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Source of Data: Bloomberg 7/27/07
Base Currency = 'EUR'
Target Currency = 'GBP'
Cross Rate Currency = 'USD'
From the FX_RATES table, get the records that match the reference currency and the Target/Base currency. Data in the FX Rates table includes:
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From currency: GBP
To currency: USD
Rate: 1.5
Now consider if you want to convert from USD to GBP using this rate:
Rate in calculation = 1/1.5
This scenario works if the FX is stored as a multiplier or divisor.
Stored as Multiplier:
1 GBP = 1.5 USD
To convert 100 GBP to USD = 100 * 1.5 = 150USD
To convert 100 USD to GBP = 100 * (1/1.5) = 66.66667 GBP
Stored as Divisor
1USD = 0.666667 GBP
To convert 100 GBP to USD = 100/0. 666667 = 150USD
To convert 100 USD to GBP = 100 * (1/0. 666667) = 66.66667 GBP
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This option affects Performance Link Analysis (PLA) fields used in Performance Analysis reports, as well as Composite Performance Analysis (CPA) fields used in Composite Analysis reports. It does not affect calculations for Daily frequency. For more information about CPA fields, refer to the GIPS Composite Management User Guide.
For PLA fields, this option affects those fields where under Period Options, you select the I would like to link the returns using the Date Rule option, and then choose a Date Rule associated with the inception date. It does not affect those PLA fields where you select the I want to calculate option, and choose a corresponding inception date field to calculate To date returns.
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As long as the PACE system id 135 and 137, described in the previous section, are correctly defined, there is no additional setup required other than specifying the "convert to" currency. Depending on the fund's base currency, cross currency conversion can be automatically started. For example, in the profile, you might specify that the result be converted to EUR.
If one of the funds in the report has a base currency of GBP, then cross currency conversion is automatically started. PACE uses the EUR to USD and the INR to GBP to USD rates to calculate the GBP to EUR rate. This is used for conversion.
To set this up, you start the sequence indicated as shown in the following figure.
When you click the Options button in the report profile, the Advanced Options dialog box appears. See the following figure.
In the Select a Currency tab, you can specify the "convert to" currency, that is, the currency to use for the results. In this example, you are specifying that the results are converted to Euros.
If you configured the PACE system parameters to allow cross currency calculations and specified an FX cross rate currency, as described in "Enabling Cross Currency Calculations in PACE," the Select a Currency tab displays a line of text that describes this information. In the previous figure, the following text indicates that you configured the system to allow cross currency calculations and are using US dollars as the cross currency:
Cross currency process is ON using currency USD.
Consider the same profile with multiple base currencies: you can submit multiple funds with different base currencies in the same profile. The calculation first triangulates all combinations before processing individual funds. The code is optimized to make sure triangulation occurs only once per combination.
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Performance Analysis reports allow you to perform currency conversion for Internal Rates of Return (IRR) calculations. The Performance Analysis currency conversion converts the inputs of cash flows and market values to the target currency using loaded FX rates and then uses those converted inputs to calculate the IRR.
To use FX conversion for Performance IRR Analysis fields, perform the following setup tasks:
- Load exchange rates to the database.
For general information about foreign exchange rates data, refer to the Performance Calculation User Guide. - In the Performance IRR Analysis field, ensure that the underlying fields you select as the Beginning Market Value, End Market Value, and Cash Flows fields have their respective Currency Process fields set correctly.
The underlying field you specify as: Beginning Market Value should always have its Currency Process field set to Begin Value.
Eagle Performance converts the beginning market value with the FX rate that has an effective date prior to the effective date of the beginning market value, unless the field is an inception-to-date field. If the field is an inception-to-date field, Eagle Performance converts the beginning market value at the FX rate from the inception date of the entity.
End Market Value should always have its Currency Process field set to End Value.
The ending market value uses the FX rate from the effective date of the ending market value or the final cash flow.
Cash Flows should have its Currency Process field set as follows. If you use a:
Daily frequency and set the Currency Process field set to End Value, Eagle Performance uses the FX rate from the effective date of the cash flow in converting that cash flow.
Daily frequency and set the Currency Process field set to Begin Value, Eagle Performance uses the FX rate from the previous business calendar day in converting that cash flow.
Monthly frequency and set the Currency Process field set to End Value, Eagle Performance uses the FX rate from the effective date of the cash flow in converting that cash flow.
Monthly frequency and set the Currency Process field set to Begin Value, Eagle Performance uses the FX rate from the previous month end date of the cash flow in converting that cash flow.
The Performance Analysis report uses the correct FX rate based on cash flow effective date, frequency, and the Currency Process value selected.
An example of a cash flows field in shown in the following figure.
For more information about setting the Currency Process attribute for Regular fields, refer to the section that describes Performance Database Field Attributes in the Performance Calculation User Guide. - Within the Performance Analysis report profile, click Options, then select the appropriate currency conversion settings on the Select the Currency tab of the Advanced Options dialog box.
For more information about these options, refer to "Converting Returns From One Base Currency to Another."
To illustrate, two examples follow:
- The IRR field is a one year IRR field as of 12/31/07. Cash flow Currency Process is set to End Value. The frequency is Monthly. The system converts the begin market value using an FX rate from 12/31/06 (beginning market value effective date), and converts the end market value using an FX rate from 12/31/07 (End Market Value effective date). It converts the cash flows with the FX rate with the effective date of the cash flows.
- The IRR field is an inception to date field with the entity inception date of 01/15/07. Cash flow field Currency Process is set to Begin Value. The report as of date is 12/31/07. The frequency is Monthly. The system converts the beginning market value with the FX rate with the effective date 01/15/07 (the entity inception date). It converts the cash flows using the FX rate from the previous month end date. It converts the ending market value with the FX rate from the ending market value effective date.
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