FSC010

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FSC010 SAP Treasury ProcessesFSC010 SAP Treasury and Risk Management Processes

THE BEST-RUN BUSINESSES RUN SAP

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FSC010SAP Treasury and Risk Management Processes

mySAP ERP 2005 2006/Q2 50079501

© SAP AG 2006

Copyright 2006 SAP AG. All rights reserved.

No part of this publication may be reproduced or transmitted in any form or for any purpose without the express permission of SAP AG. The information contained herein may be changed without prior notice.

Copyright

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Target Group

ParticipantProject leaders

Project team members

Consultants

Users

Duration: 5 days

User notes The training materials are not intended for self-study but rather as a supplement to

the information provided by the trainer. Therefore, you can use the ample space in the material for your own notes.

The exercises are only a supplement to the examples used in this course. There may not be sufficient time to complete all the exercises during the course. If this is the case, you can use the exercises after the course to practice what you have learned.

© SAP AG FSC010 1-5

© SAP AG 2006

Course Overview

Contents

Course Goals

Course Objectives

Contents andCourse Overview

Main Business Scenario


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This course will prepare you to

Create and manage process-oriented transactions in Transaction Manager, Market Risk and Credit Risk

Configure and carry out typical business processes in these areas.

Course Goals


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Course Objectives

At the conclusion of this course, you will be able to

Use the support tools for back office processing

Describe the interrelationships in SAP Transaction Manager

Set up the necessary structures for short, middle and long term liquidity management

Explain the different ways of monitoring and controlling market and credit risks


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Course Overview: Overview Diagram

Unit 2 Treasury and Risk Management: Overview

Unit 3 Transaction Manager: Money Market

Unit 4 Transaction Manager: Forex, Derivatives

Unit 5 Transaction Manager: Securities Management

Unit 6 Market Risk Analyzer

Unit 7 Credit Risk Analyzer

Unit 1 Course Overview


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You want to get an overview of the components of Transaction Manager, Market Risk Analyzer and Credit Risk Analyzer.

You want to learn about the business processes within the components.

You are currently using or have successfully implemented the SAP FI module. You now want to activate short, medium and long term liquidity management and make use of risk managementfacilities.

Main Business Scenario

You are a member of a project team, which will make both basic and all other settings required for mapping financial transactions in corporate finance management.


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Treasury and Risk Management (TRM): Basic Overview Diagram


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Identifying processes in Treasury

Unit 2: Treasury and Risk Management: Overview

General functions (Treasury and Risk Management)

Market Risk Management

Credit Risk Management

Reporting

Transaction Manager

Treasury and Risk Management (TRM): Overview


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After completing this unit, you will be able to:

Provide an overview of SAP Treasury and Risk Management Explain the various processes within TRM and the standard functionsProcess your SAP business partnerExplain the role categories defined in the business partner and create business partner relationshipsSet up standing instructions and authorize business partnersDifferentiate between banks in general, business partner banks and house banksExplain the reporting options

Treasury and Risk Management - Basic Principles:Unit Objectives


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Overview: Treasury and Risk Management Process

ItemsCash

CurrencyRisk

Limits…

AnalysisReportingSimulation

TradingBy telephone

On the marketplaceInternal trade

Back office activitiesData control

CorrespondenceNetting and payments

ControllingRisk controlling

Compliance

Periodic ActivitiesCorporate actions

Interest accrual/deferralPosition valuation

AccountingParallel Valuation

(Local GAAP, IFRS, FAS, …) Hedge accounting

From a strategic point of view, the analysis and trading process is the starting point for the various Treasury processes. For example, the risk positions of the risk objectives you have set are identified and analyzed.

Once you have decided to complete certain financial transactions, you enter the trading processes for these transactions in Transaction Manager. Transaction Manager also supports the management of other transactions and the generated financial positions.

A range of documentation and control functions are available for all Treasury activities. You can perform evaluations for specific instruments or across the whole system to ensure that the various documentary and control tasks of financial accounting and the treasury are conducted accurately.


© SAP AG 2006

TransactionManager

RiskManagement

PriorityPriority

1 Ensuring liquidity 952 Optimizing finance costs 923 Optimizing yields on financial assets 744 Securing costs (example: against possible exchange rate fluctuations) 615 Securing turnovers (example: against

possible exchange rate fluctuations) 526 Profit contribution with active

management of open positions 30

%

Overview: Treasury and Risk Management

ObjectivObjectivee

Company Company WeightingWeighting

SAP Treasury tasks and their distribution in both areas of Transaction Manager and Risk Management can collectively be derived from the company objectives: with Transaction Manager you can optimize yields and cost structures, and with Risk Management secure against market and credit risks.

Transaction Manager supports financial transaction and financial position management. You can use Market Risk Analyzer to analyze interest rates, currency ands stock risks. Credit Risk Analyzer helps you assess credit risks and includes an Online Limit Check.


© SAP AG 2006

mySAP™ ERP

Overview - SAP Treasury & Risk Management

WS

Dev

elop

men

t sys

tem

s

Trad

ing

plat

form

s

Mar

ket d

ata

Hou

se b

anks

etc

.

SAP Treasury & Risk ManagementPortfolio Analyzer

Yield calculations

Credit Risk Analyzer

Market Risk Analyzer

FX Der. Sec.MM

Transaction Manager

Reporting

•Simulate rates

•Value at Risk

•Price calculator

•Limit management

•Utilization

•Dataexport

•Middle office

•Manage-ment reports

•Results database

•Reporting tools

•Ad hoc

reporting

••AccountingAccounting

••Back officeBack office

•Front - / Middle office

SAP NetWeaver™Portal, Security,

Business Intelligence, Knowledge Management, eXchange Infrastructure …

SAP Business Partner

SAP In-House

Cash

SAP Cash and Liquidity Management

Financial Accountingin mySAP ERP

FocusFocus

As an integrated subledger, SAP Treasury and Risk Management is closely linked to the remaining product portfolio.

It uses the central business partner so that it is not necessary to manage it in the system unnecessarily.

It is not integrated with the In-House Cash and, if desired, you can use it to centrally manage payments.

The liquidity effects can be evaluated in real time in Cash Management. The items of Cash Management can be evaluated in many standard reports of SAP Treasury and Risk Management together with the Treasury transactions.

The relevant items and results are directly updated to Financial Accounting. Using SAP NetWeaver it is possible to integrate other external systems (for example trading platforms, house banks and market data information systems) into mySAP ERP SAP Treasury and Risk Management.


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Requirements of Different User Departments

Security - role concept, authorization concept

Internet – Web access

Reporting - new logical databases, analysis functions

Integration

Automatic posting

Option of financial reporting according to different standards

Hedge accounting –FAS133/138, IAS39

Reliability

Flexible process definition

Process automation

Simple transaction entry

Extensive product categories

Cash flow analysis

Information about risk/revenue

Trading Back office processing Accounting

Comprehensive management of financial transactions and positions Trading and back office support Monitoring, checking, and releasing Data transfer to financial accounting (including accruals/deferrals and valuations)

Flexible configuration of company-specific transaction and position management processes Assignment of financial transactions to portfolios or management in securities accounts Flexible reporting and portfolio analysis Datafeed Interface


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Transaction Manager

. . .

US GAAP

HGB

Asset ManagementOrganization

TransactionManager

Money market

Foreign exchange

Securities

Derivatives

TreasuryOrganization

Frontoffice

Middleoffice

Backoffice

Contracting financial transactions is one of the fundamental tasks of many financial departments. Depending on corporate policy, emphasis may be placed on providing an internal service for sibling companies or on actively investing liquid funds, financing planned investments, or hedging existing risks in the financial markets.

Transaction Manager provides you with the necessary tools for all related transactions, from creating to transferring relevant finance accounting data. This supports both conventional treasury departments with a trading-related focus and asset management departments. This gives you the advantage of being able to execute all types of transactions - from short-term financing to strategic long-term investments - all on the same platform.


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Transaction Manager: Functions Overview

Comprehensive management of financial transactions and positions

Trading and back office support

Monitoring, checking, and releasing

Data transfer to financial accounting?(including accruals/deferrals and valuations)

Flexible configuration of company-specific transaction and position management processes

Assignment of financial transactions to portfolios or management in securities accounts

Flexible reporting and portfolio analysis

Datafeed Interface


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Central FunctionsExamples: trader/user, currencies, correspondence,

financial mathematics, posting logic, payment transactions, workflows, archiving, market data,

information system

FIFI

Financial accounting

AMAM

Investment accounting

COCO

Controlling

Central Dataexample: business partner, banks

Financial Transactions Structure

Money markettrading

Forex

Derivatives

Transaction Manager: Basic Functions

The central functions of Transaction Manager are: Structuring financial transactions (example: the product categories Deposits, Overnight

Money and so on) Central data (example: business partner with all authorizations and the bank data for the

business partner's payment details) Central functions (see slide). Transaction Manager also supports standardized interfaces for Financial Accounting, Cash and Liquidity Management, Market Risk Analyzer, Credit Risk Analyzer, Market Data Binding.


Within short-term transactions, money market or foreign exchange transactions provide the option of bridging liquidity deficits or surpluses. For mid- and long-term, investments and borrowings are represented by securities transactions.

Derivative financial instruments, on the other hand, help you secure against interest rate and currency risks

© SAP AG 2006

Sample of a Range of Financial Instruments

Fixed - term deposits

Deposits at notice

Commercial paper

Interest rate instrument

Cash flowtransaction

Facilities

Product Types

DerivativesForeign exchangeSecuritiesMoney market trading

Stock Subscriptionrights

Investment certificates

Bonds Convertiblebonds

Warrant?bonds

Warrants ABS MBS

Spot exchangetransactions Forward exchangetransactions Foreignexchangeswaps

Cap / Floor FRA Swaps

- Interest rates- Cross currency

interest rates OTC options- Currencies- Interestrates- Securities- Swaption

Futures Listen options

Hedging instrumentsInvestment/ Borrowing

instruments


© SAP AG 2006

Transaction Manager:Transaction and Position Management Process

TradingTrading Back Back officeoffice AccountingAccounting

PostingsPayment transactionsReversalsAccrual/deferralValuation

Create neworder/contractExercise/expirationTerminationsRolloversExercising rights

User authorizationLimit management

Release

Settlement/controlInterest rate adjustmentNettingReferencingConfirmation lettersSecurities transfer postingsCorporate actions

In transaction and position management, the following areas are differentiated: In Trading, you create transactions and exercise rights. In Back Office, you settle transactions, that is, you check entered transactions and carry out

position management-related processes, such as securities transfers. In Accounting, you carry out all bookkeeping for relevant activities in the subledger and

transfer posting information to the Financial Accounting general ledger. This process actively support the principle of dual control, triple control or quadruple control.


© SAP AG 2006

Resets in the key date valuationenable year-end closings andend-of-quarter closings to beprepared

Mapping International Accounting Rules

Definition of several parallel valuation areas

Definition of Position Managementprocedures to prepare

financial statements in theparallel valuation areas, on the basisof IAS and/or US GAAP, for example

Lot accounting support for securities and listed derivatives

Position management procedure: defines how the position management is to be handled in the parallel area

Evaluation class: indirect balance sheet layout - AFS, trading


© SAP AG 2006

Currency risk Interest rate risk Stock risk

Market risk procedureCash flow analysis

Value at RiskSensitivities

Mark-to-marketInterest/Currency exposure

Organizational ElementsReporting characteristics

Structured productsFlexible portfolio hierarchies

Business areas

Decision support and simulation

Market data scenariosFictitious transactions

Market Risk Analyzer

In addition to conventional financial management tasks, such as cash management, ensuring liquidity, and liquidity management, controlling market risk plays a crucial role in ensuring a company's competitiveness. The Market Risk Analyzer offers comprehensive position analysis functions, such as mark-to-market valuation for financial transactions,

Additionally, risk or performance figures, such as exposure, future value, effective interest rate and effective rate, internal rate of return, sensitivity, and value at risk can be determined. When you run these reports, you can incorporate both contracted positions and fictitious financial transactions in the calculations,

Valuations can be based on either real or simulated market prices. As well as a high level of flexibility for organizing reports, Market Risk Analyzer provides a reliable valuation basis for market risk controlling.


© SAP AG 2006

Characteristics

Credit RiskAnalyzer

Transaction conclusions: updatinglimits

OKLimitcheck

CFM Transaction Manager

Exposure8.5

632.3688.112.3

Limit10.5

700.7716.7

4.8

PartnerEuro BankUnited BankCarltonBrightline

ReportingReportingUtil. in %

80.9%90.3%96.0%256.3%

Avail. Limit2.0

68.428.6-7.5

Credit Risk Analyzer

Integrated online limit check

Analysis, measurement and control of credit and settlement risks

Company-wide limit attribution

Determining attributable amounts with flexible formulas

Netting & collateral

The tightening of regulations on risk control confirms the growing importance of analyzing and limiting insolvency risk (KonTraG - German Business Supervision and Transparency Act). System support is also necessary for measuring, analyzing, controlling and limiting counterparty default risk for other business considerations.

Credit Risk Analyzer is designed to meet all of these requirements with the objective of providing you with comprehensive support for controlling counterparty default risks. The first release covers the specific risks related to your company's financial transactions. Further releases will concentrate on integrating the sales/accounts receivable area. This will enable company management to recognize credit risks when they arise and avoid them.


© SAP AG 2006

Classic drilldown report

A B C18.234,97 27.276,08 87.751,8429.932,07 38.373,42 32.756,44

... ... ...

Object list

Graphical reports

0

20

40

60

80

100

A B C S

reports

Many evaluations offer a selection of different formats for data output.


© SAP AG 2006

Before you can conclude financial transactions with a business partner, you must create the partner in the system. SAP Business Partner will help you do this.

In addition, you want to authorize specific business partners for certain transactions only.

How can you automatically get suggestions for business partner settings when creating transactions?

Business Partner: Standing Instructions

You are a member of a project team, which will make both basic settings and all other settings required for mapping financial transactions in Treasury and Risk Management.


© SAP AG 2006

Natural PersonGroup

Organization

Organization

A business partner is a person or legal entity with whom/which you have a business relationship.

There are three different business partner categories:

Business Partner: Definition

A business partner is a person, organization or group of persons/organizations with which your company can have a variety of relationships.

Business partners are divided into various categories, which each have different attributes. FM differentiates between

- Persons (examples: private individual, broker) - Organizations (examples: bank, company) - Groups (examples: non-trading partnership, shared apartment)


© SAP AG 2006

Overview of Extracted Business Partner Data

Company Code Company Code DataData

GeneralGeneralDataData

AccountAccount managementmanagementPaymentPayment transactionstransactions

AccountAccount interestinterestPaymentPayment datadata

AutomAutom. . paymentpaymenttransactionstransactionsDunningDunning datadata

CorrespondenceCorrespondence datadata

Business Business PartnerPartner

Address overviewAddress overviewCredit profileCredit profile

Identification/BranchesIdentification/BranchesControlControl

Bank Bank detailsdetailsPaymentPayment transactionstransactions//

ValuationsValuationsRoleRole datadata

Legal Legal datadataFiscalFiscal yearyear informationinformation

Personal Personal datadataEmploymentEmployment datadataAdditional Additional datadataCredit Credit standingstanding

FiscalFiscal datadataReporting Reporting datadata

RoleRole

DescriptDescript--ionsions

In Treasury and Risk Management, you conclude financial transactions with a business partner. Typical partners include banks or a central treasury department. You create a master record for each business partner.

The user interface for business partner data was fully revised as part of the Enjoy project. The screen layout has been restructured and you can now navigate between several tabs containing individual business partner views.

The data you can maintain for a business partner is split into two areas: - General role data

is centrally stored for all roles. The amount of accessible data may vary according to role category, depending on the settings in Customizing.

- Company code-dependent data is data which only applies for the role category in the respective company code.


© SAP AG 2006

Process Business Partner

Characteristics for Processing a New Business Partner:

• Person

• Organization

• Group

• Grouping

• BP Role

To create a new business partner, you must enter a BP role, the business partner type and the grouping on the initial screen.

The grouping is defined in Customizing and is used to classify business partners according to any criteria.


© SAP AG 2006

Business Partners: Relationships

Relationship

Parent company

Example:?Subsidiary

Dependent on classification

Outgoing relationship

"subsidiary of"

Rel. Type Description Rel. Cat Description

SUB2V. important?subsidiary 0050 Subsidiary of

Subsidiary

Relationsh.Cat.

Relationship Types

Relationships can exist between different business partners. You can map these relationships on the Relationships tab page.

The relationship categories you can choose from are predefined in the system and depend on the business partner classification.Example: "Is subsidiary of" for an organization, or "Is married to" for a person.

You can refine the relationship categories by defining different relationship types. The specific relationship type is dependent on the relationship category already chosen.

Ingoing relationships of a business partner are all the relationships entered in the master data for the other partner.

Outgoing relationships are all the relationships with other business partners entered in the master data for that particular business partner.


© SAP AG 2006

Company Code-Dependent Business Partner Data: Standing Instructions

PaymentPaymentdetailsdetails

TransactionTransactionauthorizationsauthorizations

DerivedDerivedflowsflowsCorrespondenceCorrespondence

Business partner A

Standing Instructions are master agreements concluded with a business partner. Standing instructions for business partners concerning payment details, correspondence and derived flows are included in tab pages in the maintenance of business partners. By integrating standing instructions in the business partner data, they have also been linked to release workflow - business partner. You can also access the standing instructions with a separate menu path.

Master agreements can be made according to: Authorizations

Which types of financial transactions are permitted with a business partner? Payment details

For transactions with business partner A => Payment details of BP A as default values for the transaction

Correspondence For transactions with business partner A => predefined: For which transaction is which correspondence created?

Derived flows For transactions with business partner A => predefined: If in the transaction with BP A, flow X is generated, tax/commission in the amount of y% is to be calculated


© SAP AG 2006

Standing Instructions: Business Partner Authorizations

Assign

Business partner A

Partner authorizations

Authorization

X

Transaction ManagerMoney market trading

FT deposit

51 A Fixed-term deposit100 Investment200 Borrowing

Deposit at notice

52 A Call money 100 Investment200 Borrowing

In order to make use of a business partner (BP), you must - Create the BP, - Release the BP for use and - Authorize the BP as a partner for specific financial transactions. You can only grant transaction authorizations if the business partner - once set up - is

released and is not designated for deletion. Transaction authorizations control which financial transactions are permitted with a business partner. You can assign transaction authorizations at the following levels:

- Contract type - Product category - Product type - Transaction type

You have to assign authorization to each business partner and in each company code.


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Financial Transaction: Standing Instructions

PaymentPayment DetailsDetails

Assign Assign

CorrespondenceCorrespondence DerivedDerived flowsflows

Assign

• Derivation procedure• House bank and corresp. bank account

• Business partnerbank details

• Confirmation ?- Print- Fax

- SWIFT, IDoc?- E-mail- Counterconfirmation

Business Business partnerpartner AA

Payment details include all information required to conclude payments, that is, your own (house bank) account data and, where applicable, business partner bank details. You can process different payments in different currencies for each business partner. You can assign any payment details as standing instructions for a transaction. You can assign your instructions on the contract type, product type up to transaction type levels. When concluding a transaction with BP A, the payment details assigned to the relevant transaction are drawn automatically from the standing instructions and proposed as default values. This saves you making many manual entries.

Standing instructions for correspondence control how external correspondence, that is, correspondence with a (particular) business partner is to be handled. You can choose - by determining any level from contract type to transaction type - whether correspondence with the business partner for a particular transaction should be in print, by fax, e-mail, IDoc or Swift form. These details must be specified if correspondence is to be exchanged with a business partner.

You can use derived flows in the money market, foreign exchange, derivatives and securities areas to simplify calculation of taxation amounts. To generate derived flows, you must assign a derivation procedure to the relevant partner.


© SAP AG 2006

Standing Instructions in SAP Business Partner

Payment Information

Correspondence

Derived Flows

Receivables Business Partner

Printer Fax ePrinter Fax e--mail mail IDocIDoc

X

CurrCurr., BANK, Account, …., BANK, Account, …

EUR, CHAS, ACC3, …

USD, CITI, ACC1, …X

RulesRules

Withholding tax 1

Withholding tax 2XX

Standing Instructions

Payment InformationUBS, Acct no. 3, …

Details1,000,000.00 EURInvestment 03.04.05Payoff 03.05.05…

CorrespondenceE-mail confirmation to...

Derived FlowsApply tax 1Apply tax 2

For straight-through processing of financial transactions, it is important to maintain the standing instructions in the business partner.

You can maintain standing instructions for payment details, correspondence, transaction authorizations and the derived flows.

Standing instructions principally serve to minimize the effort required for entering data in the financial transaction. The information about payment details and correspondence serve as the default value and can be changed when entering the transaction.


© SAP AG 2006

Business Partner: Standing Instructions - Payment Details

Assign

Currency Pay. det. ID

House?bank

Account? ID

EUR 01 Deuba GIRUN

USD 01 Deuba 1050

......

......

......

......

......

......

......

......

......


BP A

Payment detailsID

Incoming Outgoing

TransactionTransaction M.M.

Money MarketMoney Market

Fixed-term deposit

51 A Fixed-term dep100 Investment200 Borrowing

01 01x x

The system uses the house bank and the account ID defined in the business partner payment details to determine the bank account to which the posting is being made.

After creating the payment details, you must not forget to assign them. This allows you to control separate accounts for different products and payment directions. The system supports multiple payment methods levels. By entering a bank chain, you can process payments using several banks. Up to three intermediate banks are supported.


© SAP AG 2006

Transaction: Correspondence

Example: Confirmationsby fax, e-mail, SWIFT

Fax

Example: Dealing slip

External InternalConfirmation Confirmation

Correspondence serves to document and match concluded financial transactions. You can define correspondence as internal correspondence types (such as dealing slips) and external correspondence types (such as confirmations). By performing a correspondence run, you can confirm all the financial transactions you have concluded with a partner in a given period. You can print the generated data or have it sent directly from the system by fax. You can also use the correspondence media of e-mail and IDoc. To send e-mails, you must set up the communication interface SAPconnect. For money market and foreign exchange transactions, you can generate SWIFT files MT320 (fixed-term deposits) and MT300 (forex). A user exit allows you to use the FX Match function for outgoing confirmations (MT320 only).

You can control external correspondence types with partner-specific standing instructions for correspondence. Control of internal correspondence types is not partner-specific.

You can determine when correspondence is carried out with the Customizing settings for product and transaction types and activities. You can also specify whether correspondence should be generated automatically when a transaction is created, changed, or reversed (that is, as soon as the transaction is saved). Correspondence that has been generated is stored in the financial transaction data.


The system also keeps a record of the confirmation status in the transaction. This includes information about when the confirmation was sent/received, the relevant activity, the user, the form used, and the output type of incoming or outgoing confirmations.


© SAP AG 2006

Business Partner: Standing Instructions -Correspondence

Correspondence

Counter- Print Fax SWIFT IDoc E-mailconf.TransactionTransaction M.M.


Fixed-term deposit

51 A Fixed-term dep100 Investment200 Borrowing

Deposit at notice

51 B Call money100 Investment200 Borrowing

Correspondence type: External

Assign

BP A

You control the (external) correspondence with a business partner by defining standing instructions for correspondence. In the standing instructions for correspondence, you assign correspondence media and parameters to the external correspondence types for a business partner. You can make this assignment at several levels: contract type, product category up to transaction type.

You can choose between different correspondence media. You can also print, send by fax or SWIFT external correspondence directly from the R/3 system.

Correspondence parameters: Correspondence is automatically sent to the business partner's standard address. If you want to use a different address for a business partner, save it in the Alternative address field. If you require counterconfirmation from your business partner, flag the Counterconf. field. (Prerequisite: Customizing is set up to allow automatic correspondence).

Correspondence that has been generated is stored in the financial transaction data.


© SAP AG 2006

Transaction: Derived Flows

Derivation RuleInterest income tax

Depending on certain flows, you can generate new flows by defining derivation rules

Flow 1200 Interest rate EUR 1,000

Flow 1800 Tax 1 EUR 300

Flow 1801 Tax 2 EUR 16.50

Derivation procedures enable you to automatically generate and calculate certain financial flows (which result from other financial flows).

When you process the original flow, the system automatically generates the flows to be derived.

Example: An interest income tax of 30% (tax 1) is deducted from the nominal interest (flow type), and a reunification tax of 5.5% (tax 2) is deducted from tax 1 (in other words, 1.65% of the nominal interest amount).

The interest condition of the transaction generates an interest flow of type 1200. At the same time, due to the derivation procedure, the system adds other flows to the cash flow:

- Interest income tax (flow type 1800) - Tax 2 (flow type 1801)

You can then process all flow types (original and derived). For example, you could offset the appropriate amounts when you make the interest posting.


© SAP AG 2006

Business Partners: Standing Instructions Derived Flows

Assign

TransactionTransaction M.M.


Fixed-term deposit

51 A Fixed-term deposit100 Investment200 Borrowing

Deposit at notice

52 A Call money100 Investment200 Borrowing

Interest income tax

Derivation procedure

BP A

In the application, you specify when a particular derivation procedure should apply for a certain business partner. You can assign the derivation procedure at different levels (from contract type to transaction type).

If you create a transaction with a business partner, to which you have assigned a derivation procedure (at the corresponding level), the system generates additional flows on the basis of the derivation rules you have defined.


© SAP AG 2006

Banks – General: Master Data

Bank country DEBank keyBank key 200 500 00200 500 00Address

Deutsche BankRegionStreetCity Branch

Control dataSWIFTBank groupPost office AcctBank number

Banks: General Information

Bank country DE

Bank keyBank key 200 500 00200 500 00

AddressDeutscheBank CRegionStreetCity . ......

(Account 889613262)

(Account 12345678)

Partner bank

House Bank

... Function:

BankBankDataData

Bank details, which are required for your own and the business partner bank, are maintained centrally in a bank data pool.

Entered bank data is maintained in the Financial Accounting bank directory, that is, automatically or manually stored and accessible throughout the system. The bank directory contains the bank master data. This includes bank address data and control data, such as swift codes and bank groups.

The bank directory must contain the master data of all banks required for processing payments. These include your own house banks and the business partner banks.

You can use entered bank data (name, address, bank code) - as “Partner bank” to maintain business partner bank details and - as “House bank” to maintain your own bank details with the appropriate link to Financial

Accounting.


© SAP AG 2006

Banks: Payment Details

BP Bank Details?Bankaccount

House bankH bank account

ContractFinancial trans. withbusiness partner A

Posting/Payment

enteredmanuallyin transaction

+ payment details

BankBankDataData


© SAP AG 2006

Business Partners: Central Data - Bank Details

Central Central datadata

Ctry Bank Key Bank Account

Partn. bank

EN 600 501 01 5214561 A1

EN 100 500 00 18889 B1

Bank A

Bank B

EN 200 500 00 889613262 C1Deutsche Bank

Business partner A

BankBankDataData

Bank Details

The bank details of each business partner are maintained by entering the relevant bank details; such as the country, appropriate bank key and account. Each individual bank detail is identified with the partner bank key (Partn. bank).

Example: Entering “B1” encodes that: Business partner A has account number 18889 with bank B with bank key 100 500 00.

When maintaining business partner bank details, you can enter the bank country and key to draw the bank description from the bank data pool, if this data has already been created. If in bank details, a bank (country and bank key), which has not yet been created in the bank data pool, is entered, a dialog-box enabling the creation of general bank data appears automatically, so that the new bank can be added to the pool.


© SAP AG 2006

House Banks: Master Data

Corresponding bank accts:12345678. . .

Bank country DEBank keyBank key 200 500 00200 500 00Address

Deutsche Dt. BankRegionStreetCity Branch

Control dataSWIFTBank group

House banks

Bank Bank DataDataBankBankDataData

Company code 1000

BankBankDataData

Banks, with which you have current accounts, should be entered as house banks. When maintaining business partner bank details, you can enter the bank country and key to draw the bank description from the bank data pool, if this data has already been created. If data (country and bank key) is entered for a bank, which is not in the bank data pool, a dialog box enabling the creation of general bank data appears automatically to add the bank to the bank data pool.

House bank accounts are to be assigned accordingly.


© SAP AG 2006

House Banks: Create Master Data

Chart of Accts

Bank account data

G/L account: 113100Account? IDCurrency

Company code 1000

Corresponding bank accounts

House bank

Bank countryBank Key

GIRUN12345678EUR

DEUBA

DE200 500 00

House banks identified with a specific house bank ID are maintained in the company code. Each account held at a house bank must be created. Each bank account is identified by a unique key of the account ID to be assigned. This account identification is unique to each each company code, house bank and account. These short names help to simplify use of your own bank details in transactions.

As a rule, an internal general ledger is kept in Financial Accounting for each house bank account. The link between the (external) house bank account and the (internal) general ledger is created by the appropriate assignment.


© SAP AG 2006

House Banks: House Bank Accounts

FIFI-- General General LedgerLedger

Company code 1000

G/L acct 113100Chart of Chart of accountsaccounts EUREUR

Description Dt. Bank

:Account currency EUR

::

Bank/Financial dataHouse Bank DeubaAccount?ID 1000Cash mgmt level F0

Create the master data of the house bank general ledger in FI to maintain it. Here, you can set definitions, such as account currency and the cash management level on which the amounts posted to this account are displayed in Cash Management.


