Indirect rates are rates set between subsidiaries with more than one hierarchical level removed from each other, such as a child and grandchild. Indirect rates are always set by the system and cannot be edited or auto-calculated by users.
Scenario:
- A company headquartered in the U.S. has a subsidiary in the United Kingdom. The U.K. subsidiary has a child subsidiary in Germany. In this case, there are two parents. Both parents require rates from the German subsidiary to consolidate balances. Rates are also needed between the U.K. and U.S. subsidiaries.
- The rates specified between the U.K. and U.S. are direct. The rates between Germany and the U.S. are indirect. To derive the indirect rate for the Euro (the German subsidiary’s base currency) to the U.S. dollar, you would multiply the exchange rate for Euros to British pounds (GBP) by the rate for the GBP to the U.S. dollar.