Currency Conversion Benchmarks
- Tom Fahey (Unlicensed)
- Pamela Totas (Deactivated)
The currency conversion benchmark allows you to convert the vendor-supplied index returns from your base currency to another base currency.
When using the currency conversion process in Performance reports, the Currency Process and Currency Type options must be set on the underlying PERFORM database fields. PACE prompts you to set them when creating or editing PERFORM database fields.
Custom index builds for Linked, Blended, and Floating custom benchmark types can convert the component base currency to match the target base currency. This automatic conversion eliminates the need to create a Currency Conversion type of custom benchmark solely to align the base currency of a source entity with the base currency of a Linked, Blended, or Floating type target index.
Calculate Returns
The following describes the logic used to calculate the currency conversion benchmark returns when there is a currency conversion set. To calculate the currency converted return, the process:
Retrieves the period begin and end exchange rates where the FROM currency equals the base currency of the source index and the TO currency equals the base currency of the target index.
Calculates the Currency Returns for the period.
Currency Return = (End Exchange Rate / Begin Exchange Rate) - 1Converts Currency Returns to growth rates.
Growth Rate = (Currency Return/100) + 1Converts Source Index Returns to growth rates.
Growth Rate = (Return/100) + 1Multiplies the Source Index Return Growth Rate by the Currency Growth Rate over the period, and converts it into the Target Index Return.
The weight columns are copied from the source to the target index, there is no conversion required.
This data is described in the following table.
Data | Stored | Notes |
|---|---|---|
Source Index | ||
Base currency | RULES..ENTITY.BASE_CURRENCY | For the source entity, entered in the Entity Details tab. |
Total Local return | PERFORM..PERF_SEC_RETURNS | Return is in percent format. |
Target Index | ||
Base currency | RULES..ENTITY.BASE_CURRENCY | For the target entity, entered in the Entity Details tab. |
Exchange Rates | ||
Exchange rate at begin of period | SECURITY..FX_RATES.SPOT_RATE | |
Exchange rate at end of period | SECURITY..FX_RATES.SPOT_RATE |
Currency Conversion Benchmark Example
For this example, assume the following currency conversion:
Source Index (USD BASE_CURRENCY) ïƒ Target Custom Benchmark (INR BASE_CURRENCY)
Data for the currency conversion benchmark source index is listed in the following table.
Perf Rollup Returns ID | Description | ABAL | Return |
|---|---|---|---|
1 | Total | 100.000000000000 | 2.337512614320 |
2 | Total – Canada | 0.186961567780 | 1.167482994596 |
3 | Total - Canada - Foreign Govt. | 0.186961567780 | 1.167482994596 |
4 | Total – UK | 21.654973670853 | 3.475919376493 |
5 | Total - UK - Petroleum | 16.356854652918 | 3.800720520895 |
6 | Total – US | 60.189112766022 | 2.149367889086 |
7 | Total - US - Capital Goods | 16.928285677007 | 0.954101703137 |
8 | Total - US - Technology | 17.933412208518 | 2.922672275580 |
9 | Total - US - Petroleum | 2.960736862858 | 3.768148149908 |
10 | Total - US - Basic Industries | 16.596291716438 | 2.654587081941 |
11 | Total – Australia | 17.968951995345 | 1.607967908012 |
12 | Total - Australia - Unknown | 17.968951995345 | 1.607967908012 |
13 | Total - UK - Unknown | 5.298119017935 | 2.473162531641 |
14 | Total - US - Unknown | 5.770386301202 | 0.968905089765 |
Resulting target data for the currency conversion benchmark is listed in the following table.
Perf Rollup Returns ID | Description | ABAL (%) | Return | New Wt (%) | New Return |
|---|---|---|---|---|---|
1 | Total | 100.00 | 2.337513 | 100.00 | 3.720452 |
2 | Total - Canada | 0.19 | 1.167483 | 0.19 | 2.534611 |
3 | Total - Canada - Foreign Govt. | 0.19 | 1.167483 | 0.19 | 2.534611 |
4 | Total - UK | 21.65 | 3.475919 | 21.65 | 4.874243 |
5 | Total - UK - Petroleum | 16.36 | 3.800721 | 16.36 | 5.203433 |
6 | Total - US | 60.19 | 2.149368 | 60.19 | 3.529765 |
7 | Total - US - Capital Goods | 16.93 | 0.954102 | 16.93 | 2.318346 |
8 | Total - US - Technology | 17.93 | 2.922672 | 17.93 | 4.313519 |
9 | Total - US - Petroleum | 2.96 | 3.768148 | 2.96 | 5.170420 |
10 | Total - US - Basic Industries | 16.60 | 2.654587 | 16.60 | 4.041811 |
11 | Total - Australia | 17.97 | 1.607968 | 17.97 | 2.981049 |
12 | Total - Australia - Unknown | 17.97 | 1.607968 | 17.97 | 2.981049 |
13 | Total - UK - Unknown | 5.30 | 2.473163 | 5.30 | 3.857935 |
14 | Total - US - Unknown | 5.77 | 0.968905 | 5.77 | 2.333350 |
Effective_date | INR | USD | SPOT_RATE | ||
4/30/2000 | 1457 | 1454 | 43.66 | ||
5/31/2000 | 1457 | 1454 | 44.25 |
Complete the following:
Retrieve the begin and end exchange rates listed in the table below.
Calculate the Currency Return:
((44.25/43.66) – 1) * 100 = 1.351351Convert the Currency Return into a Growth Rate:
(1.351351/100) + 1 = 1.013513Convert Source Index Return to a Growth Rate:. For example, Total Return:
2.337513/100) + 1 = 1.023375Multiply the Source Index Return Growth Rate by the Currency Growth Rate and convert into a return:
((1.013513 * 1.023375) –1)*100 = 3.7204Weights are copied from the source data.
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