© SAP AG 2006

Cash Management Account Name: Definition

CoCd

1000...

CM acc. name

DB Dollars

G/L Acct

113150

Bank Account

110113150

Description

DeubaDollar account

Cash position/Group

Account CoCd 04.04.YY

DB Dollars...

1000

04.03.YY

1.000.- 1.011.-

IMG: Cash Management

In Cash Management, the amounts posted to general ledger accounts are displayed on the cash management levels assigned in the FI Accounts master data. The relevant account is indicated in CM either by the (general ledger) account number or - when maintaining a cash management account name for this account - with the cash management account name. In cash management, the cash management account name replaces the account number with a proper name. It is used here in all transactions and reports, such as cash positions, instead of the account number.

Example: Amounts in G/L account 113150 are displayed in Cash Management: a.) Without maintaining the cash management account name: Account Amount 113150 1.000,-- b.) With maintaining the cash management account name

Account Amount DB Dollars 1.000,--


© SAP AG 2006

Transaction: Payment Details - Data

PaymentdetailsID

Regu-lar

Partner ?bank ID

Paymentmethod

Paymentprocess

House?bank

Account? ID

01 DB Checking

01 DB USD

Company Code 1000Product Type 51A Fixed-term depositTransaction Type 100 Creation

R Crcy Eff. FType HBank Account ID Pmnt Regular Part. Bank- EUR Deuba GIRUN + EUR Deuba GIRUN

Transaction: Payment Details

ConclusionFinancial trans. withbusiness partner A

Posting

+ Payment details

Example: Fixed-term deposit investment

In addition to business data entries, Transaction and Position Management also processes payment details, that is, data required for processing payments:

R: Payment flow direction (“+”: incoming payment; "-": outgoing payment) HBank: Enter the house bank, with which the payments for this transaction are to be

processed, in the form of the defined house bank ID Acct ID: Enter account of house bank, with which the payments for this transaction

are to be processed, in the form of the defined account ID

Partner bank: Enter bank account (bank key and account) of the business partner, with which the payments for this transaction are to be processed, in the form of the defined partner bank ID

The system supports multiple payment methods levels. By entering a bank chain, you can process payments using several banks. Up to three intermediate banks are supported.


© SAP AG 2006

SAP offers different reporting tools for different requirements

Meta information,OLAP features

Data Warehouse

Drilldown Reporting

"individual"

"Tool-supported"SAP BW

Query

Defined report categoriesDrilldown

Maximum flexibility"Anything is possible"

New logical database Views and DB tables

no

yesno

1 2

yes


© SAP AG 2006

A query with the SAP List Viewer (ALV) can, for example, also be exported for MS Excel

Report header

Values

Display variants Totals and subtotals


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Basic listRanking list

Statistics

A Query Can Branch to Other Lists


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Look and Feel: Drilldown Reporting

Key figures

Drilldown characteristics

Expanded characteristic (here with characteristic hierarchy)


© SAP AG 2006

Reporting using the SAP Business Warehouse

Web Items

Drag&Drop


© SAP AG 2006

Web Cockpits


Exercises 1

Unit 2: Transaction Manager – Overview Topic Master Files: Roles/Functions/Business

Partner Standing Instructions

After completing these exercises, you will be able to:

• Create a new business partner to which you can assign appropriate roles and functions.

You want to create a new business partner with which you can conclude financial transactions. To do this, you must assign the role "Counterparty" to your partner.

1-1 In future, you want to conclude transactions in your company code FS## with business partner BP##. In order to do so, create a business partner called “BP##” (business partner “BP##” is an organization). Use the GPEX grouping (external number assignment) and select role “TR0151 - Counterparty.” Save the entry for your new business partner. Then enter the following data:

Field Name or Data Type Value

Name as appropriate

Street, house number as appropriate

Search Term 1 as appropriate

Postal Code, City as appropriate

Country DE

Select “English” as the language in the communication field. Then let the system check your entries.

1-2 You now want to navigate through the tab pages and get an overview of the other

available fields for your business partner. Click the different tab pages to get an overview of the other fields. (Note: In the general data, you can also choose F7 to open the next tab page.)


1-3 To add more data to the master data of business partner BP## take the following steps: 1-3-1 If your business partner has a second, official address in addition to its

business address: Enter the additional address. Then define your first entered addresses as STANDARD/Default and your new address as BUSINESS. (Tab Address Overview).

1-3-2 Assign credit standing "Preferable Credit Standing” to your business partner (Tab Credit Profile).

1-3-3 The legal form of your business partner is a joint-stock company. Enter this in your system. (Tab Identification/Organisation data).

1-3-4 Your business partner's legal HQ is in Germany. Record this in the master data (tab Legal Data).

1-4 You have another business partner, BP##A. Repeat exercise step 1-1 to create this second business partner as an organisation, but this time use the General role (000000 – General Business Partner).

1-5 Your business partner BP## became a subsidiary of business partner BP##A at the beginning of the month. Enter this in the system.

1-6 You can conduct all money market and foreign exchange transactions with business partner BP##. The derivatives area only permits interest rate swaps with BP##: Assign appropriate transaction authorizations to the BP in Applications under Special Functions → Standing Instructions (Use your company code FS##). (Alternatively, you can also assign transaction authorizations in change/display mode using the “Counterparty” role (“Company Code” button).)

1-7 You want to print correspondence confirmations for all money market and foreign exchange transactions with business partner BP##, Assign the appropriate correspondence type “PRINT” to the BP in the application using Special Functions

Standing Instructions (correspondence type: confirmation).


Solutions 1

Unit 2: Transaction Manager – Overview Topic Master Files: Roles/Functions/Business

Partner Standing Instructions

1-1 In future, you want to conclude transactions in your company code FS## with business partner BP##. In order to do so, create a business partner called “BP##” (business partner “BP##” is an organization). Use the GPEX grouping (external number assignment) and select role “TR0151.” Save the entry for your new business partner. Then enter the following data:


Name as appropriate




Country DE

Select English as the language in the communication field.

Then let the system check your entries.

On the SAP Easy Access screen, choose Accounting Financial Supply Chain Management Treasury and Risk Management Business Partners Maintain Business Partner (BP)


In the standard toolbar, choose “Organization”.

Enter the following data:


Business Partner BP## (## is your PC or Group Number)

Grouping GPEX External Number Assignment

Create in GP Role TR0151 Counterparty

You will be asked “Do you want to save the business partner?” Click YES to save the data. The message “Business Partner BP## created” will appear in the status bar.

Now enter the remaining data for your new business partner:


Name as appropriate




Country DE

Select English as the language in the communication field.

Check your entries using the Check button (“scales” symbol). The message, “Data of business partner is error-free”, should appear in the status bar.

Save your data.

1-2 You now want to navigate around the tab pages and get an overview of the other available fields for your business partner.

Click the different tab pages to get an overview of the other fields. (Note: you can also open the next tab page by pressing F7 in General Data.)


1-3 To add more data to the master data of business partner BP## take the following steps:

1-3-1 If your business partner has a second, official address in addition to its business address: Enter the additional address. Define the second address as BUSINESS. (Tab Address Overview). Go to the “Address Overview” tab page in change mode. You will see that an address has already been entered. Choose "Create" to call the dialog box Counterparty Change: Address. Enter a complete, new address with the appropriate data. Make sure that the country is DE Germany and the language is English. Confirm these settings with Enter (green checkmark). You return to the Address Overview tab. Assign the relevant address usage to the second address. This is available in the lower area of the screen (you may need to scroll down).

Double-click the required address usage. This would be STANDARD for the first address. You will see all addresses entered so far. Select Address 1 and confirm the dialog box with Continue. The first address has now been assigned to the STANDARD address usage. Repeat the procedure for the second address, but this time assign it to the business address usage.

Save business partner BP## by choosing the “Disk” button in the standard toolbar. The message, “Changes have been saved”, will appear on the status bar.

1-3-2 Assign credit standing "Preferable Credit Standing” to your business partner.

Go to the Credit Profile tab page in change mode.

Enter the following values:


Credit Standing 0 - VIP – Preferable Credit Standing

Save business partner BP## by choosing the “Disk” button in the standard toolbar.

1-3-3 The legal form of your business partner is a joint-stock company. Enter this in your system. (Indentification tab, under Organisation).

Go to the Identification tab page in change mode.




Legal form 01 - Co- Joint-stock company


1-3-4 Your business partner's legal HQ is in Germany. Record this in the master data.

Go to the Legal Data tab page.



Country DE - Germany


1-4 You have another business partner, BP##A. Repeat exercise step 1-1 to create this second business partner, but this time use the General role. (000000 – General Business Partner). Follow the instructions of solutions 1-1. Fill in the required fields as usual and make sure to select the “General” role.

Note 1: To get from one business partner to another, choose Goto → Initial Screen.

Note 2: There is no credit data to be maintained for this business partner.

1-5 Your business partner BP## became a subsidiary of business partner BP##A at the beginning of the month. Enter this in the system.

In change mode, choose Relationships in the application toolbar. No relationships are found.



Relationship Cat. FFSB002 “Is subsidiary of”

Relationship to BP BP##A

From First of the current month

Choose Create on the right side of the screen.


Confirm the dialog box with Continue (green checkmark).

You return to the overview screen showing the connection between BP## and business partner BP##A.



1-6 You can conduct all money market and foreign exchange transactions with business partner BP##. The derivatives area only permits interest rate swaps with BP##: Assign appropriate transaction authorizations to the BP in Applications under Special Functions → Standing Instructions (Use your company code FS##).

(Alternatively, you can also assign transaction authorizations in change mode using the “Counterparty” role (“Company Code” button).)

On the SAP Easy Access screen, choose Accounting Financial Supply Chain Management Treasury and Risk Management Business Partners Special Functions Standing Instructions Transaction Authorization (TBI6)



Bus Partner BP## (## is your PC or Group Number)

Company Code FS##

Do not enter any further selections, instead choose ENTER.

The available authorizations are displayed on the lower part of your screen.

You can click each area and assign authorization separately or you can set up the same authorizations for all business contacts in this category at the upper level.

Set the foreign exchange and derivatives indicator since all transactions of this type should normally be permitted.

In the derivatives area, set only the indicator for interest rate swaps (IRS).


Money Market X - select indicator

Foreign exchange X - select indicator

Derivates CAP/FLOOR

Do not select indicator Do not select indicator Do not select indicator


SWAP 62a Interest rate swap (IRS)

X – Set indicator

Save business partner BP## by choosing the “Disk” button in the standard toolbar. The message “Changes have been saved” will appear in the status bar.

1-7 You want to print correspondence confirmations for all money market and foreign exchange transactions with business partner BP##, Assign the appropriate correspondence type “PRINT” to the BP in Applications under Special Functions → Standing Instructions (correspondence type: confirmation).

On the SAP Easy Access screen, choose Accounting Financial Supply Chain Management Treasury and Risk Management Business Partner Special Functions Standing Instructions Correspondence (TBI5)

Do not enter any further selection options, instead choose ENTER.



Company Code FS##

Correspondence type 001 – Confirmation

The SI Correspondence tab provides an overview of the possible transaction types.


Money Market X – select indicator for PRINT

Foreign exchange X – select indicator for PRINT

Derivates Interest rate swaps 62a interest rate swap (IRS)

Do not select indicator Do not select indicator X – select indicator for PRINT

Save business partner BP## by choosing the “Disk” button in the standard toolbar. The message “Changes have been saved” will appear in the status bar.


© SAP AG 2006

Transaction Manager: Money Market Overview Diagram









© SAP AG 2006


Back-office functions (for example, fixed-term deposits)

Accounting functions (for example, fixed-term deposits)

11

22

Introduction to Money Market

33

44

55 Special functions

Trading functions • Fixed-term deposit• Deposit at notice• Commercial Paper/master agreement• Interest rate instrument• Cash flow transaction• Facility


© SAP AG 2006

After completing this unit, you will be able to:

Carry out money market trading and back office activities

Use the support tools for back office processing

Understand the integration with accounting

Money Market: Unit Objectives


© SAP AG 2006

Money Market: Business Scenario

After having familiarized yourself with the general information and created business partners in the system, you want to get an overview of the functions in money market.

What do you require to enter the trading area to create a financial transaction?

How can you map your back office department in the SAP R/3 system?

What additional functions are there?

How can you ensure integration of the transactions in Financial Accounting or in Cash and Liquidity Management?

You are a member of a project team that will make both basic settings and all other settings required for mapping financial transactions in Treasury and Risk Management.


© SAP AG 2006

Money Market 1: Introduction

Definition/characteristics

Product types in money market


© SAP AG 2006

Money Market: Product Types

Fixed-termdepositsDeposits atnoticeCommercialpaperInterest rate instrumentCash flowtransactionFacility

Product Types

DerivativesForeign exchangeSecuritiesMoney market

Hedginginstruments

Investment/borrowinginstruments

Money market transactions are for short- to medium-term investments or borrowing capital. You can make Cash and Liquidity Management decisions in the money market area based on the surpluses or deficits calculated in Cash Management. In Cash Management, you can see the immediate impact your transactions have on your company's liquidity (by value date at the time of the investment or borrowing and on the due date).

Interest rate instruments are used to map money market transactions, which include different forms of interest payments and repayments.

Cash flow transactions in money market enable you to represent a wide range of transactions. You enter the term manually and also the cash flow that results from the particular structure of the transaction. This includes position changes, expenses, revenues, and payments.

Facilities enable you to map master credit lines between a lender and one or more fixed business partners for a series of withdrawals against credit.


© SAP AG 2006

Term Deposits

Fixed-term depositsDue date arranged from the outset

Fixed interest for the whole term (at least 30 days)

Rollover facility

Overnight moneyTerm only lasts one day (current practice until further notice)

Deposit at noticeConcluded for an unspecified period

Due date depends on the period of notice

Fixed-term deposit trading (including overnight money and Euro money) incorporates the transaction types, fixed-term deposit investment and fixed-term deposit borrowing. If the authorized business partners and relevant payment details are already defined in the system, the only necessary entries are structure characteristics and conditions.

When trading with deposits at notice, you make investments and borrow without defined due dates. The amounts, conditions, periods of notice, payment dates, and interest payment patterns are entered.


© SAP AG 2006

Commercial Paper

Short-term, discounted bearer bond

No interest payments during the term

Term: 1 week to 1 year (on average 2 months)

Issuer and investor enter into a business relationship directly and agree on a repayment amount, which the debtor pays to the creditor at the end of the term.

This repayment amount is discounted to the start of the term using the required yield. The investor pays the amount calculated to the debtor at the start of the term.

Banks act as 'DEALERS' without assuming the placing risk.

Commercial Paper trading includes the purchase and sale of individual Commercial Paper tranches. A characteristic of commercial papers is that no interest payments arise during the term. By entering a nominal amount and the target yield, the payment amount that the investor has to pay to the debtor at the start of the term is determined by means of deducting accrued interest. Interest can also be determined on the basis of a given rate.

At the start of the term, the cash flow shows the principal increase as the nominal amount together with the discounting amount. At the end of the term, the repayment of the nominal amount is displayed. As a second variant, you can show the discounted principal increase at the start of the term, and the repayment of the cash value and the interest rate flow at the end of the term


© SAP AG 2006

Money Market 2: Trading Functions

Commercial Paper/master agreement

Deposit at notice


11

22

Fixed-term deposit

33

44

55

66

Cash flow transaction

Facility


© SAP AG 2006

Transaction and Position Management Process: Fixed-Term Deposit

PostingsPayment transactionsAccrual/DeferralValuationReversals

Create order/contractRolloversReversalsTransaction history

Settlement/controlNettingConfirmation lettersReversalsTransaction historyInterest rate adjustment


Release

Trading Back office Accounting

The organizational processes of transaction management can be split up into several steps:

You can create a money market transaction as an offer (fixed-term deposit) or directly as a contract.

The activity sequence to be followed is dependent on the processing category you selected in Customizing (with or without settlement).

Status Management synchronizes the transaction statuses arising from the settlement, product or option category of a transaction. You can also define the user status which affects the transaction process.


© SAP AG 2006

Trading: Entering a Fixed-Term Deposit

Financial transactionsAre assigned to the related organizational unit (company code) within your company

Various organizational structures possible for corporate groups

Are concluded with a business partnerInternal and external (banks) business partners

Are concluded for a specific product/transaction typeProduct and transaction types can be defined according to company

Can be created with different processing methods

In the Trading area, the main functions for entering and changing financial transaction data are consolidated. To map financial transactions efficiently, you first have to make basic settings: In which organizational unit (company code) is the financial transaction concluded? This setting enables companies with complex organizational structures, such as those with central treasury divisions, to differentiate between the various company areas.

Which financial transaction is being concluded? Here, you specify the product and transaction types along with the relevant processing rules.

With whom are you concluding a certain financial transaction? Each financial transaction is linked to a business partner. By defining data for the business partner, you can speed up data entry for your transactions. For example, if the same business partner bank and payment details are always used, these details can be automatically linked to the financial transactions. You can also choose other options for a business partner, such as restricting the type of products which can be traded.


© SAP AG 2006

Trading Support

Entry and processing aids?- Standing instructions- Copying functions- Abbreviations- Fast entry- Collective/Fast processingField selection control

Market dataPartner

Business Business partnerpartnermanagementmanagement


Transaction authorizationsPayment detailsCorrespondenceDerived Flows

Automatic checks- Working day checks- Trader and partner? authorizations

Valuation tools- NPV calculator?- Option price calculator etc.Dealing slipsChange documents

Optional: OfferOptional: Offer ContractContract

Market?Market?databasedatabase

SimulationSimulation

Transaction Management offers various support tools. Using the Field selection control you can control many of the visible fields. This enables you to set up the appearance of the display screens for transaction management to suit your business.

You group the visible fields into field groups according to different business criteria. Each of the field groups available can be assigned an attribute, which determines the appearance of the screen. This means that you can specify whether you want field groups to be suppressed, displayed, or to be defined as required entries.

You make the assignment in Customizing.


© SAP AG 2006

Creating a Financial Transaction: Initial Screen

Company Code 1000 IDES AG

Product Type

Transaction TypeBusiness Partner

51A Fixed-term deposit EXTERNAL100 InvestmentDeuba Deutsche Bank

SpecificationsCurrency

External number assignmentTransaction

portfolio

instead of currency of comp. code

MasterAgreement

ID number

In the Money Market start menu, choose the path Accounting → Financial Supply Chain Management → Treasury and Risk Management → Transaction Manager → Money Market.

When you create a Money Market transaction, you represent a contract for investing or borrowing short term funds. You enter which trading object (product type) should be invested or borrowed with which partner in which currency.


© SAP AG 2006

Creating a Fixed-Term Deposit: Structure

Structure StatusAdministration Other Flows Payment Details Cash Flow Notes

1000

51A100

1100

1M EURO -

08/10/YY

++2

2,6Act/360

Tabs for navigation

Business partner

Flow Type

Interest structurePercentage

...

...

Company Code IDES AG

Product Type Fixed-term deposit EXTERNALTransaction Type Investment

Term

StartInvestment/IncreaseAmount End

Int.calc.method

Investment

When you create a financial transaction, flows are automatically generated, such as the flows for principle increase, nominal interest and final repayment.

The structure contains only product type-specific information, such as the amount, term and interest structure. Here, you can use various key codes for entering amounts and dates (for example, M = million, T = thousand, 0 = today, ++2 = 2 months).

From here, you can branch to the entry screens of general transaction management. Tabstrips help you navigate between the screens Administration: Information about portfolio assignment, account assignment references for position bookings, general valuation classes Other Flows: You can add other flows to the automatically generated flows manually (charges, commission and so on). Status: Information about correspondence, process, release status ...

Under Payment Details, you enter the relevant payment details for this transaction. If the payment methods are maintained as standing instructions for a specific business partner, they appear as default values and can be modified manually.


You can also activate the date check to establish whether a particular due date falls on a working day or not.


© SAP AG 2006

Interest structure

Interest structureAt end of termAt end of monthMonthlyDaily

360E/360Act/360

:360 / 360

Percentage Rate

Int. calc. method

Frequency

Trans. due date

Calc. period

With rollover

Shift due date to end of term

Every

Calc. trans. due date

Rounding

Capitalize interest

2,6000

Act/360

Monthly Day/Month

Customizing

The SAP system includes the most widely used international interest rate calculation methods for trading.

When defining the product type, you can make a relevant Customizing entry for the interest rate calculation method.

The frequency specifies the time of the interest payment. When you choose "Daily" or "Monthly" frequencies, you must also specify the frequency in days or months (example: monthly frequency = every three months).

You can capitalize interest by checking the appropriate field. However, this checkbox is only displayed if a condition of the type "interest capitalization" has been assigned to the relevant transaction type.

You have the option of suppressing and displaying detailed information as necessary. (Suppress or display interest structure)

You can also calculate interest amounts exponentially. The payment rate describes a percentage rate that is applied to the calculated condition amount. The cash flow, therefore, does not show the calculated condition amount, but rather the condition amount multiplied by the payment rate and shown as a percentage.


© SAP AG 2006

Payment Details

Currency Pay. det. ID

Payer Partner ?bank ID

Pmntmeth

Paymentprocess

House?bank

Acct? ID

EURO 01 DB GIRUN

USD 02 DB 1050

......

......

......

Company CodeProduct typeTrans. type

R Crcy. Eff. Flow HBank Account ID Payment. Pmnt. req.+ EURO DB GIRUN - EUR DB GIRUN

Fixed-Term Deposit: Payment Details


The bank or bank clearing account to be posted to is determined using the house bank and the account ID stored in the business partner's payment details.

The system supports multiple payment methods levels. By entering a bank chain, you can process payments using several banks.

There is a Repetitive Code column in the transaction payment details and the Standing Instructions. This is used (primarily in the USA) for simplification of recurring payments.


© SAP AG 2006

Nominal int. 4% Interest / Frequency: 6 months

Final repayment

Example: Fixed-Term Deposit

Payt. date Int. Amnt

Nominal int. 31.10.YY 4% 3.333,33Nominal interest 30.04.YY+1 5% 4.166,67

Changing conditions:

Financial Transaction Conditions

Financial transactions are mapped on the basis of the of the flow and condition concept. Conditions are contractually agreed components of a financial transaction. Condition types include different interest, dividend or repayment terms, which ensure that each product type is assigned its appropriate structure characteristics. Condition types therefore control which structure characteristics are displayed when you create transactions of a specific product type.

Depending on its type, a condition position is characterized by amounts or percentages and calculation bases, as well as calendar data and date updates.

The principal task of conditions is the automated generation of flows. Therefore, the flow types that you assign to condition types should show changes in the payment flows and should be elements of the cash flow.


© SAP AG 2006

Pmnt. Pmnt. amount Crcy Flow typedate

10/01/YY 1.000.000,00 - EURO 1100 Principal increase11/31.12/YY 225,00 - EURO 1801 Tax 211/31.12/YY 3.000,00 - EURO 1800 Interest income tax11/31.12/YY 10.000,00 + EURO 1200 Nominal int.11/31.12/YY 1.000.000,00 + EURO 1120 Final repayment

ExampleExample: Fixed-term deposit 1M4% interest

Dir

Select layout

Variant Name

1SAP01 Basic view

1SAP02 Due date view

1SAP03 Calculation view

1SAP04 Local currency view

1SAP05 Payment view

1SAP06 Posting view

(1SAP07 Interest rate adjustment view)

Fixed-Term Deposit Cash Flow

The cash flow provides the basis for Postings Effective interest rate calculations Accrual/deferral of expenses and revenues

Displaying the cash flow: Flow direction Sorting flows according to preferred criteria Search and selection functions Totaling Export functions Direct selection of the preferred view Facility to save layouts Direct editing of flows in the cash flows


© SAP AG 2006

Financial Transactions: Cash Flow

ACTUALACTUAL

Investmt. 1.4.YY EUR 1M invested

Interest 1.7./YY EUR 10T expected

Repmnt.. 1.7.YY EUR 1M expected

Cash Flow (example)

TransactionAmountinvested/borrowed

ConditionPLANPLAN

Basis for

Updating Cash and Liquidity Management

Updating Financial Accounting using flexible account determination

Triggering payment

Updating positions

Accruing/deferring interest

Valuating foreign currency

Calculating yield

The cash flow of financial transactions forms the basis for all trading, transaction and position management processes as well as evaluation activities.

Financial mathematics are used to determine the cash flows in Treasury and Risk Management. The system provides a set of formulas, which put into practice the "building block principle" of the free and flexible CFM structure.

In Transaction Manager, application-specific control programs call up financial mathematics building blocks, which are stored centrally, to calculate interest and repayment schedules etc.

These FiMa building blocks generate or calculate a series of activities known as cash flows (payment flows) for a financial transaction in the application (such as a stock purchase or swap). Flows are generated for a specified calculation period on the basis of the conditions assigned to the financial transaction.


© SAP AG 2006

1901 Charges

1902 Commission

...

Flow Type

Name

Direction

Payment amount

Currency

Payment date

Posting status and description

Other Flows

Flow types allow you to define additional flows, such as charges and commissions (as absolutes or percentages) for individual product types. These are then recorded for the individual transactions.


© SAP AG 2006

Note: Cashflows in Cash and Liquidity Management

Cash Flow in Transaction ManagerSep 04 1000- Fixed-term deposit 1.000Oct 04 1120+ Final repayment 1.000Oct 04 1200+ Nominal interest 200

E2 Domesticcustustomers

+ EUR DB GIRUN- EUR DB GIRUN

Subledger accounts Sep 04 Oct 04 Bank accountsRS Time deposit pers. - 1000 + 1200 TB Time deposit bank

E2 Dom. customers DBGIRUNI

Alternative 1Payment Details

unknown


unknown


known


known

Planning groupsBusiness partner/transactionPayment details and house banks

Even if the payment details of a business partner are unknown when you create a transaction, and are only entered in Back Office, for example, the transaction data remains stored in Cash and Liquidity Management.

It is, however, prerequisite that an entry is made in the business partner master data (Cash Management group). The transaction then appears under the grouping "Person" and not "Bank".


© SAP AG 2006

Note: Transfer to Financial Accounting -Logical Sequence

Assigning Planning Levels

IDES AG1000

Fixed-term deposit51A

Banks - Time dep.TB

Contract10

10/02 10/03 10/03 later10/05

Cash and Liquidity Management: Display Levels

Lev.Banks Banks

Description 02.10. 03.10. 04.10. Later05.10.

TB Time deposits 150.000 xxx.xxx xxx.xxx xxx.xxxxxx.xxx. . .. . . . . .. . .. . . . . . . . . . . .. . .

B5B5 SettlementSettlement 150.000. . .. . . . . .. . .

F0F0 BanksBanks

Balance

. . . . . . . . . . . .. . . xxx.xxx xxx.xxx xxx.xxx xxx.xxx

150.000 xxx.xxx xxx.xxx xxx.xxx xxx.xxx

xxx.xxx xxx.xxx xxx.xxx xxx.xxx xxx.xxx

Each activity within a business transaction (contract, settlement, and so on) is displayed in Cash Management. You can view and analyze the activity using a separate level.

Cash flows resulting from the transactions - whether already posted or not - can be viewed in Cash Management as soon as the transactions are entered.

For each product type and activity category, you can maintain the planning levels of G/L accounts or G/L and subledger accounts, where the information is to be displayed, in Customizing.

Example: Concluded time deposit transaction: Level TB - Time deposit (Pre-)posted time deposit transaction: Level B5 - Bank clearing account After receipt of bank statement: Level F0 - Bank account


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Fixed-term deposit With activity on fixed-term deposit level

Change to clearing accounts

Change to bank account level

Clearing postings withaccount statement

Posting flows toa clearing account

TM

TM

Note: Transaction Manager and Cash and Liquidity Management

Here, you can see a typical process describing the interaction between Transaction Manager and Cash and Liquidity Management and also the posting in Financial Accounting.

Payments are generally triggered by the business partner (bank) and processed further with the automatic bank statement in Cash and Liquidity Management.


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Collective Processing: Money Market

Overview of money market transactions which correspond to the relevant selection criteriaConducting relevant transactions

CreationChangeDisplayRoll OverGive NoticeSettlementReversalHistory

Branching directly to the specific transactionLink to the SAP List Viewer

Collective Processing enables systematic transaction management. This facility displays all the business activities you select on the basis of shared criteria in a list with brief descriptions of each transaction and provides the necessary processing functions.

From the processing list, you can branch directly to an individual transaction at any time. The connection to the SAP List Viewer provides you with a range of display options. You can determine the columns or rows to be displayed, sorted and consolidated and save these layouts for later use.


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OfferNo.12,4%

OfferNo.22,7%

OfferNo.32,5%

OfferNo.22,7%

Contract

Sorting according to quality

Offers for Fixed-Term Deposits and Foreign Exchange

Using the "Offer" activity category, you can group and store quotations from different banks with a reference.

This sorts offers according to quality. You can create a contract directly from an offer entry. You have to create a separate number range for transactions in the "Offer" activity category. The number range for the relevant transaction type is allocated in the Number range for offers field in Customizing for transaction types.

You can use this function in the money market area for fixed-term deposits and in the Foreign Exchange area for forex spot transactions and forward exchange transactions.

