reconciliation account

Realized Gain 754013 Unrealized gain 755021
Realized Loss 654013 and unrealized loss 655021
Creditors revaluation 271190

RDF: Internal currencies rounding difference

Transaction code OBYC
There can be exchange rate difference on account of document posted through MM process, in such cases we need
to maintain the exchange gain/loss account for KDM (Materials management exchange rate difference) key using
Transaction code OBYC.
Exchange rate differences in the case of open items (KDM)
Exchange rate differences in the case of open items arise when an invoice relating to a purchase order is posted with
a different exchange rate to that of the goods receipt and the material cannot be debited or credited due to standard
price control or stock under coverage/shortage.

Now system will post the arising Gain/loss automatically to the assigned GL account, for this purpose default cost
centers are required to be maintained for the gain/loss accounts to which the posting will be done using transaction
code OKB9

Define maximum exchange rate for difference per company code

Additional Local Currency for Company Code T.Code OB22

Rounding Rules for Currencies T.Code OB90

Rounding of currencies

OBS2 GL Master Data

Foreign currency valuation at month end for open items F.05

Example of Transaction posting FX

Vendor invoice posted with document currency in USD 1000 on 01.01.2012

Month end 31.01.2012 executed F.05

01.01.2012 exchange rate 31.64220
31.01.2012 exchange rate 31.27000

Amount credited to unrealized exchange gain

The next month on 01.02.2012 first day amount paid

Check the cost center accounts for realized and unrealized accounts.