A special Evaluation Report for Offers, which you can configure individually, tells you how many offers were submitted, and how many resulted in a contract.

You can display simulations using the Journal.


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Simulation of Fixed-Term Deposits/Foreign Exchange Transactions

Creating simulated financial transactions

A business partner is not required for simulation

Management with a separate number range

Creating a contract from a simulation

Add a business partner

You can simulate foreign exchange transactions and fixed-term deposits with the Simulation activity category.

You can create a contract from a simulated transaction using the change function. Before you can do this, you must add a business partner, as you are simulating a transaction without a business partner.

You manage simulations using a separate number range. You assign the number range to the relevant transaction type in the simulations number range field in Customizing for the transaction types.

You can display simulations using the Journal.


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Foreign Exchange 2: Trading Functions


Deposit at notice


11

22

Fixed-term deposit

33

44

55

66


Facility


© SAP AG 2006

Flow TypeAmount

Start

...

...

Termination notice period

...

Termination

06/07/YY11/30.06/YY

3 Days

Notive

Giving Notice (Deposit at Notice)

Conclusion

Interest structure

Investment Term

For deposits at notice, there are functions for giving notice or rolling over deposited funds. Rolling over means an increase or decrease in the amount of the original deposit at notice with, where applicable, different conditions under the same transaction number.

With deposits at notice, the cash flow can only be generated for a set period, since the end of term is only fixed when notice is given. For deposits at notice for which no notice has been given, it is therefore necessary to update the cash flow periodically.


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Deposit at notice


11

22

Fixed-term deposit

33

44

55

66


Facility


© SAP AG 2006

1.1.YYYY to 31.12.YYYY

1000

IDES AG; Deuba; FUXX

Investment

EUR

1M10M500M

Commercial Paper program from 12/31/Y-1

Example: Master agreementTerm of contract

Permitted company codes

Permitted business partners

Permitted transaction types

Minimum and maximum transaction terms

CurrenciesTranche

Minimum amount

Total volume

MasterAgreement

Setting agreements and conditions effective for all transactions under the master agreement

You can store master agreements in the system and use these to define company standards for concluding Money Market transactions. These contain specific information about company codes, business partners, terms, as well as minimum and maximum volumes by currency.

You either specify the master agreement when you create a transaction, or you can subsequently assign a transaction to a master agreement. The system checks the following master agreement restrictions:

Is the transaction amount a complete multiple of the tranche? Checking the minimum amount

Determination and evaluation of the degree of usage of the master agreement limits by the assigned transactions.

For each specific master agreement, you can determine to what degree transactions are utilized in terms of assets and liabilities.

You can use the relevant tabstrips to navigate between the different displays of master agreement data.

While processing, you can directly call up an overview of the degree of usage of the master agreement limits.


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Deposit at notice


11

22

Fixed-term deposit

33

44

55

66


Facility


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Interest rate instruments

fixed

With interest rate adj

Interest forms

Installmentrepayment

FinalRepayments

Repmnt. schedule

Int rate instruments

Interest rate instruments are used to map money market transactions, which include different forms

of interest payments and repayments.

Annualrepayment

Variable

The interest rate instrument supports the entry and calculations of forms of fixed and variable interest as well as installment-based and 'full payment on maturity' repayment schedules.

The instrument supports the entry and processing of these transactions in the Front Office, Back Office and Accounting.


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Interest structure

Int. rate instr.Perc.Int. calc. methodFreq.Every

fixed4,0360/360End of month

1 Months

Condition Type 1200

Repayment Structure

Repmnt.. formRepmnt.. amountFreq.Every

Installment repayment

10.000,00On first day of month

1 Months

Condition Type 1130EUR

Example: Interest Structure Repayment Structure

To enable the different interest and repayment calculation procedures, you must describe the financial mathematical structure of the interest rate instrument. Descriptions of interest rate instruments must include the following: - Transaction amount, currency, and flow type - Term - Interest rate structure: Interest form, interest calculation method, frequency, interest period update etc. In interest structure, some of the described attributes are dependent on the selected interest form. For example, you can enter an interest reference for variable interest or a percentage rate for a fixed interest form. - Repayment structure: In Repayment structure, some entires are dependent on the selected repayment form. No additional details are required for final repayments.

To process an interest transaction, you must particularly specify details of the interest and repayment structures, which constitute the basis of the financial mathematical calculation of the cash flow.


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Deposit at notice


11

22

Fixed-term deposit

33

44

55

66


Facility


© SAP AG 2006

Cash Flow Transactions

Flexible representation of a wide range of transactions

Manual entry ofTermCash flow from position changes, expenses,revenues, payments etc.

The following are supported:Entering and processing cash flow transactions and Subsequent management in back office and

accounting

Note that flow types must be assigned to the appropriate product type/transaction type.

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Deposit at notice


11

22

Fixed-term deposit

33

44

55

66


Facility

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© SAP AG 2006

Facility: Definition and Objective

Definition

Facilities enable you to map master credit lines between a lender and a fixed business partner for a series of withdrawals against credit (drawings).

Facilities management and processing

Objective

Confirmed facility Unconfirmed facility

Facility

A facility is used by a lender and one or more borrowers to agree general terms (= credit line) for a series of drawings against credit. The lender can name more than one borrowing party entitled to draw on the credit line. These borrowers may have variable drawing rights as far as time limits and amounts are concerned, right up to the agreed credit limit.

Any utilization of this credit facility is called a drawing.

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Facility

Creating and Settling a Facility

Assigning Financial Transactions• Checking that a facility adheres to the master agreement• Manual exchange rates for foreign currency transactions• Checking that credit lines are not exceeded• Updating facility usage• Updating facility charges

Assignable Financial Transactions

• Fixed-term deposit• Deposit at notice• Interest rate instrument• Cash flow transaction

If you use a certain portion of a facility's credit line, this is represented by a financial transaction in Transaction Management.

The financial transaction is assigned to the facility as it is entered or processed. During the assignment process, the system checks that the transaction characteristics correspond with the master agreement stored for the facility.

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Money Market 3: Back Office Functions (Fixed-Term Deposit)

Correspondence

Settlement = Checking

Netting

Business process

Reference

Interest Rate Adjustment

© SAP AG FSC010 3-104

© SAP AG 2006

Transaction and Position Management: Fixed-Term Deposit




Account managementPayment transactionsAccrual/deferralValuationReversals

Release


Depending on the way in which your company is organized, financial transactions can be forwarded to the Back Office area once they have been created in Trading. Back-office processing contains control and change functions, so that any entries made can be checked here and changed as necessary. Post-processing includes the following functions: Enhancing transaction data, for example, adding information that is relevant for the back office.

Preparing postings and payments, for example, checking the accounts to be used later in the automated processes. If you have not already done so, you must now assign an account assignment reference and payment details to the financial transaction. Without this information, the CFM flow cannot be posted in Financial Accounting (see account assignment reference).

Generating correspondence in the form of dealing slips, letters of confirmation, or confirmation files.

By saving the settlement activity, the system changes the activity category of the transaction in order to document that it has been checked and processed in Back Office-processing.

If a transaction has activity category "WITH settlement activities", the contract can be posted only after the settlement.

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Assigning position indicators:Account assignment reference

DB000001 Deutsche BankFT deposit

PaymentdetailsID

Regu-lar

Partner ?bank ID

Paymentmethod

Paymentprocess

House?bank

Account? ID

01 DB Checking

01 DB USD

Company Code 1000 Product Type 51A Fixed-term depositTransaction Type 100 Creation

R Crcy Eff. FType HBank Account ID Payment. Pmnt. req.- Eur Deuba GIRUN + Eur Deuba GIRUN

Transaction: Payment Details

Settling/Checking Transactions and Position Indicators

Just as in Trading, you can call up and correct information about entered transactions. You can check, change, or add information that is relevant for posting and payment. If you have not already done so, you must now assign an account assignment reference and payment details to the financial transaction. Without this information, the flow cannot be posted in Financial Accounting (see account assignment reference).

You can have the account assignment reference or the payment details of the particular business partner appear as default values. You can add to or change these default values. Account assignment references are created independently of valuation area. You can assign account assignment references to positions variably and independently of valuation area, or control account determination variably according to valuation area and account assignment reference.

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Controlling with Position Indicators

This indicator specifies the position management and valuation parameters at company code level, and allocates the account assignment reference to a position.

The position indicator can be created manually or automatically by the system.

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Transaction history

HistoryHistory: : ActivityActivity SequenceSequence

Transaction Activity Cat. Date ActiveStatus

SettlementSettlement

Administrat.Data

CoCdPTypeTType

000151a100

SAP AGTransactionActivityAct. cat Order

47111Basic Data

CoCdPTypeTType

000151a100

SAP AG TransactionActivityAct. cat. Order

47111

Administrat.Data

CoCdPTypeTType

000151a100

SAP AGTransactionActivityAct. Cat. Cont.

47111Basic Data

CoCdPTypeTType

000151a100

SAP AGTransactionActivityAct. Cat. Cont.

47111

Administrat.Data

CoCdPTypeTType

000151a100

SAP AG TransactionActivityAct. Cat. Roll.

47111Basic Data

CoCdPTypeTType

000151a100

SAP AG TransactionActivityAct. Cat. Roll.

47111

Administrat.Data

CoCdPTypeTType

000151a100

SAP AGTransactionActivityAct. Cat. Settlement

47111Basic Data

CoCdPTypeTType

000151a100


47111

10/01/YY10/02/YY

11/31.10/YY

12

43

OrderContract

RolloverSettlement 10/02/YY

replacedreplaced

replaced5 Settlement Activ

e

replaced

11/30/YY5 Settlement Active. . .. . . . . . . . .

OrderOrder ContractContract RolloverRolloverSettlementSettlement

Administrat.Data

CoCdPTypeTType

000151a100


47111Basic Data

CoCdPTypeTType

000151a100


47111

The History function enables you to view the previous activity sequence for a selected transaction. You can call up a list of the activities and these are either active, reversed, or have been replaced by a subsequent activity.

The transaction history allows you to trace each activity and its relevant details. The system also stores significant changes to transactions in change documents. This provides a record of how and when a user corrected or changed the structure characteristics of any transaction.

© SAP AG FSC010 3-108

© SAP AG 2006

Correspondence

Example:Confirmations by fax, e-mail, SWIFT, IDoc

Fax

Example: Dealing slip

External InternalConfirmation Confirmation

Correspondence serves to document and match concluded financial transactions. You can define correspondence as internal correspondence types (such as dealing slips) and external correspondence types (such as confirmations). By performing a correspondence run, you can confirm all the financial transactions you have concluded with a partner in a given period. You can print the generated data or have it sent directly from the system by fax. You can also use e-mail and IDoc. To send e-mails, you must set up the communication interface SAPconnect. For money market and foreign exchange transactions, you can generate SWIFT files MT320 (fixed-term deposits) and MT300 (forex).

You can control external correspondence types with partner-specific standing instructions for correspondence. Control of internal correspondence types is independent of the business partner.

The system also keeps a record of the confirmation status in the transaction. This includes information about when the confirmation was sent/received, the relevant activity, the user, the form used, and the output type of incoming or outgoing confirmations.

© SAP AG FSC010 3-109

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Confirmation Management

Difference between outgoing confirmation andcounterconfirmation

Viewing confirmation status for transaction correspondence under Status

Status management for counterconfirmation can be controlled according to the business partner – in the Standing Instructions + Customizing

Monitoring overdue counterconfirmations

Optical archiving of correspondence

Correspondence overview and correspondence monitor

You can determine whether or not counterconfirmation is required for external correspondence for each business partner (in the Standing Instructions).

The system updates the confirmation status of the business transaction on the Status tab page: executed, reconciled (counterconfirmation has been received and matched).

You can archive correspondence optically. To do this, you must set the Optical Archiving indicator in Customizing (choose Define Correspondence Types) for the correspondence type you require. However, you must use an external optical archiving for this. You can access archived correspondence from the transaction display. If you are in display/change mode for a transaction, you can display correspondence activities by choosing Goto. By double-clicking a line, you can activate the Archive Link monitor and display the document.

The Correspondence Monitor provides the following additional processing and monitoring functions, which build on existing correspondence overviews: • Overview of the current processing status • Setting the counterconfirmation status to matched directly from the (manual match) monitor • Option to execute planned correspondence directly from the monitor • Option to repeat previously generated correspondence ...

© SAP AG FSC010 3-110

© SAP AG 2006

References Between Transactions

Receivable 1 Receivable 2

BID OfferCON Swift-confirmation filesEUR Euro transaction currency conversion KMP NettingMIR Mirror deal linkOPT Option reference derivativesPRL Rollover of foreign exchange transaction REF General referenceSWP Forex swap

To document the connections between Treasury transactions or objects, you can define links in the administrative data of a transaction. To do this, you use fields in which you can enter any reference terms or numbers and then select these for subsequent evaluations.

A reference between transactions documents a relationship between "n" transactions. A reference category provides the purpose of a reference.

Some references are formed automatically. These include relationships between transactions resulting from processing activities (rollover) or which are elements of a transaction (currency swap).

There are also references which are created by the user (netting). You can set up and process all references under Reference - Collective Processing. Using the SAP List Viewer, you can flexibly modify the layout and sorting and, if necessary, store it as your own layout.

© SAP AG FSC010 3-111

© SAP AG 2006

Valid FromInt. rateStatusRef. Int.Int. Fx. Dte.

Back Office: Interest Rate Adjustment

Manual

Prerequisites:Ref interest ratemust be maintained

Automatic


30.11.YY

3.03.YY

EURIBORD03

EURIBORD03

3,00

0,00

11.30.YY

03.01.YY

For financial transactions with variable interest, you carry out an interest rate adjustment periodically. You fix the interest rate to the current value of a reference interest rate.

The interest rate adjustment can be done either manually or automatically. With manual interest rate adjustment, use the reference rate to enter the interest rate value for each transaction. With automatic adjustment, the system checks in a table whether the current interest value is available for a reference interest rate.

Use the Interest Rate Adjustment tab page to get an overview of all the adjustment data that has been entered for the transaction.

A function is available for reversing interest-fixing. For variable interest rates, you can enter the interest rate for the first period as soon as you enter interest conditions. This means that the interest rate need not be adjusted for the first interest period.

The Information System provides a Money Market Interest Rate Adjustment Plan to monitor deadlines.

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Money Market 4: Accounting Functions (Fixed-Term Deposit)

Note: Cash and Liquidity Management integration

Posting logic

Posting overview/posting journal

Business process

© SAP AG FSC010 3-113

© SAP AG 2006

Transaction and Position Management: Fixed-Term Deposit




PostingsPayment transactionsAccrual/deferralValuationReversals

Release


After the transactions have been entered in Trading, checked and completed in back office processing, they are accounted. Functions for the transfer to Financial accounting - such as posting reports or posting in position management are brought together here. The Treasury subledger relies on some Financial accounting functions. Financial transactions and positions must be handled accurately to guarantee the correctness of the final processes. Accounting, therefore, incorporates tasks, such as the periodic accrual/deferral of expenses and revenue and valuation activities.

You can only post transactions which have reached contract or settlement status (depending on the processing category) at the internal level (system level).

If you do not wish to post certain financial transaction flows yet, you can block the posting of these flows.

© SAP AG FSC010 3-114

© SAP AG 2006

Accounting

Fixed-term deposit 1 month 4.5%

Financial Financial AccountingAccounting

FI interfaceSelection oftransactions and flows to be posted

Sep 04 1100 - Fixed-term deposit 1.000.000

Oct 04 1120 + Final repayment 1.000.000

Oct 04 1200 + Nominal interest 3.750

The information required for posting is transferred to Financial Accounting with an interface. The posting logic is based on the flow types generated, the account assignment reference of the financial transaction, and the account determination defined by the user.

You can post individual flows either to G/L accounts or to customer accounts. Payment transactions are generally posted to relevant clearing accounts. You can then process the items on these clearing accounts using the functions provided by Cash and Liquidity Management (account statements) or Financial Accounting (payment program). For Money Market, Foreign Exchange and Derivatives, you have the option of using an extended payment program (payment requests). In this case, Treasury first generates payment requests which are then paid individually or jointly using the payment program. The following four combinations are possible: G/L accounts without payment requests G/L accounts with payment requests Customers without payment requests Customers with payment requests

© SAP AG FSC010 3-115

© SAP AG 2006

Transferring Data to Financial Accounting using the Posting Report

Application

ForexMoney marketDerivativesSecurities

General selections

Company codeTransactionProduct typeTransaction typePortfolioCurrencyFlow classificationUp to and incl. due date

Only post flow acc. to currency

Posting control

Posting dateDocument date

Test runOnly post operativelyPost all valuation areas

...

POSTING LOG

Posting transfers the settled financial transactions to Financial Accounting. You can only post transactions which have reached contract or settlement status (depending on the processing category) at the internal level (system level).

Prior to posting, the transaction flows and/or positions to be posted are selected. You can have the system carry out a test run in order to check the accuracy of the posting entries in the posting log. When you execute the posting, flows and related documents are transferred to Financial Accounting.

Postings to the SAP Financial Accounting module take place online. The FI document numbers are displayed. When you post a transaction, the system generates a posting log. If you double-click a posting line you can access the relevant posting document.


© SAP AG FSC010 3-116

© SAP AG 2006

FT deposit 1 month 4.5% Position indicator: Acct assignm.ref.DB000001

Sep 01 1100 - Fixed-term deposit 1.000.000Oct 01 1120 + Final repayment 1.000.000Oct 01 1200 + Nominal interest 3.750

FT dep. acct. 113113

Investment

FinalRepayment

D1.000.000

H

1.000.000

Balance sheet accountacc. to account assignment ref.

Interest earned 273100

Nominalinterest

D H3.750

Bank clearing acct. 113105

FT dep. inv.Nom. int.FinalRepayment

D N1.000.000

3.750

1.000.000

Debit pos. Credit bank

Debit bank Credit pos.

Debit bank Credit int. earned

Assigningflow types

to update types

Assigning update types to posting specifications

MM1100-

MM1120 +

MM1120 +

Posting a Transaction: Summary

Back office processing of financial transactions (money market, foreign exchange, derivatives, securities) generate transaction processes which must be entered in Accounting. These automatic postings and the relevant offsetting postings to FI accounts may be carried out online. The accounts to which the flows are to be booked are set in accounts by the account determination.

The posting specifications control how the individual business transactions are posted. These specifications contain the rules for posting and account determination for update type. You make the relevant settings within system configuration.

The appropriate posting specifications for each flow to be booked are determined by applying the update type. Each update type is assigned exact posting specifications.

The document type and the posting keys for the debit and credit sides of the posting included in the posting specifications contains control information which is passed on directly to Financial Accounting. In addition, the posting specifications with the posting category and the account symbols include the relevant information for determining the actual G/L and subledger accounts with the Treasury posting interface.

© SAP AG FSC010 3-117

© SAP AG 2006

Money Market 5: Special Functions

Alterations of capital

Effective interest rate

Archiving

Rollover

Reversal

Accrual/deferral

Workflow

Mirror transactions

BAPIs

© SAP AG FSC010 3-118

© SAP AG 2006

Other Alterations of Capital

at the start of term during rollovers during the term

Alterations of capital

Advantage

☺ More flexibility in representing transactions(for example, creating repayment schedules)

Button behind amount field

Automatically incorporated in cash flow

In addition to the main flows at the start of term or during rollovers, you can enter other capital increases and decreases during the term. This enables you to represent repayment schedules, for example.

© SAP AG FSC010 3-119

© SAP AG 2006

Roll Over Contract: Fixed-Term Deposit

Interest structure. . .. . .

Transactioncreated

Roll

overTerm

Start

Rollover

End

Change in Capital

Flow Type

Amount

1100 Investment/Increase

1110 Decrease

. . .

08/10/YYYY

10/10/YYYY

?

You can rollover existing transactions using the same transaction number, and, where applicable, change some of the conditions.

You can display the transaction activity in its present status or display its history with all the related details.

You can specify additional information for each activity using the memo function. You can view a list showing the capital and interest flows due before or on the relevant key date for each transaction and sorted according to amounts by choosing Extras → Amount overview.

© SAP AG FSC010 3-120

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Roll Over Contract: Interest Payment

Example: Fixed-Term Deposit Investment

1) Payment

t1

Interest fromoriginal transaction

Interest from rollover

2) Capitalization

t1


3) Deferral

t1


Compound interest from original transaction

t2

t2

t2

t3

t3

t3

Interest from original transaction

Example for fixed-term deposits: Deposit in t1 Rollover in t2 Repayment in t3

© SAP AG FSC010 3-121

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Reversing a Contract: Fixed-Term Deposit

Reversal=

Resetting the last activity change made to a transaction

Reason forReversal

Process. errorCustom. errorCapital transferCond. adjustm.Other reasons

Customizing

A reversal involves resetting the last change made to the transaction, that is, resetting the last transaction activity recorded by the system. If there are postings associated with the reversed activity, these are cancelled with reverse postings (see also "Reverse Documents"). You must enter a reason for the reversal in the relevant field in order to execute the reversal. The reversal function reverses the most recent activity and reactivates the previous one.

© SAP AG FSC010 3-122

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Reversing a Contract: Fixed-Term Deposit (1)

Case 1:

Time

a) Statuscontract

b) Statuscontractsettlement

Contractfile

Contractfile

Contractsettlement

Reversal Contractreversed

Posting has not yet been made

Possible reasons for a reversal: business partner, currency, product type, transaction type was incorrect

Reversal 1 Reversal 2

If only the conditions or any other data were incorrect, you can correct this directly without having to reverse the activity.

© SAP AG FSC010 3-123

© SAP AG 2006

Reversing a Contract: Fixed-Term Deposit (2)

Case 2:

Time

a)

b)

Contractfile

Reversal 1

Contractcontract

Contractaccounts

Contractfile

Contractcontract

Contractaccounts Reversal 2

Generate offsetting flow

Reversal 3

Post offsetting flow

Reversal 1 Reversal 2

Post offsetting flow

Generate offsetting flow

Changes to datain initial screen

Settle contractPost contract

Posting already executed

Possible reasons for reversal:a) Business partner, currency, prod. type, trans. typeb) Condition data, nominal amount, payment details

© SAP AG FSC010 3-124

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Accrual/Deferral Processes and Methods

pro rata temporis

pro rata temporis with linear discounting

Difference Procedure

Reset procedures

AccAcc//defdef. . procedureprocedure

AccrualAccrual//DeferralDeferral MethodsMethods

To determine the earnings of a given period, you must assign expenses and revenue to the period in which they were incurred/generated, irrespective of the date on which they are paid. You use the accrual/deferral function to calculate the expenses and revenue for a certain date or period-end closing (for example, at the end of a fiscal year).

The accrual/deferral method describes how the amount to be accrued/deferred is calculated. The accrual/deferral procedure, on the other hand, describes how the expense and revenue accounts are updated. The difference procedure is used to transfer income and expenses arising since the last accrual/deferral run from accrual/deferral accounts to the relevant income statement accounts.

The reset or accumulation procedure is used to adjust the income statement accounts by the accrual/deferral date in the accrual/deferral amounts that have been determined, and then to reset them.

© SAP AG FSC010 3-125

© SAP AG 2006

Interest Accrual/Deferral

Due dt. FType D P Flow type ...

Company code 1000 Transaction 9 Product type 51A

05.06.YYYY 1200 + Nominal interest 4.546,66 EUR

05.06.YYYY 2100 + Accrued interest: Anticip. 139,03 EUR

Accrual/Deferral of Expenses and Revenues

When you execute the accrual/deferral, the accrual/deferral amounts for user-defined transactions/positions and time periods are generated. The accrual/deferral amounts and the relevant accrual/deferral flows are generated for each flow. The accrual/deferral flows can be posted immediately in Financial Accounting with an update run or they can be processed later using the posting function.

You can also execute a test run in advance. When you reverse accruals/deferrals with the reset procedure, only the accruals/deferrals made on the key date are reversed.

Since accruals/deferrals made with the difference procedure follow on from each other in the order of accrual/deferral key dates, when you reverse accruals/deferrals with the difference procedure for one key date, all chronologically subsequent accruals/deferral flows of the same transaction (in so far as they exist) are also reversed.

© SAP AG FSC010 3-126

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Current situation

Objective

Management of a mirrored mapping of transactions within a group,

that is, identical cash flow with reversed signs

one-off processing of the original transaction

(no duplicate entry)

+automatic execution of the relevant processing step for the

mirrored transaction

Mirror Transactions: Current Situation and Objective

The mirror transaction function enables you to create a mirror transaction within a system. The create function is supported for the following products:

Spot exchange and forward transactions Currency swaps Fixed-term deposits and deposits at notice Cash flow transactions

The linked transactions reference each other. A message is also displayed saying that a mirror transaction exists.

Additional flows are not mirrored. Mirror transactions cannot be created for existing transactions at a later date.

© SAP AG FSC010 3-127

© SAP AG 2006

corresponds to corresponds to

Partner head office Company code A

View of subsidiary A

Fixed-term dep -investment

Fixed-term dep -borrowing

The mirror transaction iscreated automatically

Company code head office Partner A

Head office view

Mirror Transactions: How They Function

© SAP AG FSC010 3-128

Exercises 2

Unit 3: Transaction Manager: Money Market Topic: Trading - Fixed-Term Deposit Investment 1

After completing these exercises, you will be able to: • Set up a time deposit in Transaction Manager

You want to take advantage of the favorable conditions at your house bank to invest in a fixed-term deposit.

2-1 Create an external fixed-term deposit (investment) as a contract in your company code (FS##). Choose the Deutsche Bank (1000) as your business partner. This is your house bank, that is, you have at least one current account here. Choose the following transaction data: Amount: EUR 50 M, Interest rate: 2.6 %, Term: 3 months starting from today Int calculation method: Act/360 (Interest) frequency: "At end of term" Then check - The conditions (button), - The cash flow (tab page), - The payment details (tab page). Save the financial transaction and note the transaction number for later settlement and posting activities. Transaction number:_______________________

2-2 Check your entries in the cash position (Grouping: "ACBANKEN").

At which level is the fixed-term deposit displayed?

To which account has the transaction been posted?

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© SAP AG FSC010 3-130

Solutions 2

Unit 3: Transaction Manager – Money Market Topic: Trading - Fixed-Term Deposit Investment 1

2-1 Create an external fixed-term deposit (investment) as a contract in your company code (FS##).

Choose the Deutsche Bank (1000) as your business partner. This is your house bank, that is, you have at least one current account here.

Choose the following transaction data: Amount: EUR 50 M, Int rate: 2.6 %, Term: 3 months starting from today Interest calculation method: Act/360 (Interest) frequency: "At end of term"

Then check - conditions (button), - cash flow (tab page), - payment details (tab page).

Save the financial transaction and note the transaction number for later settlement and posting activities.

Transaction number:_______________________

On the SAP Easy Access screen, choose Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Money Market Trading Create Financial Transaction (FTR_CREATE)

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Company Code FS##

Product Type 51A – Fixed-term deposit: External

Transaction Type 51A – 100 –

Partner 1000

Set the Contract indicator.

Choose ENTER.

Enter the following values on the Structure tab page:


Flow Type Accept the default value “1100”

Amount 50 M (EUR 50 million)

Start of term +0 (current date)

End of term ++3 (3 months calculated from today)

Percentage Rate 2,6 (%)

Int.calc.method Act/360

Frequency At end of term

Choose Check in the application toolbar to check the entered data.

You should receive the following message in the status bar: “Check carried out successfully”

Now check the conditions. Get an overview of the details of the chosen condition types. Choose Conditions in the application toolbar. You can view the entered data by double-clicking the condition type.

Choose the green arrow (twice) to return to the Structural Data.

Now get an overview of the cash flow. Choose the Cash flow tab page. Choose Select layout → Calculation view.

Find out the payment details. Choose the Payment Details tab page. Double-click a line to display the details for the relevant payment details.

Save your fixed-term deposit.

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Save your fixed-term deposit by choosing the “Disk” button in the standard tool bar.

The message “Fixed-term deposit XY created in company code FS##” is displayed in the status bar.


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2-2 Check your entries in the cash position (Grouping: "ACBANKEN").

In SAP Easy Access select:

Accounting Financial Supply Chain Management Cash and Liquidity Management Cash Management Information System Reports for Cash Management Liquidity Analyses Cash Position (FF7A)

After you enter the grouping “ACBANKEN”, you can display all input fields by choosing All Selections (+) in the application toolbar.



Company Code FS##

Cash Position X - select indicator

Grouping ACBANKEN

Display as of Today's date

Display in EUR

Delta Display with Balances Select (Use button: All selections)

Account Instead of AccountName

X - select indicator

Display currency view Do not select indicator

Choose Execute (“Clock“ or F8)

At which level is the fixed-term deposit displayed? Place the cursor on the amount field and choose Levels in the application toolbar. The entered fixed-term deposit is displayed at the TB (time deposit) level.

To which account has the transaction been posted? Place the cursor on the amount field and select Accounts in the application toolbar. The amount is now posted to account 113100.

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Exercises 3

Unit 3: Transaction Manager Money Market Topic: Trading - Fixed-Term Deposit Investment 2

After completing these exercises, you will be able to: Create a fixed-term deposit using fast entry

Use the favorable conditions to invest in another fixed-term deposit.

3-1 Create another fixed-term deposit as a contract (external fixed-term deposit: 51A) in your company code (FS##). Use the fast entry and the input help for the amount field and the term. Choose the Deutsche Bank (1000) as your business partner. Choose the following transaction data: Amount: EUR 30 M, Interest rate: 3% End of term: 25.12.JJ (Caution: For entry in December, enter 21.01.YY+1) Interest Calculation Method: Act/360 (Interest) frequency: Monthly Check the financial transaction. If the working day check is active, use the selected date. Save the financial transaction and note the transaction number for later settlement and posting activities. Transaction number:_______________________

3-2 Check your entries in the cash position (Grouping: “ACBANKEN”).

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Solutions 3

Unit 3: Transaction Manager – Money Market Topic: Trading - Fixed-Term Deposit Investment 2

3-1 Create another fixed-term deposit as a contract (external fixed-term deposit: 51A) in your company code (FS##).

Use the fast entry and the input help for the amount field and the term.

Choose the Deutsche Bank (1000) as your business partner.

Choose the following transaction data:

Amount: EUR 30 M, Interest rate: 3% End of term: 25.12.YY Interest calculation method: Act/360 (Interest) frequency: Monthly

Check the financial transaction. If the working day check is active, use the selected date.

Save the financial transaction and note the transaction number for later settlement and posting activities. Transaction number:_______________________

In SAP Easy Access select

Accounting

Financial Supply Chain Management

Treasury and Risk Management

Transaction Manager

Money Market

Trading

Fxd Term Dep. Fast Entry (TM0F)

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© SAP AG FSC010 3-137



Company Code FS##

Product Type 51A

Transaction Type 100 – Investment

Partner 1000

Structural data Value

StartTerm +0 (as of today)

End of Term 25.12.YY (for entry in December, enter 25.01.YY+1)

Amount/Currency 30m – EUR 30 million

Interest rate 3

Int.calc.method Act/360 (2)

Frequency Monthly (3)

With rollover Payment (0)

Calculation period Start inclusive

The system performs a working day check and lets you choose from a dialog box. Confirm the selected date by choosing Copy (green checkmark).

Save your data by choosing the “Disk” icon.

Note: Select Details in the application toolbar to view additional information about this transaction and enter more data. Transaction number:_______________________

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3-2 Check your entries in the cash position (Grouping: “ACBANKEN”).

Follow the menu path

Accounting

Financial Supply Chain Management

Cash and Liquidity Management

Cash Management

Information System

Reports for Cash Management

Liquidity Analyses

Cash Position (FF7A)



Company Code FS##

Cash Position select

Grouping BANKEN

Display as of Today's date

Display in EUR

Select All Selections in the application toolbar. You can now enter additional data.


Delta Display with Balances Select (Use button: All selections)



Display Currency Overview Do not select indicator

Choose Execute (“Clock“ icon in the application toolbar or F8).

You can see your created transaction under the abbreviated term “CITIBANK” (Citibank).

The cash flow of this transaction generates a planned record, which flows via the TB-Time Deposit level into liquidity management (cash position) for Cash

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Manager. Place the cursor on “CITIBANK” and select Levels in the application toolbar. If you want to view the posted account in Financial Accounting, place the cursor on the Time Deposit line and choose Accounts in the application toolbar.

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Exercises 4

Unit 3: Transaction Manager: Money Market Topic: Trading - Interest Rate Instrument


• Create an interest rate instrument with variable interest form

• Execute an interest rate adjustment

• Create an interest rate instrument with fixed interest form and repayment in installments.

You want to create both an interest rate instrument with variable interest form and an interest rate instrument with fixed interest form.

4-1 Create an external interest rate instrument (investment) with variable interest form as a contract in your company code (FS##). Choose the Deutsche Bank (1000) as your business partner. This is your house bank, that is, you have at least one current account here. Choose the following transaction data: Amount: EUR 10 M Term: 1 year calculated from today Reference interest rate: EUREUR01YM

With variable interest, the interest rate for the first period is already known in many cases, so that a fixing or an interest rate adjustment is made only for the following periods. You can enter the known interest rate in field 1. Interest rate.

1. Interest rate: 4% Interest calculation method: Act/360 (Interest) frequency: Monthly All: 1 months Final repayment Then check the following: - The conditions (button),

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- The cash flow (tab page), - The payment details (tab page). Save the financial transaction and note the transaction number for later settlement and posting activities. Transaction number:_______________________

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4-2

4-2-1 Settle the created interest transaction (choose Settle from the menu).

4-2-2 Carry out a manual interest rate adjustment for the 2nd interest rate fixing date. Choose an interest rate (for example, 5%).

Alternative: You can also view the interest rate adjustments for the relevant transaction on the Interest rate adjustment tab.

(Note: You can individually determine the planned record update strategy and perspective of the interest cash flow in Customizing.

4-2-3 Display the created interest rate instrument and view the cash flow and interest rate adjustment tab pages.

4-3 Create another interest rate instrument (investment) with fixed interest form and installment repayment as a contract in your company code (FS##). Choose the Deutsche Bank (1000) as your business partner. Enter the following transaction data: Amount: EUR 12 M Term: 1 year from today Percentage rate: 4% Interest calculation method: 360/360 (Interest) frequency: Monthly All: 1 months Repayment form: Installment repayment Repayment amount: EUR 1 M Frequency: Monthly All: 1 months Then check - the condition details, - the cash flow, - the payment details. Save the financial transaction and note the transaction number for later settlement and posting activities. Transaction number:_______________________

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Solutions 4

Unit 3: Transaction Manager – Money Market Topic: Trading - Interest Rate Instrument

4-1 Create an external interest rate instrument (investment; interest rate instrument: external) with variable interest form as a contract in your company code (FS##).

Choose the Deutsche Bank (1000) as your business partner. This is your house bank, that is, you have at least one current account here.


Amount: EUR 10 M Term: 1 year calculated from today Reference interest rate: EUREUR01YM

With variable interest, the interest rate for the first period is already known in many cases, so that a fixing or an interest rate adjustment is made only for the following periods. You can enter the known interest rate in field 1. Interest rate.

1. Interest rate: 4% Interest calculation method: Act/360 (Interest) frequency: Monthly All: 1 Months Repayment form: Final repayment

Then check the following: - The conditions (button), - The cash flow (tab page), - The payment details (tab page).



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Select: Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Money Market Trading Create Financial Transaction (FTR_CREATE)



Company Code FS##

Product Type 55A


Partner 1000

Set the Contract indicator. Select ENTER. Enter the following values on the Structure tab page:


Fixed Asset


Start of Term +0 (as of today)

End of Term ++12

Amount 10m – EUR 10 million

Interest Structure

Interest form variable (2)

Condition Type Accept the default value “1200”

Ref. Int. Rate EUREUR01YM

1st. Interest rate 5



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Every 1 - months (2)

Repayment Structure

Repayment form: “1120” - Final repayment

Contract Date Is proposed

Choose “Check” in the application toolbar to check the entered data.

The message “Check carried out successfully” is displayed in the status bar.

Choose Conditions in the application toolbar to display a list of all condition types for this transaction.

You can view detailed information about any of the displayed condition types by double-clicking the condition type.

Select Back twice in the standard tool bar to return to your interest rate instrument (tab page: Structure).

You can change the layout on the Cash flow tab page. Choose the layout “Calculation view” by clicking the appropriate icon. This displays all conditions, that is, cash flows valid for this transaction. You can also create other layouts if necessary.

Your house bank and account ID data is automatically transferred to the Payment Details tab page from Business Partner (Standing Instructions).

Save your transaction by choosing Save (disk icon) in the standard tool bar. Transaction number:_______________________

4-2

4-2-1 Settle the created interest transaction (choose Settle from the menu).

Select: → Accounting → Financial Supply Chain Management → Treasury and Risk Management → Transaction Manager → Money Market → Trading → Edit Financial Transaction (FTR_EDIT)

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Company Code FS##

Transaction Enter your transaction code from exercise 4-1.

Choose Settle.

Briefly check the trader’s data and save the transaction by choosing the “Disk” button in the standard toolbar. The status bar displays the message “Interest rate instrument … in company code FS## is changed”.

4-2-2 Carry out a manual interest rate adjustment for the second interest rate fixing date. Choose an interest rate (for example, 5%). Alternative: You can also view the interest rate adjustments for the relevant transaction on the “Interest rate adjustment” tab. (Note: You can individually determine the planned record update strategy and perspective of the interest cash flow in Customizing.)

Select: → Accounting → Financial Supply Chain Management → Treasury and Risk Management → Transaction Manager → Money Market → Back Office → Variable Interest Calculation → Interest Rate Adjustment → Create (TI10)



Company Code FS##

Transaction Enter your transaction code from exercise 4-1.

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Select enter.

Details of the interest rate adjustment are displayed on the lower part of your screen. You can also enter an interest rate for the proposed date here.



Interest rate As appropriate (or 5%)

Save your interest rate adjustment by choosing the “Disk/Save” button in the standard tool bar. The message “Manual interest rate adjustment created” appears in the status bar.

4-2-3 Display the created interest rate instrument and view the cash flow and interest rate adjustment tab pages.

Select: Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Money Market Back Office Edit Financial Transaction (FTR_EDIT)

Enter the company code and transaction number as usual. Choose Display.

View your transaction data by using the Cash flow and Int.rate.adj. tab pages. During the interest rate adjustment, the status bar displays the message “Interest rate adjustment displayed as saved and not determined again”.

You determine the planned record update strategy in Customizing. This determines with which values any interest rate flows that are not yet fixed are to be displayed, for example, in the cash flow.

4-3 Create another interest rate instrument (investment) with fixed interest form and installment repayment as a contract in your company code.###

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Choose the Deutsche Bank (1000) as your business partner. Choose the following transaction data: Amount: EUR 12 M Term: 1 year calculated from today Percentage rate: 4% Interest calculation method: 360/360 (Interest) frequency: Monthly All: 1 month Repayment form: Installment repayment Repayment amount: EUR 1 M Frequency: Monthly All: 1 month

Then check - the condition details, - the cash flow, - the payment details.



Select: Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Money Market Trading Create Financial Transaction (FTR_CREATE)



Company Code FS##

Product Type 55A


Business Partner 1000

© SAP AG FSC010 3-149

Set the Contract indicator. Select enter. Enter the following values on the Structure tab page:


Fixed Asset


Start of Term +0 (as of today)

End of Term ++12


Interest Structure

Interest form fixed

Condition Type Accept the default value “1200”

Interest Rate/Percentage Rate 4


Repayment Structure

Repayment form: Instalment repayment (2)

Repayment amount EUR 1 M


Every 1 month (2)

Choose Check in the application toolbar to verify the entered data.

The status bar displays the message “Check carried out successfully”.

The application toolbar includes the Conditions button. Choose this button to display a list of all condition types for this transaction.

You can view detailed information about the displayed condition type by double-clicking the condition type.

Choose Back in the standard tool bar to return to your interest rate instrument (tab page: Structure).

You can change the layout on the Cash flow tab page. Choose the layout “Calculation view” by clicking the appropriate icon. This displays all conditions, that is, cash flows valid for this transaction. You can also create other layouts if necessary.

Your house bank and account ID data is automatically transferred to the Payment Details tab page from Business Partner (Standing Instructions).

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Save your transaction by choosing Save (disk icon) in the standard tool bar. (If this system displays a dialog box indicating a transaction limit check, continue by choosing ENTER.) Transaction number:_______________________

Exercises 5

Unit 3: Transaction Manager – Money Market Topic: Back Office: Settlement and Correspondence


• Perform a confirmation (OPTIONAL)

• Settle the transaction

After you create the fixed-term deposit, back office processing occurs.

Confirmation letters are written here and the transaction is settled and checked.

5-1 Optional: Using the function Create Correspondence on Basis of Planned Records, display a preview of the confirmation letter for the fixed-term deposit from exercise “Trading: Fixed-Term Deposit Investment 1” (exercise 2).

5-2 Optional: First, check the correspondence status of the transaction (on the Status tab page). The confirmation should still be required. Generate an actual version. Confirmation status is now Executed. Display the letter using Spool.

Note: The Correspondence Monitor (TBZ11) is very helpful in this area, since it is clearly laid out and easy to use.

5-3 Optional: Assume that the counterconfirmation has been received from the counterparty. Save this in the system and check the correspondence status again.

By choosing Goto in the financial transaction, you access information about the confirmation and counterconfirmation letters.

© SAP AG FSC010 3-151

5-4 Settle the transaction from the exercise, “Trading: Fixed-Term Deposit Investment 1” (2-1). Note the change in activity category. Make sure to check the payment details and the position indicator in Menu → Environment by entering the account assignment reference.

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Solutions 5

Unit 3: Transaction Manager – Money Market Topic: Back Office: Settlement and Correspondence

5-1 Optional: Using the function “Create Correspondence on Basis of Planned Records”, display a preview of the confirmation letter for the fixed-term deposit from exercise “Trading: Fixed-Term Deposit Investment 1” (exercise 2).

Select:

Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Money Market Back Office Correspondence Outgoing Correspondence (TBZ1)



Company Code FS##

Transaction Transaction number from exercise 2-1

Correspondence type 001 Confirmation

All other required fields are predefined.

Make sure that the Printer and Preview indicators are selected in the Output control area. Choose Execute (“Clock” icon or F8) to start the report.

(You can now compare this data with your transaction values in a second session - see exercise 5-2.)

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Make sure that the letter was only previewed and not actually generated. No print request was made. You need to follow further steps to do this. See exercise 5-2.

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5-2 Optional: First, check the correspondence status of the transaction (on the Status tab page). The confirmation should still be required. Generate an actual version. Confirmation status is now Executed. Display the letter using Spool. Note: The Correspondence Monitor (TBZ11) is very helpful in this area, since it is clearly laid out and easy to use.

Select:

Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Money Market Trading Edit Financial Transaction (FTR_EDIT)



Company Code FS##

Transaction Transaction number from exercise 2-1

Choose Display.

The Status tab page displays the message “Confirmation required”. To execute the confirmation after the check, the Output immediately indicator must be selected in the Output Control area. Printing is started when the report is executed anew. You can find the confirmation letter in Spool.

The procedure is as follows:

Call up the report for creating correspondence based on planned records again and select the following values: the Output immediately indicator must be selected in the Output Control. Printing is started when the report is executed anew. You can find the confirmation letter in Spool.

Using the menu, choose System → Own Spool Requests (select and choose Display/glasses).

If you check the confirmation status in your transaction once more, you will see that it is Executed.

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5-3 Optional: Assume that the counterconfirmation has been received from the counterparty. Save this in the system and check the correspondence status again.

By choosing Goto in the financial transaction, you access information about the confirmation and counterconfirmation letters.

The Counterconfirmation field is in the correspondence status of your transaction. This is required for your transaction.

Choose the following path: Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Money Market Back Office Correspondence Incoming Confirmations (Manual) – (TBZ3)



Company Code FS##

Partner 1000

Currency EUR


Direction - (Outflow)

Start of Term See exercise 2-1 (+0; current date)

End of Term See exercise 2-1 (+3; 3 months calculated from today)

Int. rate See exercise 2-1 (2,6)

Select Enter. The assigned transaction is called up automatically and shown in the lower part of the screen.

Select SAVE to counterconfirm the transaction. The system displays the message “Transaction xxxx counterconfirmed!”

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Note: In practice Entry: Exact data, which you can take from your business partner's counterconfirmation letter.

View the correspondence status of the counterconfirmation in your transaction. It is now defined as Matched (status 3).

5-4 Settle the transaction from the exercise, “Trading: Fixed-Term Deposit Investment 1” (2-1). Note the change in activity category. Make sure to check the payment details and the position indicator in Menu Environment by entering the account assignment reference.

Select: Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Money Market Trading Edit Financial Transaction (FTR_EDIT)

Display the transaction and choose Settle.

You can see the change in activity type in the upper right hand part of the screen.

Check the entries on the Payment Details tab page and generate the position indicator using Menu Environment.

(Account assignment reference MM510VC01)

Choose the green arrow to return to the transaction data.

Choose Save to save the transaction.

The status bar displays the message “Fixed-term deposit … changed in company code FS##”.

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Exercises 6

Unit 3: Transaction Manager – Money Market Topic: Accounting


• Process the fixed-term deposit in accounting

In Treasury Accounting, you have to take certain steps to transfer the transaction flows to FI (Financial Accounting).

6-1 Post the transaction from the exercise, “Trading: Fixed-Term Deposit Investment 1” (2-1).

Your first posting should only relate to the fixed-term deposit (position posting).

(In the Application area, choose Money Market)

Carry out a test run prior to the update run.

Note: Prior to posting, the transaction must be settled and monitored in the back office (see exercise 5-4).

6-2 Check the posting log and the posting document in Financial Accounting.

6-3 Do you see a change in Cash Management after posting? Show the cash position to reveal that levels have been changed.

6-4 In the second step - at the end of the term - you should also post the interest payment and repayment amounts.

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Solutions 6

Unit 3: Transaction Manager – Money Market Topic: Accounting

6-1 Post the transaction from the exercise “Trading: Fixed-Term Deposit Investment 1” (see exercise 5-4). Your first posting should only relate to the fixed-term deposit (position posting). (In the application area, choose Money Market) Carry out a test run prior to the update run.

Note: Prior to posting, the transaction must be settled and monitored in the back office.

Select:

Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Money Market Accounting Posting Post Flows (TBB1)



Company Code FS##

Transaction Transaction number from exercise 2

Up To And Including Due Date Today

Before executing, make sure that the Test run indicator is selected in the Posting control area and that Post All Valuation Areas is activated.


© SAP AG FSC010 3-160

Test Run X - select indicator

Post all Valuation Areas X - select indicator

Choose Execute.

A dialog box appears containing a link, double-click this to go to the posting log.

If the data is correct, perform an update run.


Test Run Do not select indicator


Choose Execute.

The system displays the data for the different valuation areas. Remain at this location within the system.

6-2 Check the posting log and the posting document in Financial Accounting.

In the posting log, you will see update type MM1100- relevant for posting. Debit and credit postings have been generated for this. The posted accounts are also displayed. Now check the financial accounting document by double-clicking the FI reference number in the top right corner of the screen (second row).

The system displays the Document in Financial Accounting dialog box. Double-click Accounting Document.

You will see the standard document overview of the Financial Accounting area. You can display information about the origin of the data in the document header (choose Display Document Header).

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6-3 Do you see a change in Cash Management after posting? Show the cash position to reveal that levels have been changed.

Yes, there were changes in Cash Management. Choose the following:

Accounting Financial Supply Chain Management Cash and Liquidity Management Cash Management Information System Reports for Cash Management Liquidity Analyses Cash Position (FF7A)



Company Code FS##

Cash Position select

Grouping ACBANKEN

Display as of Day transaction was created

Display in EUR

Select All Selections in the application toolbar.

You can now enter additional data.


Delta Display with Balances X – select indicator



Display Currency Overview Do not select indicator

Choose Execute (“Clock“ icon in the application toolbar or F8).

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You can see your created transaction under the abbreviated term DEUTSCHE (Deutsche Bank).

Your financial transaction can no longer be found at level TB (Time Deposit), but at level B5 (Interim Postings). You can navigate to the levels and to the account view as usual (see exercise 3).

6-4 In a second step - at the end of the term - you also want to post the interest payment and repayment amounts. Proceed as described in steps 6-1 to 6-2. Ensure that the due date is correct.

When posting flows (TBB1), enter the due date or a later date in the Up To And Including Due Date field.

Select:




Company Code FS##


Up To And Including Due Date Due date

The cash position reports the cash flows of interest and repayments at a later time (see last column).

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Exercises 7

Unit 3: Transaction Manager – Money Market Topic : Rollover, Reversal


• Rollover a money market transaction

• Perform a reversal

Due to rising interest rates, you decide to extend the transaction for another three months. At the same time, the interest rate increases by 0.5%. Consequently, you have to carry out a reversal.

7-1 Settle the contract (financial transaction) from exercise 3, “Trading: Fixed-Term Deposit Investment 2”, and post the flows from principal increase.

7-2 In December, you decide to extend the transaction for an additional three months due to rising interest rates. At the same time, the interest rate increases by 0.5%.

Roll over your transaction. Use fast processing (Collective Processing – TM20).

7-3 Take a look at the transaction history.

(If you also had to change the interest payment method for the above transaction, how would you do this in the system?)

7-4 Reverse the rollover.

Now take a look at the new transaction history. Which procedure is now active after the reversal?

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Solutions 7

Unit 3: Transaction Manager – Money Market Topic: Rollover, Reversal

7-1 Settle the contract (financial transaction) from exercise 3, “Trading: Fixed-Term Deposit Investment 2”, and post the flows from the principal increase.

To settle the transaction, select: Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Money Market Trading Edit Financial Transaction (FTR_EDIT)

Call your transaction and choose Settle. Choose Save in the standard toolbar (disk symbol). The transaction is settled.

The status bar displays the message “Fixed-term deposit … changed in company code FS##”.

To post the principal increase of fixed-term deposit 2, select:


Enter the data as usual (see exercise 6). In the Up To And Including Due Date field, enter Today.

Perform a test run and then an update run.

© SAP AG FSC010 3-165

7-2 In December, you decide to extend the transaction for an additional three months due to rising interest rates. At the same time, the interest rate increases by 0.5%. Roll over your transaction. Use Time Deposit - Fast Processing (Collective Processing – TM20).

For rollovers with fast processing, choose the following path:

Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Money Market Trading Collective Processing Time Deposit - Fast Processing (TM20)



Company Code FS##


End of Term Is proposed

Choose Execute.

You are now in “Time Deposit - Fast Processing”:



Interest rate – new 3,1

Term End - new ++3

Save your data.

The message “1 transaction(s) have been changed” appears in the status toolbar.

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(Note - if the amount is to be changed: Enter the total amount for amount change when entering the rollover dates using fast processing.)

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Alternatively, choose: Money Market Trading Edit Financial Transaction (FTR_EDIT)

(Note - if the amount were to change: The delta amount would be entered when the amount is changed when entering the rollover dates.)

7-3 Take a look at the transaction history.

(If you also had to change the interest payment method for the above transaction - how would you do this in the system?)

To view the transaction history, select: Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Money Market Trading Edit Financial Transaction (FTR_EDIT)

Enter your company code and transaction number. Select History. Double-click an individual row to view the transaction details.

This transaction has recorded procedures. The rollover is the active procedure and is therefore current and valid.

(If the interest payment method must be changed (for example payment, capitalization or deferral), the new interest payment method are entered at the same time as entering the rollover dates).

7-4 Reverse the rollover. Now take a look at the revised transaction history. Which procedure is now active after the reversal? To reverse the rollover

Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager

© SAP AG FSC010 3-168

Money Market Trading Edit Financial Transaction (FTR_EDIT)

Choose your financial transaction and your company code and choose Reverse.

Enter a reason for the reversal (for example, 01- Reversal due to processing error by clerk).

Save your data.

The message “Fixed-term deposit....reversed” appears in the status bar.

View the history in the same manner as previously described. (See exercise 7-3).

Activity 2 – Contract settlement is active.

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Exercises 8

Unit 3: Transaction Manager – Money Market Topic: Interest Accrual/Deferral


• Perform an interest accrual/deferral on a key date.

You have to accrue/defer interest at the end of the quarter/year. To do this, use the accrual/deferral run.

8-1 Create a new fixed-term deposit with a term that goes beyond the end of the next quarter/year.

Settle this fixed-term deposit. Then post only the principal increase and not the interest that is due at the end of the term.

8-2 Carry out an interest accrual/deferral at the end of the next quarter or 31.12.YY. Carry out the postings immediately.

8-3 Take a look at the cash flow in the transaction. Note that you can select classification 1 to 2 (structure characteristics, accrual/deferral, valuation, transfer posting) by choosing “Set Filter”.

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Solutions 8

Unit 3: Transaction Manager – Money Market Topic: Interest Accrual/Deferral

8-1 Create a new fixed-term deposit with a term that goes beyond the end of the next quarter/year. Settle this fixed-term deposit. Then post only the principal increase and not the interest that is due at the end of the term.

Solution Create fixed-term deposit – see exercise 2 (Term end: example ++5) Settle and post fixed-term deposit - see exercise 6 Adjust the term of the financial transaction according to the exercise requirements.

8-2 Carry out an interest accrual/deferral at the end of the next quarter or 31.12.YY. Carry out the postings immediately.

To perform Interest Accrual/Deferral, choose

Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Money Market Accounting Accrual/Deferral Execute (TBB4)



Company Code FS##

Transaction Transaction number

Key date to the end of the quarter

Postg date of accrual/deferral End of Quarter

Posting Date of Reset End of Quarter +1

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Post immediately X – select indicator

Post All Valuation Areas X – select indicator

Test Run X – select indicator

Accruals/deferrals are reset methods. Therefore, you must also enter the reset posting date for the next day when selecting the accrual/deferral report. Also enter the posting date for the accrual/deferral.

Note that all valuation areas must be posted (select indicator).

Choose Execute in the application tool bar. Perform a test run and then an update run. You will receive a log, in which you can view the planned accruals/deferrals. You can also check these by choosing “Logs and Messages” (in the application tool bar).

8-3 Take a look at the cash flow in the transaction. Note that you can select classification 1 to 2 (structure characteristics, accrual/deferral, valuation, transfer posting) by choosing “Set Filter”.

To calculate the cash flow as usual, choose

Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Money Market Trading Edit Financial Transaction (FTR_EDIT)

Display the transaction. Go to the Cash flow tab page. The Set Filter icon is on the upper bar on the Cash Flow tab. Select the Flow Type column. Choose the Set Filter icon and enlarge the classification from 1 to 2 (that is, interval 1 to 2).

Choose ENTER; the accrual/deferral flows will appear in the cash flow.

The accrual/deferral flows are already posted!

Note that you can select the classification (structure characteristics, accrual/deferral, valuation, transfer posting) by choosing Set Filter.

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Transaction Manager: Foreign Exchange, Derivatives: Overview








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Accounting functions

Unit 4 Transaction Manager: Foreign Exchange

111

222

Introduction to foreign exchange trading

333

444

555

Additional informaiton: parallel position management

Trading functions

Valuation functions

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Transaction Manager: Foreign Exchange Unit Objectives

By the end of this unit, you will be able to:

Minimize currency risks using the example of forward exchange transactions

Perform back-office processing for spot transactions or forward transactions and currency swaps

Use the tools to monitor and speed up back-office processing

Explain the valuation area

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Transaction and position managementprocess

Foreign exchange product types

Foreign Exchange 1: Introduction to Foreign Exchange Trading

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Foreign Exchange Product Types

Product Types


Spot exchange transactionsForward exchange transactionsForeign exchange swaps

Hedging instrumentsInvestment/borrowing

instruments

Forex trading incorporates the following product types: Spot exchange transactions and forward exchange transactions Forex swap transactions OTC currency options The currency options are covered in the "Derivatives" unit.

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Transaction and Position Management Process:Example - Foreign Exchange Transaction


Create new order/contractExercise/expirationRolloversReversalsTransaction history

User authorization

Settlement/controlNettingConfirmation lettersReversalsTransaction history

Release


The standard basic structure of the trading and transaction management processes forms the basis for integrating and processing transactions within the SAP system and provides the framework for adapting the way transactions are represented in the system to meet specific company requirements.

You can grant user authorizations for the various activities in the transaction and position management process. The authorization concept is specifically designed to allow you to assign different authorization profiles to employees in different organizational areas. This enables you to separate trading, back office and accounting functions.

For each product or transaction type, you determine whether a special posting release is required.

You can create user authorizations for activity combinations.

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111

222


333

444

555

Additional information: parallel position management

Trading functions

Valuation functions

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Foreign Exchange: 2 – Trading Functions

Spot exchange/forward exchange transaction

Forex swap

Rollover/premature back-officeprocessing

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- Forex - external:

Product Type

Product Category600 Forex

APPLICATION LEVELAPPLICATION LEVEL

SYSTEM LEVELSYSTEM LEVEL

- Spottransaction

- Forwardtransaction:

100 Spot transaction100 Forward trans

:

Contract

Settlement:

Transaction Cat1 Order – Contract -

Settlement2 Contract3 Contract-settlement

:

Activity Cat Processing Cat

Transaction Type

Note: Customizing - Foreign Exchange Master Data 1

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Product TypeProduct Type

Product CategoryProduct Category

600 Forex

USER LEVELUSER LEVEL

SYSTEM LEVELSYSTEM LEVEL

Transaction CategoryTransaction Category Flow CategoryFlow Category10 Principal

increase90 Other flow

Calculation CategoryCalculation Category

ET - Inflow

- Forex - external:

- Spot transaction- Forward transaction

:

Transaction TypeTransaction Type1000 -Buy foreign

exchange2000 -Sale forex

Flow TypeFlow Type

100 Spot transaction100 Forward trans.

:

Addendum: Customizing – Foreign Exchange Master Data 2

Unlike in money market, condition types are not necessary in foreign exchange trading.

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Position Monitor

The Position Monitor: Enables you to summarize information from Cash and Liquidity Management and

Transaction Manager in one report Gives you a clear view of the individual currencies of the foreign exchange position of your

company You can use the Position Monitor function in foreign exchange trading to get a quick, up-to-date overview of the current foreign currency risk from all transactions that you have created in the Transaction Manager. You can include foreign currency bank accounts.

With the Position Monitor, you can combine the cash flows from Cash and Liquidity Management and the financial transactions (funds and foreign exchange transactions, securities, and derivatives) from Transaction Manager. This gives you a complete view of the foreign exchange position in all relevant currencies in your company. You can select the data that should be taken from Cash and Liquidity Management and you also decide the transactions that should be displayed in combination with this data.

You can divide time in the report into convenient segments. In addition, the net present value is calculated for payment flows on the basis of the latest fair values.

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Create Order/Contract: Forward Exchange Transaction

Purchase SalesCurrency CurrencyPurchase amount Sale amount

Rate/value datePrice (Un. quote) InverseSpotSwapLiquidityValue date

ConclusionContract Date TraderContact person External Ref.

1.000.000,00

USD EUR

++3

05/29.09/YYYY

Current rate !!

Company code1000IDES AG

Product type60AForexEXTERNAL

Transaction type102Forwardtransaction

PartnerDeuba...

...

2,070,00975-

Cash settlement

On the entry screen, you enter further transaction data for contract conclusion, currencies, payment amounts, rate, value date, etc.

For transactions with two foreign currencies, you can calculate the rate using the cross-rate calculator. You can call this up under Extras → Cross-rates.

From here, you can branch to the entry screens of general transaction management. Tab strips help you navigate between the screens.

Administration Information about portfolio assignment, account assignment references for position posting. Other Flows You can add other flows to the automatically generated flows manually (charges, commission an so on). Payment Details Entry of payment details that are relevant for this transaction. If the payment details are maintained as standing instructions for a business partner, they appear as default values.

Using Memos, you can store additional information for each activity. Other available functions include fast processing, collective processing, rollover, premature settlement, reversal, transaction history and deadline monitoring.

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Cash Settlement - Foreign Exchange

Cash settl.

Settlement1 Physical exercise

Cash settl.

Settlement2 Cash settlement?

Rate

Date Pmnt Crcy Amount -

Flow is not relevant for posting

* Not yet defined

Proposal from rates table

The Cash Settlement function enables you to enter cash settlements for foreign currency transactions. The main flows are then locked for posting.

For the cash settlement, the current rate is drawn from the rates table. However, the values can be changed manually.

If you wish to use the cash settlement function, you must check the appropriate indicator when making the Customizing settings for the product type.

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Number of working days between conclusion of contract and spot value date

Date string from ?spot value date

L-Währ. F-Währ. Spot-ValutatageEUR USDUSD CHFUSD FRF

Dom. Curr. For. Curr. Spot days

EUR USDUSD CHFUSD FRF

Number of working days between conclusion of contract and spot value date

Date string from ?spot value date

Benutzername M T GTP KEP Händler Dat.str.User Name M T WDC REC Trader Date String

Additional Information About Customizing:Value Date Input in Forex Transaction Entry

In the field Spot days (see Define Leading Currency), you can store the number of days between the conclusion of the contract and the value date of the forex transaction.

As a rule, the number of working days is two. Depending on the particular currency pair, this number can vary. You should only make an entry here if a rule other than two days commonly applies to a particular currency pair in the international foreign exchange market.

If the flag Date string is checked (see Define User Data), the date strings you enter (for example, ++1 for one month) in the value date fields in forex and currency option entry are interpreted and calculated from the spot day and not from the date of conclusion of the contract.

Example Conclusion of the contract 08.03.YYYY. The flag Date string is not set. An entry of +2 determines the date 10.03.YYYY for the currency pair EUR/USD. If the flag is checked, the system determines the date 12.03.YYYY.

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1st Transaction 2nd Transaction

60A101

60A102

Forex EXTERNSpot transaction

Forex EXTERNForward transaction

In.

0,01287-

++4

...

...

Product typeTransaction typeTransactionCurrency pairPurchaseSalePriceSpotSwapLiquid.Value dateExt.ReferenceFinance Project

1,88

1.000.000,00USDEUR

Create Order/Contract: Foreign Exchange Swap Transaction

Foreign exchange swap transactions are an important part of foreign exchange management. When a foreign exchange swap is created, a spot transaction and a forward transaction are created simultaneously in the SAP system. The foreign currency bought today is sold at a later date, or the foreign currency sold today is bought back at a later date.

The entry of foreign exchange swaps enables combined entry of a foreign exchange spot transaction and a forward exchange transaction.

The forward rate is automatically determined using a premium or discount which has been entered. The criteria for the authorized business partners just as for the payment details correspond to those of spot and forward transactions. To speed up entry, there are convenient copy functions available. You can use these to copy data from the first transaction (spot and/or forward) to the relevant field of the second transaction (forward and/or swap).

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“Internal Foreign Exchange” Function

Process for entering foreign exchange transactions locally from the view of the company code entering the transactions

Automatic exchange rate

Automatic creation of mirror transactions

Course overview for internal foreign exchange transactions

Internal Forex Trading is a process for entering foreign exchange transactions locally from the view of the company code entering the transactions.

A subsidiary company can use the Transaction Close function to request an exchange rate for a foreign exchange transaction (spot exchange, forward exchange, foreign exchange swap) from the head office. You can accept this exchange rate and close the transaction.

In transaction closing, the rate is automatically created from the view of the head office in the company code of the head office. You can also create this transaction in the company code of the subsidiary as a mirror transaction.

In addition to entering internal foreign exchange transactions, you can also use the report Exchange Rate Overview for Internal Foreign Exchange Transactions. This gives you an overview of the current exchange rates for each currency. You can also use this report to check that Customizing and the market data are complete.

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RolloverRollover//PrematurePremature BackBack--Office Office ProcessingProcessing--Forward Forward ExchangeExchange TransactionTransaction

System generates two new transactions

New forward transaction Netting transaction

Swap unit

Financeproject

Financeproject

Adjusting the term Offsetting

Rollover/Premature Back-Office Processing

With the functions Premature Back Office Processing or Rollover, the system generates two individual transactions that are linked by a swap unit. One transaction serves to offset the original forward exchange transaction (with identical, reversed conditions so as to avoid exchange rate gains/losses), the other transaction (as a new transaction) enables the desired adjustment of the term while retaining the same amounts. The relationship of the swap to the original forward transaction is documented through the assignment of the individual transactions to a common finance project with an identical project number. This project number is stored in the administrative data. Whenever a part of the swap is to be changed, the system displays a warning message to refer to the relationship with the second swap component.

With this change in transaction data, you can use premature back-office processing or back order processing and a rollover to split a forward exchange transaction into separate transactions. With the liquidity effect, financial income and expenditure from rollovers can be generated on the old rate basis and included in the extended transaction as a premium. In this case also, the pairing of the swap components is done by means of the finance project.

If the flag New base is checked for the forex attributes, you can enter a current rate for those transactions that are using the function. If the field has the initial value, then the rate of the rolled over or prematurely processed original transaction is used as the forward rate for the

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netting transaction. You cannot change the rate for this rolled over/prematurely processed transaction that is based on the old rate.

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111

222


333

444

555


Trading functions

666

Valuation functions

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Accounting Functions: Transferring Data to Financial Accounting using the Posting Report

Application


General selections

Company codeTransactionProduct typeTransaction typePortfolioCurrencyFlow classificationUp to and incl. due date

Only post flow acc. to currency

Posting control

Posting dateDocument date

Test runOnly post operativelyPost all valuation areas

...

POSTING LOG


Prior to posting, the transaction flows and/or positions to be posted are selected. You can have the system carry out a test run in order to check the accuracy of the posting entries in the posting log. When you execute the posting, flows and related documents are transferred to Financial Accounting.



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111

222


333

444

555


Trading functions

Valuation Functions

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Reasons for Parallel Financial Reporting ...

Legal requirements

ComparabilityStandard accounting principles enable benchmark comparisons between companies

Within corporate groupsComparison of several subsidiaries from various countries

Group-externalComparison of different companies (in the same industry)

Consolidation

Globalization

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Parallel Position Management

Portfolio MgmtUS GAAP

Portfolio MgmtIFAS

Valuation

Rate Gains

.

.

Transaction Management

Loans Management

Securities Account Management

Portfolio mgmtlocal accounting principles

N – parallel valuation areas

Dis

trib

utor

The architecture of Parallel Position Management was created to manage positions simultaneously (in parallel) on the basis of several generally accepted accounting principles. This allows you to create various valuation areas.

Valuation and posting rules that are required to comply with the legal requirements of the relevant accounting rule can be defined in these valuation areas.

Transactions that are entered in Transaction Management of the various Treasury modules are then distributed to the various parallel valuation areas with a distributor from parallel position management.

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Parallel Position Management

n – parallel valuation areas

TransactionManagement

Distributor

.

.

.

Position mgmtUS GAAP

Position mgmt IAS

Position mgmt local accounting

principles ParallelValuation

Rate Gains

The architecture of Parallel Position Management was created to manage positions simultaneously (in parallel) on the basis of several generally accepted accounting principles. This allows you to create various valuation areas.

Valuation and posting rules that are required to comply with the legal requirements of the relevant accounting rule can be defined in these valuation areas.

Transactions that are entered in Transaction Management of the various Treasury modules are then distributed to the various parallel valuation areas with a distributor from parallel position management.

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General Valuation ClassEXAMPLES:

IFRS/US-GAAP: Held for Trading / HGB: UVIFRS/US-GAAP: Designated Trading / HGB: UV IFRS/US-GAAP: Designated Trading / HGB: AV IFRS/US-GAAP: Available for Sale / HGB: UV IFRS/US-GAAP: Available for Sale / HGB: AV IFRS/US-GAAP: Held to Maturity / HGB: UVIFRS/US-GAAP: Held to Maturity / HGB: AV IFRS/US-GAAP: Loans and Receivables / HGB: UVIFRS/US-GAAP: Loans and Receivables / HGB: AVIFRS/US-GAAP: Other Liabilities

Transaction entry

Administration

When entering a transaction, you can use the general valuation class to determine the investment horizon as short-term, medium-term, or long-term. Then, if you make the appropriate entry in Customizing, the general valuation class is assigned for each valuation area to the valuation class (fixed assets, current assets, trading, available for sale, held to maturity).

You enter the general valuation class when you enter a contract. It is an important link in the procedure chain for assigning transactions to the correct positions.

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Additional information about Customizing:Parallel Valuations: Organization

Company code

FI!

Tran

sact

ion

Man

ager

Valuation area

TR accounting code

Valuation class

As general settings, you define the organizational units required for position management. These units include the valuation areas, company codes and accounting codes.

One of these relevant entities relating to parallel position management is the Treasury Accounting Code (TAC).

You define various valuation areas in order to manage parallel valuation according to US GAAP or/and IAS, for example. For each valuation view (accounting rule) supported by the system, you have to set up a parallel valuation area in addition to the operative valuation area in Customizing.

You define the valuation classes for the parallel valuation areas in three steps: First you define the general valuation classes. These are independent of the valuation areas. Then you define the valuation classes for each valuation area. You then assign the general valuation class to the relevant valuation class for each valuation area. The advantage of this procedure is that you can use a common, general term (such as "trading" in the interface for entering the operative transaction. In the background, this term is then mapped to the specific valuation classes used for accounting purposes.

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Define valuation areas

001 Operative valuation area

002 IFRS

003 US-GAAP

Define accounting codes

TRXX TRxx

Examples

!

Additional Information About Customizing:Valuation Area and Accounting Code

For each valuation view (accounting rule) supported by the system, you have to set up a parallel valuation area in addition to the operative valuation area in Customizing.

Note: The parallel valuation area 001 has a special role.

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Additional Information About Customizing:Accounting Codes and Valuation Areas

CFxx

TR TR accountingaccounting codecodeValuationValuation areasareas

001 Operative

valuation area

002 IFRS

003 US-GAAP

Post to

General Ledger

Special Ledger

The relevant valuation areas are assigned to the TR accounting codes. In this way, the valuation areas are defined implicitly for each company code.

There are two alternatives for the update to FI: Posting to the general ledger

The business transactions are posted in separate account intervals for each valuation area. For this, you have to define a separate account interval in FI for each valuation area. Here the business transactions are updated for each valuation area.

Posting to a special ledger You need not set up parallel accounts in the general ledger if you set up a separate special ledger per valuation area, in which all business transactions for this valuation area are posted.

In the parallel valuation areas, you can explicitly exclude product categories from the update in position management.

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Valuation class

• General Valuation Class

• Valuation class

Tasks:

Balance SheetValuation areaGeneral

valuation class

Define and assign valuation classes

Valuation class

Additional information about Customizing:Parallel Valuations: Valuation Classes

IFRS/US-GAAP: Held for Trading / HGB: UVIFRS/US-GAAP: Designated Trading / HGB: UV IFRS/US-GAAP: Designated Trading / HGB: AV IFRS/US-GAAP: Available for Sale / HGB: UV IFRS/US-GAAP: Available for Sale / HGB: AV IFRS/US-GAAP: Held to Maturity / HGB: UVIFRS/US-GAAP: Held to Maturity / HGB: AV IFRS/US-GAAP: Loans and Receivables / HGB: UVIFRS/US-GAAP: Loans and Receivables / HGB: AVIFRS/US-GAAP: Other Liabilities

The valuation class has two characteristics: The general valuation class serves as an indicator for the trader as to where the position is to

be assigned. The balance sheet for the relevant parallel valuation area is structured based on the valuation

class. The valuation classes are dependent on the valuation area since different accounting rules allow different classifications. Examples of valuation classes include fixed assets, current assets (HGB-German Commercial Code), or also held-for-trading or available-for-sale (IAS).

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Additional information About Customizing: Position Management Procedure

Define valuation procedures(for example, rate valuation procedure for forwardexchange transactions)

Define position management procedure

Assign position management procedure

The position management procedure determines how positions are managed and valued in the parallel valuation areas.

In order to comply with the legal requirements of the relevant accounting rules, you have to first define the necessary procedures to be carried out as part of a key date valuation.

You then set the sequence of the key date valuation procedures within the position management procedures. In this way, you can combine the relevant procedures for amortizations, one-step price valuations, security price valuations and foreign currency valuations according to the relevant accounting rules.

You can assign position management procedures dependent on different factors (for example, valuation area, valuation class, product type).

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Additional Information About Customizing: Define Valuation Procedure

Examplerate valuation procedure for

FX spot rate on the market against spot rate in the transaction

Write-down rule: (Unrealized losses):- Write-down to market value

Or - Write-down to purchase valueor - No write-down

Write-up rule: Unrealized gains):- No write-up

Or - Write-up to market valueOr - Write-up to purchase value

Write-down rule The write-down rule decides how a negative difference between market and book value for a valuation step:is dealt with in a key date valuation.

No Write-Down: No flows are generated. Write Down to Market Value: A write down is generated for the difference between the book and market value.

Write Down to Purchase Value: If the market value lies below the purchase value plus the previous amortization, then a write down is only generated for the difference between both amounts.

Write-up rule The write-up rule decides how a positive difference between market and book value for a valuation step:is dealt with in a key date valuation.

No Write-Up: No flows are generated Write-up to market value:A write-up is generated for the difference between the market and book value.

Write Up to Purchase Value: If the market value lies below the purchase value plus the previous amortization, then a write down is only generated for the difference between both amounts.

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Additional Information About Customizing:Define Position Management Procedure

Position mgmt procedureNamePosition management category Foreign exchange transactions

4000Forward exchange transactions: Spot/spot

6

1000

Step 1

Step category Rate valuation for FX transaction

procedure Rate valuation: Spot/spot

Carry out for key date valuation

Step 2

Step category Swap/margin accrual

procedure


Step 3

Step category 8 Swap valuation

procedure


7

The sequence of the steps in a valuation is established in the definition of the position management procedure.

In the position management procedures, you define which valuation steps are performed in which order. For this, the previously defined valuation procedures are grouped into one position management procedure.

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Additional Information About Customizing:Assign Position Management Procedure

Assignment criteria:

Valuation area Accounting code

Product Category Product type

Valuation class Transaction type

ValuationArea

TR accounting

code

60A...

Assign position management procedure:

4000

Step 1

Step 2

...

Position mgmt procedure 4000

Balance Sheet

Valuationclass

Certain influencing factors are assigned to position management procedures: When assigning the position management procedure, you can use the criteria valuation area, accounting code, product category, product type, valuation class and transaction type, for example.

For all newly created positions, the position management procedure is initially derived from the data stored here. You can change this default value manually using the transaction Maintain Position Management procedures (TPM50).

To ensure that a position management procedure is found in all cases, you can define a default procedure (where all influencing factors have their initial value).

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Additional Information About Customizing: Update in Treasury Ledger

Update types

Derived business transactions

Account determination

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Additional Information About Customizing:Update Types - Terminology

DE = Derivatives

FX = Foreign Exchange

CML = Loans

MM = Money Market

SE = Securities

V = Valuation

VR = Valuation reset

DBT = Treasury ledger transactions (PG, PL, translations and reconciliation flows, valuation, etc.)

Update types aremanaged acrossmodules in a table.

The identification of the new update types has been taken from the old flow types:

Example: Update type FX1000+FX = Foreign exchange1000 = Flow type forex purchase+ = + sign

You create the update types in the IMG activity Define Update Types, specifying a short and long name for each one.

In the sample Customizing, update types are defined, assigned to usages and specified for the different usages. SAP recommends that you use the sample Customizing settings delivered with the system as the basis for making your own settings.

Update types are similar to flow types. They describe and classify flows. Update types are used comprehensively in the parallel valuation areas. The new term has been created because the existing flow type is not used and interpreted

uniformly. Objective: Uniform view of the flows

The update types are no longer dependent on the modules and have an implicit direction. This means, for example, that incoming and outgoing charges must be represented as two different update types.

The new update types consist of the definition itself and a language-dependent text. No further indicators are defined directly with the update types.

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Define update types

Assign update types to usages

Assign update types for valuations

Position management procedure

Additional Information About Customizing:Key Date Valuation - Update Types

For the individual usages, you must first define the required update types and then assign them. You assign update types for derived business transactions and valuations for each position management procedure. In account determination, the posting system is defined using the assignment of the posting logic to the update type. Using different update types therefore enables you to differentiate between the position management procedures.

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Additional Information About Customizing:Derived Business Transactions

Define update types

Assign update types to usages

Assign update types for derived business transactions

Based on the assigned position management procedure, derived business transactions are then calculated for each parallel valuation area. The derived flows include rate gains and rate loss flows. The determination can be done online or offline.

Online processing: For each position-changing business transaction, the derived business transactions are updated immediately.

Offline processing: The derived business transactions must be generated manually using a report (Transaction TPM27).

If the status control is set to Status Plan, the derived business transactions are held as plan records; these become actual records when they are “fixed”.

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Define account assignment references

Define account assignment reference determination

Additional Information About Customizing:Account Determination - Account Assignment Reference

The account assignment reference controls which G/L account in FI the positions are to be posted to.

Within the parallel valuation areas, the account assignment references no longer contain the (original) information as to which account is to be posted to; however, the account assignment reference can be used as a factor (besides position currency and valuation area) to determine the relevant account.

The account assignment references for the parallel valuation areas can be determined automatically. Here we distinguish between:

OTC financial transactions (Money Market/Foreign Exchange/Derivatives) Securities / listed derivatives Loans

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Acct. assig. ref. Name of account assignment reference... ...IAS_AFS_AKT IAS - Available for Sale - StocksIAS_AFS_AKT IAS - Available for Sale - BondsIAS_HTM_AKT IAS - Held to Maturity - StocksIAS_HTM_AKT IAS - Held to Maturity - BondsIAS_TRA_AKT IAS - Trading - StocksIAS_TRA_AKT IAS - Trading - Bonds... ...

AssignmentDerivation Rule (s)

Assignment:

Additional Information About Customizing: Account Assignment Reference

Assignment:

Manual

Within the parallel valuation areas, you initially define account assignment references without specifying a balance sheet account. In the context of account determination, you can assign the balance sheet accounts using a similar systematic to the one used for account assignment references. The account assignment references for the parallel valuation areas can be determined automatically. You can use derivation rules and/or assignments.

When you are using DERIVATION RULES, characteristics serve to control the account assignment references in the form of “If-then relationships”.

Example You should determine the account assignment reference in accordance with the

characteristics valuation area, valuation class and product category. If necessary, you can further restrict these assignments using conditions (for example, if you use the characteristic company code in a condition, you can restrict the validity area of an assignment to a specific company code).

ALLOCATIONS are used for relatively fixed assignment scenarios. You can define a value in the source field, which is then used during the

account assignment reference. You define the account assignment reference as the target field.

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You use a constant to explicitly assign the account assignment reference that is used for the target field AA_REF (account assignment reference in the parallel valuation area).

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Definition of account symbols

Acct symb. Account symbol text Posting category from acct symbol

1 Position (book value) Position posting (book value)

Definition of posting specifications

0001 Position to bank clearingDebit entry

Acct symbol 1

Credit entry

Acct symbol 3

Assigning update types to posting specifications - and/or valuation areas

UType UType Update type text

MM1100- Investment/Increase 0001 Position to bank clearing

Assignment ofG/L Accounts to account symbols

Acct symbol AcAsRef ValArea G/L acct

1 Balance 10001 113113

Additional Information About Customizing: Account Determination

First the account symbols are defined in abstract form. These account symbols are valid for all valuation areas. Since the account assignment references in the parallel valuation areas no longer contain the (original) information as to which account is to be posted to, you must also define an account symbol for the position.

All the required posting specifications are first defined abstractly and then assigned to the update types. This simplifies the process as it reduces the number of Customizing entries.

This assignment is valid for all valuation areas. If you wish to post business transactions in the individual valuation areas in a different way to these assignments, you can make different assignments of update types to posting specifications for the individual valuation areas.

Finally, you assign the G/L accounts to the defined account symbols. Here, the criteria valuation area, account assignment reference and/or currency can be used for controlling the G/L account postings.

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111

222


333

444

555


Trading functions

Valuation functions

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Position Management: Valuation

Key date valuation: The position is valued on a key date – the realtime datafeed can provide the required valuation rates. Key date valuation is carried out with transaction TPM1.

Realized profit/loss: For positions that are closed, the realized gain/loss is determined using the principle of single valuation of transactions. This is calculated by taking the difference between the forward rate based on the conclusion of the contract and theposted rate on the value date.Realized gains/losses are posted with the derived business transactions (TPM18).

You can perform the following foreign currency valuations:

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Market Risk Analyzer: Saving OTC Net Present Values

Mark-to-market

2

4

6

8

10

1M

2Y

4Y

6Y

8Y

10Y

EUR USD GBP

Save Valuation

Money marketForex

Derivatives

Net present values

Financial ?Accounting

In the Tools of the Market Risk Analyzer area, you can store net present value (NPV) figures (determined with the mark-to-market valuation) in the OTC NPV table.

You must calculate and save a net present value for the relevant key date before the valuation run for all positions for which you wish to carry out a mark-to-Market valuation. The key date valuation then access this net present value.

Transaction TPM60 performs the calculation and saving.

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Key Date Valuation

Posting control for updating to the parallel valuation areas

Key Date of ValuationValuation category

tototototo

TRXX001

Valuation parameters

Company Codevaluation areaProduct typeValuation classPortfolio

General Accrual/Deferral

Transaction

30.09/YYYY

toOTC Transaction

Various valuation categories enable end-of-quarter closings and year-end closings to be created

002

The key date valuation is carried out on the basis of the position management procedure that is determined for the relevant position. With the parallel valuation areas, you have three options for key date valuation.

Year-end valuation (without reset) This key date valuation without reset is typically used in the context of annual accounting. Key date valuation permanently changes the book value of the position. The book value after the key date valuation is the starting point for all subsequent calculations of rate gains, for example, as well as for future valuations.

Mid-Year Valuation Without Reset Mid-year valuation with reset

You can use this valuation category for monthly or quarterly accounts. The results of the valuation are reset on the same date as the key date valuation. The key date valuation with reset, therefore, does not change the position permanently, but only for the period between the valuation key date and the reset key date.

In the case of a valuation with reset, the reset automatically occurs and is posted in the same run as the valuation. The reset key date is one day after the valuation key date.

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Closing Operations: Key Date Valuation

The key date valuation can be done with or without reset. The valuation is controlled by the Valuation category.

The following valuation categories are available: Year-end valuation Mid-year valuation with reset Mid-year valuation without reset Manual valuation with reset Manual valuation without reset

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Closing Operations: Valuation Log

For key date valuation, all relevant valuation steps defined in the position management procedure are performed; for example, amortization, security and forex valuation.

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Position Management Procedure: Valuation Rules I

Determine the rate valuation procedure for theposition management procedure, for example:

A. Spot rate on the market against spot rate in the transaction

Write-down rule: (Unrealized losses):- Write-down to market value

Or - Write-down to purchase valueor - No write-down

Write-up rule: Unrealized gains):- No write-up

Or - Write-up to market valueOr - Write-up to purchase value

Write-down rule The write-down rule decides how a negative difference between market and book value for a valuation step:is dealt with in a key date valuation.

No Write-Down: No flows are generated Write Down to Market Value: A write down is generated for the difference between the book and market value.

Write Down to Purchase Value: If the market value lies below the purchase value plus the previous amortization, then a write down is only generated for the difference between both amounts.

Write-up rule The write-up rule decides how a positive difference between market and book value for a valuation step:is dealt with in a key date valuation.

No Write-Up: No flows are generated Write-up to market value:A write-up is generated for the difference between the market and book value.

Write Up to Purchase Value: If the market value lies below the purchase value plus the previous amortization, then a write down is only generated for the difference between both amounts.

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In the position management procedures, you define the basic rules for how positions are managed, that is, how positions are to be valued.

Position Management Procedure: Valuation Rules II

Define the position management procedure

Name of position management procedure, for example:FX spot rate on the market against the spot rate in the transaction

Determine the position management procedure, for example:Rate valuation for forward exchange transaction

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- Accounting code - Valuation area- Valuation class- Product category- Product type- Transaction type- Portfolio- Sec. acct group

Position Management Procedure: Valuation RulesIII

Position management procedures are assigned to certain influencing factors:

Position Management Procedure, for example:FX spot rate on the market against the spot rate in the transaction

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Payment Transaction Processing

House BankDEUBA

IDESIDES

FT dep. inv.� Statement from bank

... using clearing accounts

FT - Bal. sheet acct(Deuba)

House bank account(Deuba)

100M �100M

FT FT depdep. inv.. inv.

Bank clearing acct

� 100M 100M

If you conclude financial transactions with a business partner that is also one of the company's house banks, you do not usually make active payments.

Instead, the business partner posts the relevant postings to the bank account. The flows “preposted” by Transaction Manager to the bank clearing accounts are then cleared with the aid of the electronic account statement.

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1st Fixed-termdeposit - investment� 2nd Fixed-termdeposit - investment

...using a clearing account for payment requests

Fixed-term deposit -Balance sheet account (broker)

House bank -Current account (Deuba)

100M 150MPaymentOrder

Clearing account forpayment requests Bank clearing account

150M 150M

� 50M

100M�50M

150M

Payment?(Trigger PR run)

Bank statement

Payment

FT dep. inv.

IDESIDES

House BankDEUBA

BrokersBrokers

Payment Transaction Processing Using the Payment Program

If you conclude transactions with a partner for whom you do not have a house bank account, you can generate payment requests which are processed by a special payment program. This option applies to cases where the payment details are known, but where you do not want each transaction to result in a physical payment. This function also enables you to make joint payments for groups of transactions.

Examples of use of the extended payment program: Several transactions are concluded with a business partner that is not a house bank When a fixed-term deposit is posted, a payment request is generated simultaneously All transactions are managed in the payment request clearing account Payments can be grouped together/netted When payment is due, a payment run is triggered in Accounting and the payment amount is

transferred to the bank clearing account A payment medium is generated simultaneously and is passed on to the house bank When the bank statement is received a day later, the payment amount is posted to the bank

account.

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Processing Payment Transactions: Overview

Four alternatives:

1) G/L account posting - -

2) Posting to G/L accounts with payment request - x

3) Posting to customer accounts x -

4) Posting to customer accts with payment requests - x

FI pmnt program Pmnt program for PR

Use of the four alternatives - Examples: Transactions with the house bank are usually processed as pure G/L account postings. Transactions with a partner that is not a house bank, without using a customer account.

Payment using the payment program for payment requests. Payment requests are documents for generating payment media. They are usually generated automatically when you post flows that are due. The payments are then made individually or jointly using the payment program for payment requests (F111).

Transactions with a bank that is not a house bank, which you want to pay using the FI payment program and using a customer account.

Transactions with a partner that is not a house bank, using a customer account. Payments made with the payment program for payment requests in order to use the netting option.

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1) Posting to G/L Accounts

BusinessPartner

Bank House Bank


CurrencyP Paymentprocess

House?bank

AccountID

EUR+ DB GIRUN

EUR- DB GIRUN

...

...

...

TransactionTransaction -- PaymentPayment DetailsDetailsPaymentRequest

In the transaction, you enter the information required for processing payments on the Payment details tab.

In the case of a pure G/L account posting, you must enter the following: R: Direction of the flow (inflow, outflow) Curr.: Currency of the flow House bank: House bank key (ID) Account ID: Account key at the house bank

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2) + 4) Automatic Payment: Payment Program for PR

BusinessPartner

Bank House Bank

CurrencyD Payer/ee Partn. bankHouseBank

Account ID


EUR+ B1DB GIRUN

EUR- DB GIRUN

...

...

... B1

Pmnt. Methods

Pmnt. request

ESUX

ESUX

Indiv.pmnt

X

...

...

...

Recipient

Recipient

Business partner Business partner –– Payment detailsPayment details

To use the payment program for payment requests, you must enter the following data: D: Direction of the flow (inflow, outflow) Curr.: Currency of the flow House bank: House bank key (ID) Account ID: Account key at the house bank Payment transaction: Blank = G/L account posting, or X = customer account posting Payer/payee: Person receiving the payment (usually the business partner) Partner bank: Partner bank ID (encodes the bank details – bank and account –

of the payee) Payment request: Blank = Do not generate a payment request

X = Generate a payment request Individual payment: Blank = This payment flow may be settled together with other

flows, for example for netting purposes Payment methods: List of payment methods used to process payments in the

payment run If you post payments using the payment program for payment requests, you can define in Customizing which bank account should be used - the bank account specified in the payment details for the CFM transaction, or the bank account found using account determination for the payment program.

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Currentparameters

Paymentadvice

Bank transfer

Eurocheck

Check

Proposal Dataset

Print Dataset

Paymentsummary

IDOC

Proposal run

Payment run

Editproposal

Paymentcontrol

Documents

PaymentRequestMaster

Print program

The payment program for payment requests has the following functions: Processes payment requests (PR): Automatic selection of requests Generation of payment documents (customer accounts / vendor accounts / G/L accounts):

Transfer posting to the relevant bank (sub-)accounts for each house bank and currency Generation of payment data Generation of payment lists and logs "Print programs" write this payment data to payment media, such as checks.

Usually, you carry out a payment proposal run first. The run creates a proposal data set, which you can edit before the actual run.

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Bank transferEuro-check

Check

Editproposal

Proposal run

Payment run

Print program

Currentparameters

Paymentcontrol

Documents

Pmnt. requestMaster

Proposal Dataset

Print Dataset

IDOCPaymentsummary

Paymentadvice


One of the options is to make postings to customer accounts and use the FI payment program. This option is used in the loans area, for example. Together with the account determination function in the Treasury posting interface, you can control whether payment activities involve a flow of funds. You can post transactions directly to the payer/ee to generate relevant payment documents using the payment program.

The payment program has the following Functions: Automatic selection of the items to paid, taking account of exceptions (such as blocked items) Generation of payment documents (debit/credit) Generation of payment data Generation of payment lists and logs Print programs write this payment data to payment media, such as checks.

Usually, you carry out a payment proposal run first. The run creates a proposal data set, which you can edit before the actual run.

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Payment Program for Payment Requests

Prerequisites- The Standard Payment Program also uses parts of Customizing.

- You must make additional settings.

Use- The payment program settles payment requests (PR)

- It can be used in conjunction with postings to:?

- Customer accounts

- Vendor accounts

- G/L accounts

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Netting

Especially in the case of transactions with business partners that are not house banks (that is, they require an exchange of payments), situations can arise where several transactions are to be settled at once.

Example: Fixed-term deposit investment in EUR and fixed-term deposit borrowing in EUR

You balance the open payment amounts and only pay or receive the net amounts.

Advantage: Saving transaction costs or bank charges

For this purpose, transactions can be summarized in “Netting transactions”.

Types of netting:Within a transaction

Cross-transaction

All netting transactions are explicit arrangements between the business partners in order to simplify the handling of payments.

Transactions are blocked against changes to any relevant fields (particularly due dates, amounts, house bank and payment data)

You can net transactions in the money market, foreign exchange, derivatives and securities areas, or across several of these areas.

As a result of the integration of securities into Treasury Transaction Management, you can now create netting transactions with securities. These transactions can be netted with each other or in combination with other Treasury transactions from the money market, forex or derivatives areas.

Payment requests have a special “Grouping term” field. You can use this field to control which payment requests are to be kept separate.

All payment flows and/or their payment requests belonging to the same netting transaction are assigned the same unique grouping term and are, therefore, separated from other payment requests. These are not to be combined with other payment requests.

Transactions linked by netting are referenced to each other by way of object links (reference key: KMP).

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Business Partner - Payment Details


Currency ...... Paymentrequest

Individualpayment

Samedirection

Pmntmeth

Determ.group.

Determinegrouping (text)

EUR ...... X X X EU

XUSD ......

Business Partner

EU

All transactions canbe groupedAll transactions canbe grouped

Using the Payment request indicator, you control whether transactions can be settled together.

The Determine grouping field controls which restrictions are to apply to the grouping of transactions for example:

..within Treasury ..within a TR application ..within a product type ..only flows of a financial transaction

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Netting - Process

Triggering a netting transactionAll netting transactions are explicit arrangements between the business partners in order to simplify the handling of payments.

The transaction confirmation (correspondence) containsa reference to the other related transactions.

Results after netting transaction has been createdChanges to the relevant transaction fields are blocked (particularly due date, amounts, house bank data and payment data).

The transactions and relevant payment requests are assigned a common grouping reference.

Confirmation

Payment requests have a special “Grouping term” field. You can use this field to control which payment requests are to be kept separate.

All the payment flows and payment requests linked to the same netting unit are given the same unique grouping term which separates them from other payment requests. These are not to be combined with other payment requests.

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Netting and Payment Requests

ContractContract

Administrat.Data

CoCdPTypeTType

000151a100

SAP AG TransactionActivityActiv.Cat. contract

47111Basic Data

CoCdPTypeTType

000151a100

SAP AG TransactionActivityActiv.Cat. contract

47111

SettlementSettlement

Administrat.Data

CoCdPTypeTType

000151a100

SAP AG TransactionActivityActiv.Cat. Settlmt

47111Basic Data

CoCdPTypeTType

000151a100

SAP AG TransactionActivityActiv.Cat. Settlmt

47111

NettingNetting

Create Netting Item: Data

CategoryNo.Partn

KMP001DB

Netting

Deutsche BankValue date01.01.97

PostingPosting

CFM: Post Flows

Test clientWalldorf

CFM: PostingsLog

ReceivReceiv--ablesables

TMTM TMTM

NettingNetting AccountsAccountsFIFI PmntPmnt

requestrequestFIFI

Netting is a special form of joint payment of transactions. While you can always settle all transactions at once, netting only applies to an explicit subset of these transactions.

The decision to create a netting transaction is usually made shortly before the payment flows are due, usually on the same day the transactions are posted. Only then do you know which transactions (for example, forward exchange and spot exchange transactions) are suitable for net payment.

You can group flows in netting transactions if they share the following parameters: Same company code Same payer Same payment date Same payment methods Same settings for other payment program criteria

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Unit 4 Transaction Manager: Derivatives

Control of interest rate risks using derivatives-FRA, Interest rate swap, Cap/Floor

111

222

Introduction to derivative financial instruments

333

444 Information System

Control of exchange rate risks using OTC currency options- OTC currency options- Currency barrier options- Compound options

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Derivatives: Unit Objectives


Name the various instruments for hedging against interest rate and exchange rate risksand

Be able to map these instruments in Transaction Manager

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Selection of the Relevant Product Types

Cap / FloorFRASwaps- Interest rate- (Int. rate) Currency OTC options - Currencies

- Interest rates - Securities- SwaptionFuturesInterest, Bond, IndexRepoListen options

Product Types


Hedginginstruments

Investment/Borrowinginstruments

Further extract of OTC options:

Such as for FX standard options:-Barrier-Double-barrier-Compound-Average rate-Basket-Correlation-Forward volatility agreement

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Exchange rate risk Interest rate risk

• Forward exchangetransactions

• Cross-currency swaps

• OTC currency options

• FRAs• Forward rate agreements• Interest rate futures• Interest Rate Swap

• OTC interest rate options• Cap / Floor• Swaption• IRG

Important Hedging Instruments

Product Matrix - Derivative Financial Instruments

The hedging instruments you choose will determine what you want to hedge against (elimination of the currency risk, interest rate risk, or price risk).

Derivative financial instruments can roughly be divided into exchange transactions (upper half) and optional transactions (lower half) on the currency and interest side. The latter can also be further sub-divided into listed and OTC (Over The Counter) options.

The building block concept applies here - this means that an instrument can be formed from another one or combined with others to form a new instrument.

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Control of interest rate risks using derivativesFRA, Interest rate swap, Cap/Floor

111

222


333

Controlling exchange rate risks Using OTC currency options- OTC currency options- Currency barrier options- Compound options


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Derivatives: 2 – Controlling Exchange Rate Risks Using OTC Currency Options

Typical transaction and position management processes:? Transaction entry and back-office processing

OTC currency options

Currency barrier options

Compound options

Using an option provides the flexibility to both reduce the risk of loss and at the same time to profit from favorable market trends. Options therefore represent a type of insurance. A premium is paid or collected for this.

The use of currency options is recommended when there are strong exchange rate fluctuations or when future expectations are very uncertain.

OTC currency options can be assigned to both foreign exchange trading and to the area of derivative financial instruments, and can be created in both areas. The input logic for derivatives follows that of other option types so that you can branch from the option data to the separate input screen of the underlying transaction (in the case of currency options, the spot transaction).

OTC currency options are asymmetric hedging instruments since rights and obligations are split unevenly between purchaser and seller. In contrast to listed instruments, the OTC (over-the-counter) options with user-defined structures are traded directly between business partners.

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OTC Currency Options

t0 t0+2 ti ti+2

At t 0 the transaction is concluded(creation and settlement)

At t 0+2(Value date) the premium is paid(posting of the premium flow)

At t i: - Physical exercise and exercise settlement(Transfer posting of the premium flow)

- The spot transaction (underlying transaction) is generated at the same time. This must be settled according to the back-office processing category.

At t i+2 (Value date) the posting of the spot transaction occurs.

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Creating an OTC Currency Option

Cross-Rate Calculator Open Price Calculator Company code IDES AG TransactionProduct cat. OTC currency options Activity Contract

Trans. type Purchase...Option

Exercise period Exercise Settlmnt.Currency pairUnderlyingCrcy Call Put Strike Value date

PremiumQuot. in points Procentage quot

PointsPayment date Crcy Amnt

Contract date ......

++2USD EURUSD 5.000.000,00

European Physical exercise

100076A100

1

EUR 300.000,00

09.29.YYYY

1,82 Inverse

Conclusion

When you create a currency option, you record the intention to buy or sell a currency option. On the initial screen, you enter the transaction type (purchase/sale) and the business partner for the product type, currency option.

On the subsequent screen, you enter the term, the exercise and purchase premium for the option, in addition to the transaction data for the underlying spot exchange transaction.

From here, you can branch to the entry screens of general transaction management. Tab strips help you navigate between the screens (Structure, Administration, Other flows, Payment details, Cash flow, Memos, Status).

You can branch to the option price calculator to calculate the option premium.

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OTC OTC CurrencyCurrency OptionOption

UnderlyingProduct type

Trans. type

Receivable

60A

101

1800002

Forex - external

Spot transaction

USD-CALL

Strike

Pmnt. amount

USD

Underlying

1,82

3.640.000 EUR

2.000.000

When you define the product types in Transaction Manager, you can include the related underlying transactions. In this way, a spot exchange transaction is entered as an underlying transaction in currency options, for example. In the case of physical exercise, the underlying transactions are normally generated automatically. This separation into two transactions allows you to specify different payment methods for the underlying transaction and the option.

Option type: PUT/CALL The internal view is focused not on the traded amount but rather on the risk currency. If you conclude an option - foreign currency against local currency, the put/call type is always determined dependent on the foreign currency. In the case of cross transactions (up to Release 4.5A), the type is determined dependent on the lead currency only. From Release 4.5B the following change is effective regarding cross transactions: If the local currency is a participating currency in the European Monetary Union, then the option type for cross transactions including a participating currency is not dependent on the lead currency but rather on the non-participating currency.

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Curr. pair ...

Premium Premium CalculationCalculation forfor Standard Standard OptionsOptionsMarket data Swap/forward Sensitivities

Market dataSpotSwapForward

1,70900 / 1,711000,11212- / 0,10644-1,59688 / 1,60456

Int. 1st currencyInt. 2nd currencyVolatility

6,4152 / 6,45743,8005 / 3,899710,0000 / 10,0000

Premiums

Put 1Put 2Put 3

1,700000/

0,06347 / 0,06527/

Basic Data European/

0,06366 / 0,06545/

American

Call 1Call 2Call 3

1,700000/

0,04502 / 0,04650/

/0,04878 / 0,05020

/

ListPremiums Impliedvolatility

Currency Option: Option Price Calculator

While entering the option data, traders can use the direct link to the option price calculator to calculate the accounting par value of the option premium. Besides supplying the premium, this also provides you with the critical sensitivities of the options. You can enter the option premium on the entry screen as a percentage of the basis transaction (in percentage points) or as a fixed amount. The premium is calculated on the basis of the spot price, strike price, term, the risk-free interest rates in both currencies, the option category, and the volatility of the exchange rate.

By choosing Market Data, load the current market data: spot rates, swap rates, interest rates for currency 1 and 2 as well as exchange rate volatility.

You can enter different strike prices for the underlying currency transaction for 3 put and call options.

You can determine premiums for European and American standard options and also for European currency barrier options (exotic options).

If you position the cursor on a premium and choose Sensitivities, the option sensitivities (delta, gamma, and so on) are calculated. You can have a list displayed with all key figures for all the calculated options.

By specifying an option premium, you can determine the underlying volatility (implied volatility) by calculating backwards using the option price model.

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Cash settlement

Physical exercise

OTC OTC CurrencyCurrency OptionOption

Exercise

Exercise Type

At the time of conclusion of the transaction, the cash flow consists only of the premium. Both European and American option forms can be represented in the SAP system. As settlement, you can have either physical exercise or cash settlement.

When the option is exercised, in the case of a cash settlement, the settlement amount is based on the difference between the strike price and the market price. In the case of physical exercise, the spot transaction is generated automatically from the underlying transaction (option).

If the option is worthless, it is deleted. As with the exercise, it may be necessary - depending on the back-office processing category - for this expiration to be settled by the back-office processing area again.

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Barrier options are represented as product types with a specificoption category.

The transactions are processed using special processing categories that take into account activities such as knock-in/knock-out.

As with options, the underlying transaction is assigned.

The barrier must also be specified.

Currency Barrier Options

Currency barrier options are different from regular OTC options in that they have a defined upper and lower limit (instrike or outstrike). If the market exceeds or falls below these limits, the option either becomes effective or expires - depending on the option type. This barrier is specified in the financial transaction data.

In Transaction Manager, you can see the basic categories traded on the market: These are: Calls: Down&Out option expires below the outstrike

Up&Out option expires above the outstrike Down&In Option is activated at or below the instrike Up&In Option is activated at or above the instrike

Puts: Down&Out Option expires at or below the outstrike Up&Out Option expires at or above the outstrike Down&In Option is activated at or below the instrike Up&In Option is activated at or above the instrike

You can also enter double barrier options. These either come into existence or expire if two barriers are exceeded or fallen below.

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Currency Barrier Option

Structure ...Underlying ... ... ... ...

100076F100

1

Deuba

Currency barrier 2.10 USD/EUR

ContinueCancel

CurrCurr. . barrierbarrier optionoption Up&InUp&In

Concluding

Barrier Option price calculatorCompany Code IDES AG TransactionProduct cat. Currency barrier option Up. Activity ContractTransaction type Purchase

Partner ...

Exercise

Underlying

Premium

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CurrencyCurrency barrierbarrier optionoption

BarrierBarrier exceededexceeded/fallen /fallen shortshort ofof

Knock-inKnock-out

Exercise Expiration

Knock-In/Knock-Out Activities

The options are activated either for exercise or expiration by means of the knock-in/knock-out activities. Using the function Expiration/Barrier check, you can have the instrikes and outstrikes checked by currency barrier options. After comparing the transaction data with the relevant rates, the SAP system proposes a transaction (knock-in, knock-out, or expiration) to process the transaction further.

To determine market-driven option prices, you can use the option price calculator. This takes the agreed barriers into account and also any rebates that are to be paid upon expiration of the option.

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Control of interest rate risks via derivativesFRA, Interest rate swap, Cap/Floor

111

222


333

Controlling exchange rate risks Using OTC currency options- OTC currency options- Currency barrier options- Compound options


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Derivatives: 3 – Controlling Interest Rate Risks Using Derivatives

Typical transaction and position management processes: Transaction entry and back-office processing

FRA

Interest rate swap

CAP/FLOOR

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Forward Rate Agreement

Agreement between two parties (a buyer and a seller)

- On a certain interest rate (FRA rate)

- For a deposit or a loan

- For a period in the future

Target: Fixing of an interest rate today to apply to a period

in the future

Term: 3 - 24 months

Quotation: 3x9; 6x12; 12x24; (lead time: total term)

Reference interest rate: for example; 3-month LIBOR, 6-month LIBOR

Interest rate comparison (fixed rate against reference interest rate) after lead time and

Calculation of settlement amount to be paid

Interest netting in the form of cash settlement, no exchange of nominal

amounts

Background: The buyer of a FRA anticipates higher interest rates for the reference period, while the seller anticipates lower interest rates.

Example: FRA 3x9; Nominal amount 10M EUR FRA rate 5% (=> in 3 months for 6 months) Reference interest rate LIBOR 6 months Interest rate comparison in 3 months, Hedging period 6 months

6M LIBOR in 3 months = 6% => Settlement payment to the purchaser = Interest rate payment x Nom. amount x hedging period in days 360 x Discount factor

If the LIBOR rate was lower than the FRA rate, the purchaser would have to make the settlement payment.

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FRA - Forward Rate Agreement

At t0 the transaction is concluded(Input and settlement)

On fixing day = Start of hedging period -2 days (from the definition of the reference interest rate)(Carry out the interest rate adjustment)

Start of hedging period and payment of the discounted settlementamount (Posting of the flows generated under 3)

End of hedging period

t0 t8 - 2 t8 t11

1 2 3 4

A company will receive EUR 10M in 8 months and it wishes to invest this as 3-month money. The company expects falling interest rates. Therefore, at time t0 the company agrees an FRA with the bank for EUR 10M. The FRA will start in 8 months (t8) for a term of 3 months until (t11). The agreed interest rate is 5%; 8 months later (Fixing day = t8 minus 2 days):

The reference interest rate (3 months LIBOR) is 4.5%. Therefore, the bank is obliged to pay the company a settlement of EUR 10M x 0.5% x 90/360 = EUR 12,500 (this amount is still to be discounted). If the interest rate on the fixing day had been higher than the agreed interest rate of 5%, the company would have had to pay a relevant settlement as the FRA is a symmetrical financial instrument.

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Creating an FRA

Structure ...... ... ... ... ...

10.07.YYYY++8++11

10.000.000,00 EUR5,0LIB_3_EURAct/3602-

10.05.YYYY

63A200

11000Company code IDES AG Financial transaction

Product type FRA Activity ContractTransaction type Sale

...Term

Start of lead timeStart of Hedge PeriodEnd of Hedge Period Inclusive No. int. days

Interest structureBase amountInterest RateInterest StructureReference interest rateFixing

Business calendar ...Conclusion

Contract date ...

Forward rate agreements are financial instruments with which purchasers and sellers agree today on a fixed interest rate for a future time period. Amounts, currencies and terms can be determined by the parties to the contract; the interest rate reflects the forward interest rate curve.

The FRA is based on a fictitious money market transaction in which the capital amount is merely used for calculation purposes. A '8 x 11' FRA has a contract period of three months and the term starts in eight months. At this point, the contract is also settled and paid out. The buyer of a FRA is looking for protection against rising interest rates, whereas the seller wants to hedge against falling interest rates. The entry in the SAP system is user-defined and is based on the trading conventions shown.

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A swap is an exchange of cash flows over a fixed periodof time.

The cash flows are defined when the swap is concluded, but their absolute value may depend on events in the future (for example, interest payments at variable interest rates which are dependent on future reference interest rates).

Depending on the type of cash flows to be exchanged, we differentiate between:

- Interest rate swaps and

- Cross-currency interest rate swaps ...

Possible variations for exchange of interest payments:PAYER: Incoming interest payments fixed, outgoing variableRECEIVER: Incoming interest payments fixed, outgoing variableBASIS: variable vs variable interest paymentsFIX TO FIX: fixed vs fixed interest payments

Swaps

Background: Swaps offer comparative cost advantages; these are achieved by two partners on the basis of their different positions in different financial market segments and could not be achieved individually.

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1 2 3 4 5 6 7

1) Conclusion of the SWAPs and 1st interest rate fixing(Entry and settlement of the transaction as well as the first interestrate adjustment)

2) Interest rate fixing for the second period of the variable interest rate (6 months) (Adjust interest rate -> Generate interest flow)

3) Interest payment for variable side/start of the second period(Posting of interest flow from 1 )

4) Interest rate fixing for the third period

5) Interest payment for variable and fixed side/start of the third period

6) Interest rate fixing for the fourth period

7) Interest payment for variable side/start of the fourth period

Interest Rate Swap - Interest Rate Fixing Example -Interest Payment

A company finances an existing investment with a fixed rate loan of 6.5%. The treasurer of the company expects falling interest rates and, therefore, agrees an interest rate swap with a bank. The company receives an annual fixed rate of 7.25% and pays a variable rate of 6 M LIBOR. The company incurs the following interest costs:

Interest expense of 6.5% and 6 M LIBOR Interest revenue from Swap of 7.25%

equals an interest expense of 6 M LIBOR - 0.75%

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You input the transaction data for the partner, transaction conclusion, term and the actual trading object (amount, currency, interest structure, etc.).

You can also branch to other entry screens to enter detailed information. There are conditions overviews available for the incoming and outgoing sides and also the detailed information in each case. You can change the nominal amounts and also specify the interest rate adjustment conditions.

In the Interest rate adjustment detail view, you can set the frequency with which the variable interest is to be calculated and on what day the value of the underlying reference interest rate is to be taken. An interest rate adjustment can be carried out at the start of the period, at regular intervals, or at specific times.

For automatic interest rate adjustment, choose Back Office→ Variable Interest Calculation → Interest rate adjustment →Automatic Processing →Create.

You can access the NPV calculator for Swaps by choosing Extras - NPV calculation. There is a notice function for premature settlement of a swap or a CAP/Floor.

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...

...

62A 300

1 1000

10.15.YYYY 10.15.YY+5

10M 10.15.YYYY++12 4,6

360/360

EUR

12

10M 10.15.YYYY ++6

Lib_6_EUR Act/360

6

10.13.YYYY

Int. Interest Rate Adjustment Int. InterestRate Adjustment

Company code IDESAG Transaction Product type Interestrate swap(IRS) Activity

Contract Transaction type Payer

Term BusinesscalendarStart Calendar 1 End Inclusive

Calendar 2Outgoing interest IncominginterestNominal amnt. Nominalamnt.Eff . from Eff. from1st due date Freq.month 1st duedate Freq.monthFix.rate Fix.rateVar. interest Var.interestInt.calc.method Int.calc.method

Contract Contract Date

Creating Interest Rate Swap

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You can choose between standard update methods (rhythmic, unadjusted, adjusted) and special update methods. Examples Update Method Calculation Date Due Date Unadjusted relative to due date before shifting regular Adjusted relative to due date after shifting regular Regular regular regular Unadjusted (interest period) regular relative to calculation date before shifting Adjusted (interest period) regular relative to calculation date after shifting

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Conditions in Detail: Interest

Update Rule Standard Special Frequency Days +/ -

Due Date Due date Month- endWorking Day

Unadjusted

NextworkingdayDD.MM.YY

12 Months1 -

Example: Interest conditions

CalendarCalendarCalendarCalendar

0GB

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As the table shows, for the “Adjusted” and “Unadjusted” methods, the calculation date is determined relative to the due date. For all other update methods with the supplement “Adjusted” or “Unadjusted”, the due date is determined relative to the calculation date. Contrast this with the “Unadjusted (interest period)” and “Adjusted (interest period)” above.

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Cap / Floor

CAPs/Floors are a series of interest options that you can fit to theperiods/term of the transaction that you want to hedge.

Agreement between the seller and buyer of the Cap. The seller agrees, in the case of a rise in the reference interest rate above the agreed fixed interest rate (Strike), to pay the difference in the interest rates to the holder of the Cap . If the agreed interest rate is fallen short of, no settlement payment is made.

Floor: The purchaser receives a settlement payment only if the agreed interest rate lower limit is not reached.

Background: Both are examples of a type of interest insurance. The purchaser of the Cap wants to hedge against rising interest rates. He agrees an interest rate upper limit for which he pays an “insurance premium”. The purchaser of a Floor wants to have a minimum interest rate and agrees an interest rate lower limit for protection against falling interest rates.

Caps or floors are a series of interest rate options that are exercised when a particular interest rate level is exceeded or is not reached. The exercise of the option right is regulated in such a way that the purchaser's declaration of intent is understood to be given automatically as soon as the favorable conditions apply.

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1 2 3 4 5 6 7 8 9

1) Conclusion of the transaction (Entry and settlement)

2) Payment of the premium (Posting of the premium flow)

3) Fixing day for the first hedging period (Carry out interest rate adjustment)

4) Start of first hedging period

5) Fixing day for second hedging period

6) End of first/start of second hedging period - possibly first compensation payment

7) Fixing day for third hedging period

8) End of second/start of third hedging period; possibly second settlement payment

9) End of last hedging period; possible settlement payment

Cap

A company has a variable loan liability of EUR 10M and has to pay interest at the LIBOR 6 month rate. The company expects that interest rates will stay roughly the same but does not rule out a rise. Therefore, it purchases a Cap.

Term: 07.01.YY until 06.30.YY+2 Interest rate upper limit: 6,125 % Nominal amount: EUR 10 million Premium: 0.85 % = 85,000 UNI

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Company code IDES AG Financial transactionProduct type CAP Activity ContractTransaction type Purchase

Term Business calendar ...StartEnd Inclusive

StrikeUpper limit

Interest PremiumBase amount AmountEffective from PercentageFirst due date Freq. monReference interest rate Pmnt dateInterest calc. method Eff. from

Interest Interest rate adj Option premium

ContractContract date

Creating a Cap/Floor

61A100

11000

10.15.YYYY++62

4

++2++6LIB_6_EURAct/360

15M EUR

6

200.000,00 EUR

10.15.YYYY10.15.YYYY

10.13.YYYY

...

You input a contract for purchasing or selling a Cap or Floor in the usual way. The important point here is the interest-related data such as interest rate upper limit/lower limit, reference interest rate, interest calculation method, frequency of interest rate adjustment, etc.

A detail view is available: Interest, interest rate adjustment, and option premium. In the Interest rate adjustment detail view, you can set the frequency with which the variable interest is to be calculated and on what day the value of the underlying reference interest rate is to be taken. An interest rate adjustment can be carried out at the start of the period, at regular intervals, or at specific times.

When you create the CAP/Floor, the system will propose a single premium as default. In the detail view: Option premium, you can generate several premium payments by setting a frequency.

By choosing Reverse, you can reverse activities. There is a notice function for premature settlement of a swap or a Cap or Floor.

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Int.

7,0

6,5

6,0

5,5

5,0

4,5

Interest rate upper limit

Interest Rate Scenario: LIBOR with CAP

By purchasing a Cap, the purchaser is not relieved of having to pay the complete variable interest for the loan. However, the seller of the Cap is obliged to pay to the purchaser an amount equal to the excess of the variable interest rate over the agreed upper limit.

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Int. fx dte Weekdat Ref.int.rate Status Interest Rate Start

CREATE INTEREST RATE ADJUSTMENT

Interest Rate Adjustment Overview

Interest Rate Adjustment Detail View

Int. fx dte

Ref.int.rate

Int. rate

Valid From

Status

TriggerManual adjustment

Automatic adjustment

The amount of the interest payments that can result from derivative interest rate transactions is usually determined by a variable Index (reference interest rate). Two examples are the reference interest rates LIBOR_6_months and LIBOR_12_months. Today, these might have the values 4.75 percent and 5.23 percent. Future values are not known, however. An example of a derivative financial instrument is a plain vanilla swap with variable and fixed interest rates: Libor_6 in return for 5.5%, term 20 years with semiannual interest payments.

In the derivative financial instruments application, when you create a swap, you can create flows for the fixed interest side and the variable side of the contract. These flows correspond to the term. You can determine the payment amounts on the fixed interest side when you create the swap by using finance-mathematical rules. The future amounts on the variable side are, by definition, unknown since the future reference interest rate percentage is unknown when the swap is created. For this reason, the activity “interest rate adjustment” is necessary. This changes a plan interest rate (that is, a rate where the payment amount is unknown) into an actual interest rate (payment amount is known). This activity occurs at “interest rate fixing”.

The interest rate adjustment activity is usually run daily in a batch process. The function determines the plan interest rates that are to be converted to actual interest rates on a specific day (using the fixing date that is stored at the rate level). The function then determines the interest values per interest rate reference, calculates the amounts and writes the actual interest rates to the database. Following the interest rate adjustment, the plan interest rate is no longer

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available in the transaction. The result of the interest rate adjustment function is an interest rate fixing of the plan rate and generation of the actual interest rate.

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Control of interest rate risks using derivativesFRA, Interest rate swap, Cap/Floor

Information systems

111

222


333

444

Control of exchange rate risks using OTC currency options- OTC currency options- Currency barrier options- Compound options

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Special Topics 1: Information System (Extract)

Structure of information system

Journal: Money Market

Journal: Money Market, Forex, Derivatives, Securities

Payment schedule

Position list

Interest rate adjustment schedule

Facilities: Reporting

Alert Monitor

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Overview of the Information System

Reports deliveredby SAP

User-definedreports

Cumulative values Non-cumulative values

In addition to using the reports delivered by SAP, you can define your own evaluations in the Information System.

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Structure of the Information System: Example -Journal

... Accounting

Treasury and Risk Management

Transaction Manager

Money market trading

Information System

Transaction

Information System Transaction Overview

Reports

strategicoperative

Transaction

Transaction Overview

Journal: Money Market, Forex, Derivatives,Securities


Area-specific journal

Cross-area journal

For an overview of all Transaction Manager reports, see Reports. You can find the cross-application reports under the menu option Reports -> Strategic. These include reports from Cash and Liquidity Management for analyzing liquidity, reports from the Limit Management and Risk Analysis areas for controlling risk, and cross-application reports for analyzing your positions and revenue.

For detailed analyses for supporting work processes in day-to-day business, see the menu option Reports -> Operative.

Information about area-specific reporting is aggregated in the cross-application reporting section in the Transaction Manager Information System.

The reporting tree displays a complete directory of all reports that are defined in Treasury and Risk Management and that can be assigned to users. Just as with transactions, you can assign reports to specific users (role-specific).

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Overview list of money market transactions

Information about

Company Code 1000 IDES AG Entered/changed on09.06.YYYYProduct Type 51A Fixed-term deposit EXTERNAL Transaction Type 100 Investment

Buchungskreis 1000 IDES AG Erf./Änd.datum 06.09.JJJJProduktart 52A Callgeld EXTERN Geschäftsart 100 Anlage

Transaction Counterparty portfolio Finance Project Trader OutConf. IncomConf. ContDate Chgd/Entd onActivity Cat. Status Crcy Amount StartTerm StartRoll. EndTerm Int. rate Valid since Chgd/Entrd

1 1000 Deutsche Bank 1 required 1 required 09.06.YYYY 09.06.YYYYContract Active EUR 100.000,00 09.06.YYYY 11.06.YYYY 2.5 09.06.YYYY BAUERT

Transaction Counterparty portfolio Finance Project Trader OutConf. IncomConf. ContDate Chgd/Entd onActivity Cat. Status Crcy Amount StartTerm StartRoll. Int. rate Valid since Chgd/Entrd

3 1000 Deutsche Bank 1 required 1 required 09.06.YYYY 09.06.YYYYContract Active EUR 100.000,00 09.06.YYYY 2.6 09.06.YYYY BAUERT

The Money Market journal enables you to call up an overview of the money market transactions stored in the system using flexible selection criteria. For each selection criteria you can define selection options (single values or interval, incl./excl.).

This enables you to use the journal to select transactions, for example, that were concluded with certain traders or with certain business partners.

Using Journal: Money Market, Forex, Derivatives, Securities, you can call up an overview list of the transactions saved in the system according to flexible selection criteria.

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Payment schedule

AreaArea--specific payment schedulespecific payment schedule CrossCross--area payment schedulearea payment schedule

Payment schedule: Money Market,

Company CodePayment date, payment amount, payment currencyTransaction, nameProduct type, transaction typePosting status, posting releaseBank key of house bank, bank account of house bankBank key of business partner bank, business partner bank account...

Payment schedule: Money Market, Forex, Derivatives, Securities

You can use the payment schedule to call up incoming and outgoing payments within a user-defined time period.

Considerable enhancements have been made to the payment schedule functions. You can output lists flexibly using the SAP List Viewer.

The following options are available: Define and save your own layouts Sort using any fields Further filter using user-defined values Create control totals

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Money Market: Position List

Link to the SAP List Viewer

BuKr Geschäft Ptyp Gtyp Part Gart Partner Gwähr Betrag Zinssatz LfzBeginn LfzEnde ...

1000 1 510 100 51A 100 Deuba UNI 100.000,00 2.5 06.09.JJJJ 06.11.JJJJ

1000 3 520 100 52A 100 Deuba UNI 100.000,00 2.5 06.09.JJJJ

1000 4 510 100 51A 100 Deuba UNI 100.000,00 2.7 07.09.JJJJ 07.11.JJJJ

Furthermore, you can execute results controls using the position list for traders or business partners. The transaction types are sorted and listed according to conditions. In the position list, the positions for Money Market transactions are displayed by key date.

You can also select Money Market transactions that have a certain term start or due date. The connection to the SAP List Viewer provides you with a range of display options. You can determine the columns or rows to be displayed, sorted and consolidated and save these layouts for later use.

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Facility: Reporting

Current utilization profile of a facility

Integration of the facilities in Money Market Collective Processing

Key date overview of facility utilization

Overview of facility charges

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Derivatives: Maturity Schedule OTC Options

Type Start Term

Put DD.MM.YYCall DD.MM.YY

MaturityMaturity Schedule OTC Schedule OTC OptionsOptions

You can use flexible selection criteria (product type, transaction type, put, call, due date, etc.) to call up the option maturity schedule for transactions in a particular company code.

You can exercise individual option transactions or allow them to expire by positioning your cursor on the option.

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Alert Monitor

The alert monitor collects error messages fromthe various Transaction Manager areas to be

assigned to processing.

Content areas:

Settlement

Release

Payment + Posting

Correspondence

Interest rate adjustment

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Principles of Drilldown Reportingpo

rtfo

lio

BOND

MM

FX

CurrencyProduct Type

FLOORCAP

FRA

JPYUSD

EUR

Term From To

Basics

MMkt/Sec./ Loan

Forex/ Derivatives

Open Position

as a list (list viewer)

as a drilldown report

as a graphic

DataDataoutputoutput

The drilldown reporting tool enables you to set up your own reports and process them interactively. Drilldown reporting is highly flexible: You can analyze the results graphically, transfer them to PC applications, link reports, and assign them to a hierarchical tree structure.

Drilldown reports allow you to generate different views of your existing data. You do this by selecting the appropriate combination of characteristics and key figures.

The idea behind drilldown reporting is to make the information available in a cube with n-dimensions. Each sub-cube is specified by characteristics. The characteristics correspond to the dimensions (for example, 3 characteristics: portfolio, product type, and currency). Each sub-cube contains n key figures (example: 2 key figures: investment/purchase, borrowing/sale). By linking characteristics and key figures, you can generate different views according to the combinations of values you enter.

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Drilldown Reporting Architecture

CreateChangeExecuteReport

indexSave

Lists Lists Graphics Graphics Navigation/ Navigation/ DrilldownDrilldown

Save

BatchList

...

Form

Report

Key figures Characteristics

MailWinword Excel

You can use characteristics, key figures, and forms to define reports. A report generates several lists that can be called up interactively and displayed on the screen. You can also print reports, export them to MS Word or Excel, or enter them in a file.

Forms describe the content and format of reports. Forms provide the basis for reports, which you complete later when you define the reports.

Characteristics define the different ways in which the dataset can be classified, for example, company code, business partner, or portfolio. You can include characteristics in the form and also in the report.

Key figures are amounts and quantities: you can use a key figure transaction to define additional key figures from existing key figures (key figure tree). You can select the key figures either in the form or in the report.

Note: For more detailed information, see the general documentation on Drilldown Reporting.

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Drilldown Reporting Functions

Navigation to all levels (characteristics)

Exception reporting provides a visual warning whencritical values deviate from expectations

Hierarchy processing shows external hierarchies (such as flow type hierarchy)

Graphics improve visualization of the figures

Analysis functions allow you to classify your data

Data mining allows you to identify conspicuous values in the dataset

Currency translation determines currency influences

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Form Report

Form ReportForm ReportFor reports prepared individually withFor reports prepared individually with

formform--orientedoriented layoutlayout

specificspecific formattingformatting ((colorscolors, etc.), etc.)

integrationintegration of variablesof variables

complexcomplex selectionselection

The general maxim for creating reports is that simple tools are available for generating simple reports, while more sophisticated tools are available when you need to generate more complex reports.

In the Transaction Manager area, you create form reports. These are reports based on forms and are suitable for printing reports.

Drilldown reporting is always related to the business objects of an application. Reports Are complex structures, which comprise many subcomponents Are language-dependent and can therefore be translated Can be transported and delivered Contain authorization checks and can therefore be blocked for a specific user It is now possible to define Basic reports. When you use these types of reports, you do not need to create forms.

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Overview of Drilldown Reporting

Transaction Manager Application

Transaction ManagerCustomizing

Transaction ManagerApplication; Customizing

Transaction ManagerApplication; CustomizingCreate form

Create reports

Include report inreport tree

Execute report

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Exercises 9

Unit 4: Transaction Manager – Foreign Exchange

Topic: Trading - Forward Exchange Transaction


• Set up a forward exchange transaction in the Transaction Manager

In three months, you must pay an invoice to the value of approximately USD 12 million and you want to take advantage of the current USD exchange rate. You therefore conclude a forward exchange transaction.

9-1 Create an order using a forward exchange transaction (USD-EUR).

Choose the Deutsche Bank (1000) as your business partner. Choose the following transaction data:

Amount: USD 12 M, Rate: USD 1.3 Value date: In 3 months

(Use the input help relating to the amount field and value date.) Note: Do not perform a cash settlement. Save the financial transaction and note the transaction number for later settlement and posting activities. Transaction number:_______________________

9-2 Execute the order and observe the change in the activity category. Then perform the settlement as well.

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9-3 ROLLING OVER a forward exchange transaction Assumption: The forward exchange transaction that is currently concluded should be extended by one month as the payment target (=sold-to party) was extended. The old forward exchange transaction will be closed on the old rate basis (= forward rate of the netting transaction is the forward rate of the original transaction)! Enter a swap surcharge for the rollover transaction and save the rollover. Transaction number:_______________________

9-4 To obtain references of the transactions (original, netting, and rollover), use the PRL reference category. Specify which transaction numbers belong together.

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Solutions 9

Unit 4: Transaction Manager – Foreign Exchange Topic Trading - Forward Exchange Transaction

9-1 Create an order using a forward exchange transaction (USD-EUR). Choose the Deutsche Bank (1000) as your business partner. Choose the following transaction data: Amount: USD 12 M, Rate: USD 1.3 Value date: In 3 months

(Use the input help for the amount field and value date.) Note: Do not perform a cash settlement.



To create an order (forward exchange transaction), choose: Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Foreign Exchange Trading Create Financial Transaction (FTR_CREATE)

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Enter the following data: Field Name or Data Type Value Company Code FS## Product Type 60A - Forex: External Transaction Type 102- Forex: External-Forward

transaction Business Partner 1000 Order/Fixing X - select indicator

Choose ENTER. Enter the following data: Field Name or Data Type Value Structure area Buy - Currency USD Buy - Amount 12 M Sell - Currency EUR Sale amount Rate/Value Date area Rate 1,30 Value Date ++3

(Note: The status bar displays a message stating that market data may not be current. You can skip this message by choosing ENTER.)

When you confirm the entries by choosing ENTER, the system then automatically determines the offset amount (here: sales). Only then should you save.

To check whether the system automatically made entries in the Position Management Procedure and Account Assignment Reference fields, choose Environment → Position Indicator. Choose Back in the standard tool bar to exit the transaction. Check the cash flow on the Cash Flow tab page to see whether the flow types were used for buy and sell.

Save your financial transaction. Transaction number:_______________________

The status bar displays the message “Forex transaction… saved in company code FS##”.

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9-2 Execute the order and observe the change in the activity category. Then perform the settlement as well.

Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Foreign Exchange Trading Collective Processing Order (TXA5)

Choose your company code and your transaction.

Choose EXECUTE.

Double-click the selected transaction to display the "Payment details" tab page and view the determined bank data of your own house bank.

Choose BACK to return to the previous screen. Select ORDER EXECUTION.

SAVE the data by choosing the Disk icon. The transaction now has the "Contract" activity.

To settle the contract, choose Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Foreign Exchange Trading Edit Financial Transaction (FTR_EDIT)

Enter the following data: Field Name or Data Type Value Company Code FS## Transaction Transaction number from Exercise

9-1

Choose „Settle“. Save the data. The message “Forex transaction xxxx saved in company code FS##” appears in the status bar.

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Check the data and save the transaction.

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9-3 ROLLING OVER a forward exchange transaction Assumption: The forward exchange transaction that is currently concluded should be extended by one month as the payment target (=sold-to party) was extended. The old forward exchange transaction will be closed on the old rate basis (= forward rate of the netting transaction is the forward rate of the original transaction)!

Enter a swap surcharge for the rollover transaction and save the rollover. Note the new transaction number:_______________________

To roll over a forward exchange transaction

Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Foreign exchange Trading Edit Financial Transaction (FTR_EDIT)

Enter your transaction and company code as usual and choose Roll Over.

On the left side of the screen (1st Transaction), you can see the rate taken from the old transaction in the “Spot” field, 1.30. For the rollover, raise the date in the “Value date” field by exactly one month.

Enter a swap surcharge of 0.000085 in the Swap field of the first transaction.

Save your data.

(Skip any messages that appear by choosing ENTER.)

The system issues a message indicating that the forward exchange transaction(s) was (were) saved or that the original transaction was automatically settled.

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9-4 To obtain references of the transactions (original, netting, and rollover), use the PRL reference category. Specify which transaction numbers belong together.

Choose:

Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Foreign Exchange Back Office Reference Collective Processing (TBRL)

Choose reference category PRL (Rollover of forex trans.).

Enter your company code (FS##). Choose Execute. As a result, the related transaction numbers are displayed under a reference number unit.

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Exercises 10


Topic: Back Office and Accounting


• Settle and post transactions

Having created the forex transaction, continue in the Back Office.

Here, you settle or check the transaction. Then you post the transaction flows.

10-1 Enter an external forex spot transaction as a contract and settle the forex transaction.

Choose business partner 1000, product type: 60A, and transaction type 101.

The purchase is made in USD. The sale is made in EUR.

Use the suggested rate from the market data table.

Check that your entries are complete.

Note the change in activity category.

10-2 Carry out the posting for the forex transaction. Note the due date.


Post all valuation areas.

10-3 Check the postings using transactions “TPM20” (Posting Journal) and “S_ALR_87015254“ (Forex: Posting Overview). Compare the different reporting evaluations.

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Solutions 10

Unit 4: Transaction Manager – Foreign Exchange Topic Back Office and Accounting

10-1 Enter an external forex spot transaction as a contract and settle the forex transaction. Choose business partner 1000, product type: 60A, and transaction type 101. The sale is made in EUR. Value date:+2 = two days from today Use the proposed rate from the market data table. Check that your entries are complete. Note the change in activity category.

To create the forex spot transaction as a contract, choose:

Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Foreign Exchange Trading Create Financial Transaction (FTR_CREATE)

Enter the structure data as described in Exercise 9. Use the initial data from this exercise description.

Save the contract and then settle the transaction as usual.

Enter the following data: Field Name or Data Type Value Company Code FS## Product Type 60A - Forex: External Transaction Type 101- Forex: External Spot

transaction Business Partner 1000 Order/Fixing X - select indicator

Choose ENTER.

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Enter the following data: Field Name or Data Type Value Structure area Buy - Currency USD Buy - Amount 12 M Sell - Currency EUR Sale amount Rate/value date area Price (Un. quote) 1,30 Value Date ++3

Execute the order using the collective purchase order.

To settle the forex transaction, select: Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Foreign Exchange Trading Edit Financial Transaction (FTR_EDIT)

Check that the data is complete.

Save your data.

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10-2 Carry out the posting for the forex transaction. Note the due date. Carry out a test run prior to the update run. Post all valuation areas.

To post the foreign exchange transaction, choose: Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Foreign Exchange Accounting Posting Execute (TBB1)



Company Code FS##

Transaction Transaction number from Exercise 10-1

Up To and Including Due Date Adjust date

Carry out the posting in the test run and then in the update run.

Check the posting log as usual (see exercise 6-1 and 6-2).

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10-3 Check the postings using transactions “TPM20” (Posting Journal) and “S_ALR_87015254“ (Forex: Posting Overview). Compare the different reporting evaluations.

Select: Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Foreign Exchange Information System Accounting Posting Journal (TPM20)

OR Forex: Posting Overview (S_ALR_87015254)



Product Groups

Checkbox OTC Transaction

General accruals/deferrals

Company Code FS##

OTC Transaction

Transaction Transaction number from Exercise 10-1

For the “Foreign Exchange” posting overview, enter the values in the same way as for the initial screen of the posting journal.

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Exercises 11


Topic: Valuation - Forward Exchange Transaction


• Evaluate a forward exchange transaction in Transaction Manager

In six months, you must pay an invoice to the value of approximately USD 10 million and you want to take advantage of the current USD exchange rate. You therefore conclude another forward exchange transaction. At the end of the quarter, you want to value your transactions (Key date valuation). You then have to determine your realized gains and losses.

11-1 Create a contract (Activity: Contract) using a forward exchange transaction (USD - EUR) with product type 60A and transaction type 102 for your company code (FS##).



Amount: Buy USD 10 M, Rate: 1.3 Value date: In 6 months.

Use the input help for the amount field and value date.



11-2 Value your transaction at the end of the next two quarters. Have the system calculate the net present values of your transaction for the valuation key dates. Then carry out a mid-year valuation without reset for the valuation key dates.

On the due date, the forex transaction is realized and posted (all valuation areas.) You must then carry out a valuation to determine the gains/losses realized (= fixing derived business transactions) and in order to post.

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11-3 View the created postings in the Posting Journal and display a complete view of all created subledger cash flows with the transaction “TPM13” (List of Position Flows).

Select all possible TRL flows:

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Solutions 11

Unit 4: Transaction Manager – Foreign Exchange Topic: Valuation - Forward Exchange Transaction

11-1 Create a contract (Activity: Contract) using a forward exchange transaction (USD - EUR) with product type 60A and transaction type 102 for your company code (FS##). Choose the Deutsche Bank (1000) as your business partner. Choose the following transaction data: Amount: Buy USD 10 M, Amount: Sale EUR Rate: 1.3 Value date: in 6 months Use the available input help for the amount field and value date. Save the financial transaction and note the transaction number for later settlement and posting activities. Transaction number:_______________________ To create a forward exchange transaction, proceed as follows:

Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Money Market Trading Create Financial Transaction (FTR_CREATE)

Ensure that the Activity-Contract indicator is set. Save your transaction and make a note of the transaction number.

Enter the following data: Field Name or Data Type Value Company Code FS## Product Type 60A - Forex: External Transaction Type 102- Forex: External-Forward

transaction

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Business Partner 1000 Contract X - select indicator

Choose ENTER. Enter the following data: Field Name or Data Type Value Structure area Buy - Currency USD Buy - Amount 10M Sell - Currency EUR Sale amount Rate/value date area Rate 1,30 Value Date ++6


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11-2 Value your transaction at the end of the next two quarters. Have the system calculate the net present values of your transaction for the valuation key dates. Then carry out a mid-year valuation without reset for the valuation key dates. On the due date, the forex transaction is realized and posted (all valuation areas.) You must then perform a valuation to determine and post the gains/losses realized (= fixing derived business transactions).

Execute each program twice (once for key date 1; once for key date 2)

To perform Interest Accrual/Deferral, choose Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Foreign exchange Accounting Valuation Determine Net Present Values (TPM60)

You are on the screen "Save NPVs from the Market Risk Analyzer”.



Product Groups

Check Box – OTC transactions Set indicator

General selections

Company Code FS##

OTC Transaction


Evaluation Parameters

Currency EUR

Evaluation type RM01

Key date Key date 1: End of the current quarter Key date 2: End of the next quarter

Indicator: Separate NPV (In/Out)

Selected


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Price/NPV type 001 (Standard & Hedge Accounting)

Detail log X – select indicator

Perform a test run and then an update run. If you require more information, choose Goto→ Detail Log. To valuate key dates, choose

Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Foreign exchange Accounting Valuation Execute valuation (TPM1)


Product Groups


General Selections

Company Code FS##

OTC Transaction


Key date Key date 1: End of the current quarter Key date 2: End of the next quarter

Valuation Category Mid-Year Valuation Without Reset (3)


Detail log X – select indicator

Perform a test run and then an update run. The positions to be valuated are displayed. If you want to perform the valuation as displayed, choose Execute valuation in the application toolbar. The valuation log provides further information about the posting with various buttons in the application toolbar. Perform the steps for the second valuation as in the exercise description.

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You can carry out a test run if you wish.

The forward exchange transaction is now due/cashed.

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To post the forward exchange transaction, choose Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Foreign Exchange Accounting Posting Execute (TBB1)

Make sure that the posting is made for all valuation areas. To determine the realized gains and losses, choose

Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Foreign Exchange Accounting Derived Business Transactions Post and Fix (TPM18)



Product Groups


General Selections

Company Code FS##

OTC Transaction


TRL Date From TODAY until the final due date of the transaction

Test Run X – select indicator


The positions to be valuated are displayed. If you want to perform the valuation as displayed, choose Fix in the

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application toolbar.

You can carry out a test run if you wish.

11-3 View the created postings in the Posting Journal and display a complete view of all created subledger cash flows with the transaction “TPM13” (List of Position Flows). Select all possible TRL flows.

To valuate postings, choose Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Foreign Exchange Information System Position Trend Position Flow List (TPM13)


Product Groups

Checkbox OTC Transactions

General Selections

Company Code FS##

OTC Transaction


Selection of TRL flows

TRL Date From/to date

Checkbox Scheduled Flows

Checkbox Fixed Flows

Checkbox Flows to Be Fixed

Checkbox Flows to Be Reversed

Checkbox Reversed flows

Checkbox Posting Information

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Exercises 12

Unit 4: Transaction Manager: Derivatives Topic: OTC Currency Option 1


• Create an OTC currency option in SAP Transaction Manager using the foreign exchange module

You want to purchase a currency option. If this option gets to the exercise stage, you are entitled, but not obliged, to purchase USD from the Deutsche Bank.

12-1 Check whether there are transaction authorizations for this business partner (BP##) and this product type (76A) in the standing instructions. Choose the direct access using the business partner (transaction BP). Create an OTC currency option (in the menu under Foreign Exchange) as a contract. Choose your “BP##” business partner as your business partner and 76A for the product type. Enter the following transaction data: Purchase of a currency option (transaction type 100)

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Structure - Exercise

Exercise Period ++3 (3 months from today)

Exercise Type European (1)

Settlement Physical exercise (1)

Structure - Premium

Payment date (premium) +2 (today plus 2 days)

Currency EUR

Amount 200 T (200,000)

Structure - Settlement

Contract Date today

Underlying

Currency Pair USD/EUR

Amount (purchase) 3 M

Price (Un. quote) 1,3

Value Date +2 (two days after exercise)

Enter a premium of your choice. Take a look at the cash flow. Which flows are shown? Check the payment details and the position indicator.

If no payment details are created, add to the payment details for the option premium to be paid directly and manually in the financial transaction so that the option premium can be posted.

For this, use the following values:



Currency EUR


House Bank 1000

Account ID 1000 Save the transaction.

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12-2 Settle the contract using collective processing (TI91). Enter your company code and transaction number.

12-3 Post the option premium. Note the posting due date and make sure that all valuation areas are posted. Take a look at the Financial Accounting document.


12-4 You decide that the you want to exercise the option. Execute the activity.

Assumption: The exercise date has been reached - make the contract date and the exercise date the same as the date of the “exercise period”.

Skip information messages with the “Enter” key.

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Solutions 12

Unit 4: Transaction Manager: Derivatives Topic OTC Currency Option 1

12-1 Check whether there are transaction authorizations for this business partner (BP##) and this product type (76A) in the standing instructions. Choose the direct access using the business partner (transaction BP).

To switch from one business partner to another, choose the menu path Goto → Initial Screen.

Call the business partner in change mode in the “Counterparty” role. Choose "Company Code“ to go to the company-code-specific data of the business partner. Switch to the “SI: Authorizations” tab. You see that the business partner for the relevant product type is not authorized for the product type. In the "SI: Authorizations" tab, select the product type 76A and save the business partner. (Product type 76A is contained under Derivatives → OTC Options. If required, you can also use the Binoculars icon).

You can then create the OTC currency option.

To create the OTC currency option, choose:

Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Foreign Exchange Trading Create Financial Transaction (FTR_CREATE)

Create an OTC currency option (in the menu under Foreign Exchange) as a contract.

Choose your “BP##” business partner as your business partner and 76A for the product type.

Enter the following transaction data:

Purchase of a currency option (transaction type 100)

On the subsequent dialog box, choose flow type 1301 – Option Premium (OTC).

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Structure - Exercise


Exercise Type European (1)

Settlement Physical exercise (1)

Structure - Premium

Payment date (premium) +2 (today plus 2 days)

Currency EUR

Amount 200 T (200,000)

Structure – Contract Data

Contract Date Today

Underlying

Currency Pair USD/EUR

Amount (purchase) 3 M

Rate 1,3

Value Date +2 (two days after exercise)

Take a look at the cash flow. Which flows are shown? (Because this is only an initial version of a currency option, only the option premium is displayed).

Check the payment details and the position indicator.

Check the payment details for the option premium to be paid.

The following values must be entered:



Currency EUR

Take a look at the payment details in the detail view. To do this, double-click the relevant line.

Return to the overview display by choosing Payment details overview.

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If no payment details are created, manually add to the payment details for the option premium to be paid in the financial transaction so that the option premium can be posted.

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For this, use the following values: Field Name or Data Type Value Direction - (Outflow) Currency EUR


House Bank 1000

Account ID 1000 Save the transaction.

Note the transaction number:_______________________

12-2 Settle the contract using collective processing (TI91). Enter your company code and transaction number.

To settle using collective processing, choose: Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Foreign Exchange Back Office Collective Processing OTC Options (TI9I)

Enter your company code and transaction number. Choose Execute. Select the transaction that you want to settle and choose Settle in the application toolbar.

Check and add to the payment details.

The following values must be entered:


House Bank 1000

Account ID 1000

Save your transaction. (Skip any messages that appear with the ENTER key.) Refresh your collective processing display. You see the changed condition of the activity category (ACat).

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The category changes from 20 (contract) to 30 (settlement).

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12-3 Post the option premium. Note the posting due date and make sure that all valuation areas are posted. Take a look at the Financial Accounting document.


To post the option premium, choose Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Foreign Exchange Accounting Posting Execute (TBB1)



Company Code FS##

Transaction Your transaction number

Up To and Including Due Date Due date of the premium

Test Run You can perform a test run and then an update run. After the update run, you can also view the document from here.


You can view the posting log as usual.

12-4 You decide that you want to exercise the option. Execute the activity. Assumption: The exercise date has been reached - make the contract date and the exercise date the same as the date of the “exercise period”. Skip information messages by choosing ENTER.

To exercise the option, choose:

Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Foreign Exchange Trading Edit Financial Transaction (FTR_EDIT)

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Enter the company code and transaction number as usual. Choose Exercise. Adjust the date details as described in the exercise. Save the transaction.

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Exercises 13



• Create an OTC currency option in the SAP Transaction Manager - using the derivative module

You want to sell a currency option.

If this option gets to the exercise stage, the bank is entitled, but not obliged to purchase USD from you.

13-1 Create an OTC currency option (in the menu under Derivatives) as a contract.

Choose the Deutsche Bank (1000) as your business partner and 76A for the product type (transaction type 100).

Choose the following transaction data: Sale of a currency call option Premium Type: 1301 Option Premium (OTC) Option Exercise Period: ++3 (3 months from today) Exercise: European Settlement: Physical exercise Contract Date: Today Rate: for example, 2.20 Value Date: in 6 months Offset Currency: EUR Exercise Date: in 6 months minus 2 days Premium Value Date: in 2 days Currency: EUR Enter a premium of your choice. Take a look at the cash flow. Which flows are shown? Check the payment details and the position indicator.

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It may be necessary to provide business partner 1000 with authorization for these transactions. (see Exercise 1-6; Transaction Authorizations (TB16).

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13-2 Settle the contract using Collective Processing.

Post the option premium. Note the posting due date and make sure that all valuation areas are posted.


Take a look at the Financial Accounting document.

Optional – Enter a memo for accounting (such as “Settle fee of EUR 10 separately”).


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Solutions 13


13-1 Create an OTC currency option (in the menu under Derivatives) as a contract.

Choose the Deutsche Bank (1000) as your business partner and 76A for the product type (transaction type 100).

Select the activity Contract.


Sale of a currency call option

Premium Type: 1301 Option Premium (OTC)

Option Exercise Period: ++3 (3 months from today) Exercise: European Settlement: Physical exercise Contract Date: Today

Rate: For example, 2.20 Value Date: In 6 months Offset Currency: EUR Exercise Date: In 6 months minus 2 days Premium Value Date: In 2 days Currency: EUR

Enter a premium of your choice.

Take a look at the cash flow. Which flows are shown?


It may be necessary to provide business partner 1000 with authorization for these transactions. (see Exercise 1-6; Transaction Authorizations (TB16).

To create a currency option using the derivative module, choose: Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Derivatives

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Trading Create Financial Transaction (FTR_CREATE)

On the subsequent dialog box, choose flow type 1301 – Option Premium

(OTC). Enter the following data:



Exercise Type European

Settlement Physical exercise

Premium

Payment Date +2 (today plus 2 days)

Currency EUR

Amount 200.000

Contract date is suggested

Underlying

Purchase - Currency USD

Purchase - Amount 3 M

Sale - Currency EUR

Sale - Amount Leave blank (will be determined)

Rate 1,3

Value Date +2

Contract Date Will be automatically set based on the exercise period (three months from today)

Check the activity first using the Check button in the application toolbar.

If a message appears, stating that the day is not a business day, select the following day with the right arrow key.

Save your data.


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13-2 Settle the contract using Collective Processing.

It may be necessary to edit the transaction (FTR_EDIT) and to execute the order (see button).

Post the option premium. Note the posting due date and make sure that all valuation areas are posted. Take a look at the Financial Accounting document. Carry out a test run prior to the update run.

Optional – Enter a memo for accounting (such as “Settle fee of EUR 10 separately”).

To settle using collective processing, choose: Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Derivatives Back Office Collective Processing OTC Options (TI91)

Select your company code and financial transaction.

Choose Execute.

Select the transaction and choose Settle in the application toolbar.

In the following overview on the relevant tab pages, check the “underlying” data, the payment details (your own house bank) and the cash flow (in the “Accounting view” layout). Select Environment → Position Indicator and check the account assignment reference (the field must be filled). Go to the Memos tab page and enter the specified text in the first row of the Accounting row.

Save the transaction.

Update the view in collective by choosing Refresh in the application toolbar (or F8).

To post the option premium, choose Accounting Financial Supply Chain Management Treasury and Risk Management

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Transaction Manager Derivatives Accounting Posting Execute (TBB1)



Company Code FS##

Transaction Your transaction number

Up To and Including Due Date Due date of the premium

Test Run You can perform a test run and then an update run. From here, you can view the document.


You can view the posting log as usual.

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Exercises 14

Unit 4: Transaction Manager: Derivatives Topic: Forward Rate Agreement (FRA)


• Set up a Forward Rate Agreement (FRA) as a contract in SAP Transaction Manager using the derivative module

You want to sell an FRA because you expect interest rates to fall.

14-1 Create a forward rate agreement (FRA) as a contract. You are the seller of the FRA, as you want to protect yourself against sinking interest. The goal is to agree on a quotation of 12x24 (lead time-total term) with the business partner.

Take the Deutsche Bank (1000) as your business partner (FRA buyer).

The product type is 63A.

The transaction type is 200 (sale).


Contract Date: TODAY Start of lead time: In 2 days Start of hedge period: 1 year after start of lead time End of hedge period: 2 years after start of lead time Base amount: EUR 10.000.000 Interest rate: 4.56 % p.a. Reference interest rate: EUREUR01YM Interest calculation method: Act/360 Calendar: 01

Interest rate fixing is to occur two days before the start of the hedging period.

Note the date.


Check the cash flow as usual. Which flows are relevant to the posting?

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Settle the contract using collective processing (TI92).

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14-2 Take a look at the interest rate adjustment schedule.

Carry out a manual interest rate adjustment. The interest rate fixing date is two days before the beginning of the hedge period. Choose a low interest rate (4.00 percent) so that you receive a settlement payment. Then post the interest generated as a result of the interest rate adjustment. Take a look at the cash flow before and after the interest rate adjustment.

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Solutions 14

Unit 4: Transaction Manager: Derivatives Topic Forward Rate Agreement (FRA)

14-1 Create a forward rate agreement (FRA) as a contract. You are the seller of the FRA, as you want to protect yourself against sinking interest. The goal is to agree on a quotation of 12x24 (lead time-total term) with the business partner.

Take the Deutsche Bank (1000) as your business partner (FRA buyer). The product type is 63A. The transaction type is 200 (sale).


Contract Date: TODAY Start of lead time: In 2 days Start of hedge period: 1 year after start of lead time End of hedge period: 2 years after start of lead time Base amount: EUR 10.000.000 Interest rate: 4.56 % p.a. Reference interest rate: EUREUR01YM Interest calculation method: Act/360 Calendar: 01 Interest rate fixing is to occur two days before the start of the hedge period. Note the date.


Check the cash flow as usual. Which flows are relevant to the posting?

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Settle the contract using collective processing (TI92). To create a forward rate agreement, choose:

Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Derivatives Trading Create Financial Transaction (FTR_CREATE)

Select the data for your company code, product type 63A, transaction type 200 and partner 1000.

Choose Execute. Enter the following data:


Start of Lead Time Today +2 days

Start of Hedge Period ++12

End of Hedge Period ++24

Base amount EUR 10 M

Int. rate 4,56

Ref. Int. Rate EUREUR01YM


Contract date Is proposed

Skip the messages by choosing ENTER.

Check the cash flow as usual (the Cash flow tab page). Which flows are relevant to the posting?


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To settle using collective processing, choose:: Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Derivatives Trading Collective Processing OTC Interest Rate Instruments (TI92)

Select the data for your company code. Choose Execute (“Clock“ or F8). All entered transactions are displayed in Collective Processing.

Click your FRA transaction to select it and then choose Settle in the application toolbar. After checking the cash flow and payment details, save the transaction. Update the collective processing view by pressing the appropriate button (or F8).

14-2 Take a look at the interest rate adjustment schedule.

Carry out a manual interest rate adjustment. The interest rate fixing date is two days before the beginning of the hedge period. Choose a low interest rate (4.00 percent) so that you receive a settlement payment.

Then post the interest generated as a result of the interest rate adjustment. Take a look at the cash flow before and after the interest rate adjustment.

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To view the interest rate adjustment schedule, choose:

Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Derivate Information System Transaction Deadline Monitoring Derivatives: Interest Rate Adjustment Schedule (TJ07)

Apply the interest adjustment schedule to your entire company code.

You will then see a total overview of your pending interest rate adjustments and those that have not yet been executed for the financial transactions that have a reference interest rate in their interest structure.

To perform a manual interest rate adjustment, choose:

Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Derivatives Back Office Variable Interest Calculation Interest Rate Adjustment Create (TI10)

Enter a company code and your transaction number and choose ENTER.



Int. rate 4 (percent)

Choose ENTER.

Save the manual interest rate adjustment.

Return to the overview menu and choose Back Office → Edit Financial Transaction (FTR_EDIT) to display your transaction.

Check the cash flow. Choose the “Posting view” layout and then the “Calculation view” (choose the ”Select Layout” button).

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Because of the currently low interest rate as compared with the interest rate of the original transaction, an incoming payment (settlement payment) is expected and therefore reported.

To post the interest generated as a result of the interest rate adjustment, choose:

Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Derivatives Accounting Posting Execute (TBB1)

Proceed as usual. Note the due date of the interest payment date. Post in all valuation areas.


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Exercises 15

Unit 4: Transaction Manager: Derivatives Topic: Interest Rate Swap


• Set up an interest rate swap as a contract in SAP Transaction Manager using the derivative module

You want to conclude an interest rate swap.

15-1 Create an interest rate swap (receiver swap) as a contract. The product type is 62A. The transaction is 301. Choose the Deutsche Bank (1000) as your business partner. Choose the following transaction data: Contract date: TODAY Start of term: Two days after contract date End of term: 4 years after start of lead time Nominal amount: EUR 5.000.000 Regulations concerning fixed amounts Deutsche Bank pays the fixed amounts. Fixed interest rate: 6.53% p.a. Interest calc. method: 360/360 Frequency: Every 12 months Regulations concerning variable amounts You pay the variable amounts. Variable rate: EUREUR06MM Interest calc. method: Act/360 Spread: 0% p.a. Frequency: Every 6 months First due date: In 6 months

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Remember to maintain the condition details. Update rule : “Unadjusted” (for the INTEREST detail view)

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Shift the due date relative to the end of the interest period (days +/-). Choose the value 1-. Choose the shift rule “Next working day modified”. Check the payment details and the position indicator. The reference date for the interest rate fixing date should always take place two working days before the beginning of the interest period. Take a look at the complete cash flow. Choose the separate view of the outgoing interest and then the incoming interest. (You can choose different views in the layout, such as the calculation view and the interest rate adjustment view.) Enter the following values:


Interest rate adjustment date - (minus) 2

15-2 Then settle the interest rate swap.

15-3 Perform the manual interest rate adjustments - for your company code only. Compare the fixing data with the details in the exercise. Take a look at the interest rate adjustment schedule. Then post the interest generated as a result of the interest rate adjustment. Note the due date.

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Solutions 15

Unit 4: Transaction Manager: Derivatives Topic: Interest Rate Swap

15-1 Create an interest rate swap (receiver swap) as a contract. The product type is 62A. The transaction is 301.


Choose the following transaction data: Contract date: TODAY Start of term: Two days after contract date End of term: 4 years after start of lead time Nominal amount: EUR 5.000.000

Regulations concerning fixed amounts:

Deutsche Bank pays the fixed amounts. Fixed interest rate: 6,53% p.a. Interest calc. method: 360/360 Frequency: Every 12 months

Regulations concerning variable amounts

You pay the variable amounts. Variable rate: EUREUR06MM Interest calc. method: Actl/360 Spread: 0% p.a. Frequency: Every 6 months First due date: In 6 months

Remember to maintain the condition details. Update rule: “Unadjusted” (for the INTEREST detail view) Shift the due date relative to the end of the interest period (days +/-). Choose

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the value 1-. Choose the shift rule “Next working day modified”.


The reference date for the interest rate fixing date should always take place two working days before the beginning of the interest period.

Take a look at the complete cash flow. Choose the separate view of the outgoing interest and then the incoming interest. (You can choose different views in the layout, such as the calculation view and the interest rate adjustment view.)




Solution for creating an interest rate swap.

Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Derivatives Trading Create Financial Transaction (FTR_CREATE)

_ Since the incoming interest is fixed, choose “Receiver swap”.



Company Code FS##

Product Type 62a

Transaction Type 301 – Interest rate swap (IRS)-Recipient


Activity – Contract X - select indicator

Choose ENTER.

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Structure - Term

Start Two days from today

End +++4 (4 years from today)

Outgoing Interest

Nominal amnt EUR 5 M

Effective from Two days from today

1st due date ++6 (6 months from today)

Freq.month 6

Var. Interest EUREUR06MM


Incoming Interest

Nominal amnt 5m

Effective from two days from today

1st due date ++12 (12 months from today)

Freq.month 12

Fix. rate 6,53

Int.calc.method 360/360

Select Check in the application toolbar to check the entered data.

On the Structure tab page, in both the Incoming Interest and Outgoing Interest areas, choose Int. Check the following values for the outgoing and incoming interest pages:


Update – Rule Unadjusted

Frequency 6 or 12 months

Days +/- 1-

Due Date Is proposed (6 months and 2 days from today)

Working Day Next working day modified

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Calendar 1 Is proposed

The end of the interest period is determined relative to the due date. It is determined before the due date is shifted (unadjusted) by the working day check.

Choose Back in the standard tool bar to return to the overview.

(WARNING – This applies to outgoing and incoming interest!)

Choose the button Int. Rate Adj. on the Structure tab page under outgoing interest. Enter the following values:



Confirm the data by choosing the green arrow and returning to the overview. Chow to check the payment details and the position indicator:

Select the Payment Details tab page. Double-click to go to the detail view.

To view the position indicator, choose Menu → Environment and enter the account assignment reference.

Check the conditions for both sides (outgoing and incoming).

Choose Conditions – outgoing side or Conditions – incoming side from the application toolbar on the overview screen. Double click an individual row to view the details screen.

Choose the Cash flow tab page. Choose Select layout to view the Calculation view.

If you want a separate display for the incoming or outgoing interest, choose the Incoming or Outgoing tab pages.

Save your data by choosing the appropriate button.

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15-2 Then settle the interest rate swap.

To create an interest rate swap: Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Derivatives Trading Collective Processing OTC Interest Rate Instruments (TI92)

Select the data for your company code, product type 62A, transaction type 301 and partner 1000.

Choose Execute.

Click the relevant activity to select it and choose Settle from the application toolbar.


15-3 Perform the manual interest rate adjustments - for your company code only. Compare the fixing data with the details in the exercise.

Take a look at the interest rate adjustment schedule.

Then post the interest generated as a result of the interest rate adjustment. Note the due date.

To view the interest rate adjustment schedule, choose: Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Derivates Information System Transaction Deadline Monitoring Derivatives: Interest Rate Adjustment Schedule (TJ07)

Apply the interest adjustment schedule to your entire company code.

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You will then see a total overview of your pending interest rate adjustments and those that have not yet been executed for the financial transactions that have a reference interest rate in their interest structure.

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To perform a manual interest rate adjustment, choose: Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Derivatives Back Office Variable Interest Calculation Interest Rate Adjustment Create (TI10)

Enter your company code and transaction number.

In the display, you can see that the interest fixing takes place two days before the beginning of the interest period.



Int. rate 5 (percent)

Choose ENTER.

Save the manual interest rate adjustment.

Display the cash flow as usual. Choose the layout Posting view, Interest Rate Adjustment View layout and then Calculation view.

© SAP AG FSC010 4-340

To post the interest generated as a result of the interest rate adjustment, choose:

Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Derivatives Accounting Posting Execute (TBB1)

Proceed as usual. Note the due date of the interest payment date. Post in all valuation areas.


© SAP AG FSC010 5-341

© SAP AG 2006

Transaction Manager: Securities Management Overview Diagram








© SAP AG FSC010 5-342

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Unit 5 Transaction Manager: SecuritiesManagement

Master Data

111

222

Securities Management: Overview

333 Trading and Back Office

444 Accounting and Closing Operations

555 Position Management

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© SAP AG 2006

Standard Reports in the Information System

Integrating SAP Financial Accounting

Master DataMaster Data

MasterMaster DataDataBusiness partnerClass master dataSecurities account master dataPosition indicator

Exchange ratesSecurities pricesOther

Transaction Transaction ManagementManagement

Purchases/salesExercising rights

...

Position ManagementPosition Management

ValuationCorporate actionsTransfers...


Securities Management enables you to manage securities transactions and positions. The resulting posting activities are transferred to the Financial Accounting module automatically.

You are required to enter master data before you can use the management processes. For example, before you can represent the purchase (or sale) of a security in the system, you first have to enter its relevant structure and condition characteristics as a class.

You can use master data as well as transactions and positions to create reports in the information system.

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© SAP AG 2006


Create new order/contractExercise/expirationExercising rights


Release

Settlement/controlInterest rate adjustmentNettingReferencingConfirmation lettersSecurities transfer postingsCorporate actions


Transaction and Position Management Process

In transaction and position management, the following areas are differentiated: In the Trading area, you create transactions and exercise rights. In the Back Office area, you settle and check the transactions you entered. Here, you also manage processes relating to position management, such as securities account transfers.

In the Accounting area, you perform accounting activities. These include posting transactions, posting incoming payments (such as interest earned or dividends), or posting write-downs that result from a position valuation.

© SAP AG FSC010 5-345

© SAP AG 2006

Securities Management

Securities Management enables you to manage your securities transactions and positions.

The various stages of the transaction and position management process are included in the trading, back office, and accounting areas.

You must maintain the relevant master data before you can use Securities Management.

Dividends, interest, repayments, corporate actions, etc. are processed through the position management.

© SAP AG FSC010 5-346

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Master Data

111

222





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Securities: Master Data

Create the business partner in different rolesMaintain class master data, including basic data, conditions, and other dataSet up securities accounts and portfolios, if required, to manage your positionsUnderstand and create position indicators

© SAP AG FSC010 5-348

© SAP AG 2006

Partner Master Data

Position ManagementPosition Management

Master Data

Class Master Data

Basic Data Conditions Other Data

Securities Account Master Data

Position indicator per ID number and per securities account

Transaction ManagementTransaction Management

You create master data for the following areas: Business partner: In addition to the minimum data entries (name and address) in the master record, you have to define the role of the business partner.

Class: You have to enter master data for each security managed in the position. This is a prerequisite for any position changes in the trading and back office areas. Class master data contains the product-specific conditions and all the general structure characteristics for securities. Other entries include, for example, the exchanges for this security.

Securities account: You manage and administer securities positions in securities accounts.

Position indicator: You define the parameters for position management and valuation in the company code for each security by securities account.

© SAP AG FSC010 5-349

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APPLICATION LEVEL

- Fully paid stock- Partly paid stock- Floating rate bond

- Fixed-interest security . . .

Product TypeProduct Type ID NumberID Number

716 460

...

113500

SAP Unit

. . .

Government bond

ClassClass

Class Master Data and Product Types

You create each traded security with a unique ID number as a class master record by assigning it to a product type.

You can use the product type settings in Customizing for the relevant classes.

© SAP AG FSC010 5-350

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ID number

New class

ID numberProduct type

Name

Short Long

01A

HEIDELDRUCK

731400

731400

Search crit. Basic Data Conditions Exchanges User data

Heidelberger Druckmaschinen AG

Createwith reference without reference

Create a class

Statusactiveinactive

Create Class: Initial Screen

To create complex financial instruments as well, the class information is generally categorized into various areas such as Basic Data or Condition Information. The initial screen for defining master data of a security never depends on the class or product type. Entering the ID number of a security uniquely defines the security you are creating. When you assign a relevant product type, the system adopts all the settings made for this product type. For example, you can set the control parameters for entering class master data according to the product type. You can enter class data in various statuses: inactive, active and obsolete. You can use the inactive status if some of the class data you require is not yet available. You use the obsolete status to indicate classes that are no longer available for new transactions, but that still need to be available in the system in order to trace the history, for example.

The following usually applies: A short name for the security is displayed in evaluation reports. You can delete class master data if no position indicators exist, if neither planned nor actual records exist/have existed, and if no transactions exist/have existed.

© SAP AG FSC010 5-351

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ID number

Issue

Issuer Heidelberger Druckmaschinen AG

Issue startNominal valueIssue currency Issue price

Structure

Security type Quotation

Stock category Stock form

08.12.1997

EUR

Bearer security

Common stock

Unit-quoted

Old stock

731400 Heideldruck

HEIDRUCK

Basic Data

Create Class: Basic Data

The class master data for stocks consists of basic data, conditions, and other data. References (for example, between the subscription right and new stock) are generated automatically when you enter the data.

Selected fields in the basic data for stocks are explained below: Issuer: Partner ID of the business partner (issuer role) Security type: for example: Bearer Security

Registered Security Registered Security with limited transferability

Quotation: Percentage-quoted Unit-quoted

Stock category: Common stock Preferred stock

Stock form: Old stock New stock Newest stock

© SAP AG FSC010 5-352

© SAP AG 2006

ID number 731400 Heideldruck

Conditions

Condition items

Create Class: Conditions

You use the data entered in the conditions screen as a basis for structuring flow records in the cash flow. In Customizing, you can configure your system settings in such a way that you can create only those condition items that are assigned to this product type through the conditions group.

The dividend entered for the stock simply represents an estimated item. We recommend that you enter the estimated dividend without the frequency only for the coming payment date.* If the company informs you of the current amount of the dividend payment you have to change the amount in the class master data and start the planned record with the updated information. Once the dividend amount has been entered, it can be processed using the automatic debit position function. When you enter a frequency, the system calculates the dividend planned records for the following periods in the cash flow. If the actual dividend amount varies from the updated estimated amount, you have to make adjustment postings manually when you post the incoming amount.

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Exchange

Exchanges

Handelsplatz Währung Heimatbörse ...

FFM EUR

731 400 731 400 HeideldruckHeideldruckID Number

Assignment of Exchanges

The entries for the exchange tell you at which exchange the class is traded. Entering an exchange in the class master data is a prerequisite for importing market prices for account-based valuations.

© SAP AG FSC010 5-354

© SAP AG 2003

ID number 731400 Heideldruck

Stock Swap

O ld ID N e w ID N u m e ra to r D e n o min ato r S e tt lm n t. Amo u n t C rcy

Stock Swap

Create Class: Stock swap

In the case of a takeover bid, for example, you can enter swap bids in the class data and also include a clearing payment.

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ID number

Issue

Issuer Deutsche Bank

Issue currency Issue priceEUR 67

222222

Deuba

Basic Data

Kennummer BezR Kennr. Underl BezVerZähler BezVer Nenner BezugspreisWährung BFrist von BFrist bis222222 333333 5,0000 1,0000 100,00 EUR 25.01.JJJJ 08.02.JJJJ

Subscription periods

Create Class Master Data: Subscription Right

Class master data for subscription rights consists of basic data and other entries (for example for the exchange).

Selected fields in the basic data screen for subscription rights are explained below: Subscription price: The price that has to be paid for a new stock when the subscription right is exercised.

Sub.ratio- Numerator / Sub.ratio- Denominator: The number of subscription rights that are needed to receive the number of new stocks entered in Subscription ratio denominator (such as five subscription rights for one new stock).

Subscription period from/to: Period in which you can exercise the subscription right.

© SAP AG FSC010 5-356

© SAP AG 2006

ID number

Issue

Issuer Federal Republic of Germany

Issue currencyNominal value Nominal per TUIssue start Term end

Issue rate

Structure

Quotation

Security type

EUR

10/21/YYYY 10/21/YY+10

Percentage-quoted

Bearer security

113500 Fixed-interest bonds

BUND

Basic Data

0,01

99,5000

Create Class: Bond - Basic Data

The class master data for bonds consists of basic data, conditions, and other data. Selected fields in the basic data screen for bonds are described below:

Nominal value: Nominal value per individual security. Nominal per TU: The minimum nominal value that can be traded. Quotation: Percentage-quoted Unit-quoted

Securities type: Example Bearer Security Registered Security Registered Security with limited transferability

© SAP AG FSC010 5-357

© SAP AG 2006

ID number 113500 Fixed-interestbonds

Conditions

Condition items

Interest Calculation

Repayments

Int.calc.meth. Act/ActP

Repayment type Maturity

Create Class: Conditions

A condition item consists of several entries for a condition type. Selected fields in the conditions screen for bonds are explained below:

Effective from: Date from which the condition is valid Percent: Nominal interest rate Calculation date: Last day on which interest is calculated in the current interest period Due date: Day when the interest payment is due Frequency (Frq): Number of months in the interest-paying period Calendar rule (CR): The calendar rule enables you to shift the relevant date entries

to a working day. Example: 0: No shift 1: Next working day 3: Previous working day

Shifting the due date to a working day makes it easier to reconcile accounts when interest payments are made. The calculation date is the basis for the calculating the financial mathematical transactions. It is fixed and is usually managed by calendar rule "0".

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Calendar

Calendar 2

Dates

Calculation Date

1. Date Inclusive

Due Date

1st date

10/20/YY+1

10/21/YY+1

No Shift

Next working day

01

Per condition type

100 Interest 263 Final repayment

Details view

and so on

Create Class: Bond - Conditions Detail Screen

You can enter detailed data for each condition item. If the shift mode has been specified for a calendar rule, you have to specify in the condition details which calendar you want to use for the validations.

© SAP AG FSC010 5-359

© SAP AG 2003

ID numberProduct type 04I

113500 Fixed-interest bonds

Paymnt Date Description Amount NomCrcyFtype10/21/YY+1 Purchase 99.500,00 EUR 100021/10/YY+2 Nominal int. 6.000,00 EUR 500010/23/YY+3 Nominal int. 6.000,00 EUR 500010/22/YY+4 Nominal int. 6.000,00 EUR 500010/21/YY+5 Nominal int. 6.000,00 EUR 500010/21/YY+6 Nominal int. 6.000,00 EUR 5000

Calculation Date10/20/YY+110/20/YY+210/20/YY+310/20/YY+410/20/YY+510/20/YY+6

C

Class Master Data – Create Bond: Cash Flow

You can calculate the cash flow for bonds as soon as you enter the class master data. We start with a fictional purchase of EUR 100,000.00 as a nominal amount. You can use the cash flow to check wither the conditions have been provided correctly, for example.

© SAP AG FSC010 5-360

© SAP AG 2006

ID number 113500 Fixed-interest bonds

Notice

Kennummer Anleihe KündFrist von KündFrist bis Kündigungsrate BezeichnungNotice periods of Bondholder

Kennummer Anleihe KündFrist von KündFrist bis Kündigungsrate Bezeichnung113500 1.10.JJ+9 01.12.JJ+9 99,2000

Notice periods of Issuer

Create Class: Notice

If a bond has been assigned a notice right for the issuer or the bondholder, you enter the relevant data.

Conversion period from/until:Period in which you can give notice on the bond. Notice rate: Price (unit-quoted stocks) or rate (percentage-quoted stocks), this is paid when the bond is called.

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© SAP AG 2006

214600 Bond step-up

Conditions

Bez. Konditionsart gültig ab Whr Prozent Berechtag K Fälligkeit K RyMZinsen 12.01.JJJJ EUR 4,0000 11.07.JJJJ 12.07.JJJJ 1 6Zinsen 12.07.JJJJ EUR 4,5000 11.01.JJ+1 12.01.JJ+1 1 6Zinsen 12.01.JJ+1 EUR 5,0000 11.01.JJ+2 12.01.JJ+2 1 12Endfällige Tilgung 12.01.JJJJ EUR 0 11.01.JJ+10 12.01.JJ+10 1 0

Condition items

Berechnungstag11.01.JJJJ11.07.JJJJ11.01.JJ+111.01.JJ+211.01.JJ+311.01.JJ+4

FArt FArt Betrag BW BWhr. TageSE1000 Kauf 100.000,00 EUR 0SAM5000 Nominalzinsen 2.000,00 EUR 180SAM5000 Nominalzinsen 2.250,00 EUR 360SAM5000 Nominalzinsen 5.000,00 EUR 360SAM5000 Nominalzinsen 5.000,00 EUR 360SAM5000 Nominalzinsen 5.000,00 EUR 360

Cash Flow

Class Master Data - Bond: Step-Up

For bonds with fixed interest rates that are subject to change (such as step-up bonds) you maintain condition items for each interest period with a different rate. Condition item entries are replaced by the entries for the next (similar) condition item depending on the "effective from" date. Example: step-up bond with bi-annual interest payment in the first year, followed by annual interest payments: 12.01.YYYY – 11.07.YYYY 4,0 % EUR 4.000 p.a EUR 2.000 on the interest date 12.07.YYYY – 11.01.YY+1 4,5 % EUR 4.500 p.a EUR 2.250 on the interest date 12.01.YY+1 - end 5,0 % EUR 5.000 p.a. EUR 5.000 on the interest date In this example, the frequency entered (6) does not affect the first condition item since this interest item (on frequency date 07/12/YYYY) is replaced by a new interest item (on 07/12/YYYY).

© SAP AG FSC010 5-362

© SAP AG 2003

214600 Variable Bond

Conditions

Cond. Type Desc. Eff . as of Crcy Ref. Int. V Percent Calc Date C Due Date C FreqVar. Interest 01/15/YYYY EUR EUR_6_UNI 0.5000- 07/14/YYYY 07/15/YYY 1 6Int. Rate Adj. 01/15/YYYY EUR 3 6Final Repmnt 01/15/YYYYEUR 01/14/YY+7 01/15/YY+71

Condition Items

Eff. as of Int. Fx. Dte PerDueDtePercent01/15/YYYY 01/13/YYYY 01/01/YYYY3,852307/15/YYYY 07/13/YYYY 06/14/YYYY4,196401/15/YY+1 01/13/YY+1 10/23/YYYY3,423907/15/YY+1 07/11/YY+1 10/23/YYYY3,4239

Interest Rate Adj.

At start of period

Interest rate fixing date

Relative

Interest rate adjustment date - 2 Working days

Calendar 1Calendar 2

01EU

Dates

Detail

Class Master Data – Bond: Variable Interest

Variable-interest bonds have the condition types Variable interest and Interest rate adjustment. You have to enter a reference interest rate in the condition items area. Here, you may also be required to enter a markup or markdown on the reference interest rate in the percent field. You enter a minus sign (-) in field "+/-" for a reverse floater. The interest adjustment date is the date from which the condition entered is valid for the first time. You have to make specific settings in the details view for the interest adjustment dates. You can define a preferred fixing date for the interest fixing date. The following dates are valid: Effective from: Date from which the calculated interest is valid. Int. fx dte: Date on which the reference interest rate was determined (fixing date). PercFDte: The percentage fixing date is the effective-from date that is valid for this fixing period. A reference interest rate has been maintained for this date. Percent: The interest rate that has been defined in the system.

© SAP AG FSC010 5-363

If you have maintained the reference interest rate, the cash flow data is recalculated once the interest rate has been adjusted and the class master data is changed accordingly. To update the data to the database, you have to start the planned record update.

© SAP AG FSC010 5-364

© SAP AG 2006

Company CodeSec. acctSec. acct name

TR##

Acc A##

Bank informationDepository bankClearing accountSec.acct number

House BankHouse BankHouse bank acct

Disposition blockLock typeLock flag until

AssignmentsBusiness areaPortfolio

22224446445556##DEUBA

DEUBAEUR

Portfolio 1

Bank Data

Other Data

Securities Account Master Data

Securities accounts that you create in the SAP system are usually linked to an existing securities account at a bank. Selected fields for securities account master data are explained below:

Depository bank: Partner ID of the bank where the securities account is kept. You first create the bank as a business partner in the role of "depository bank".

Security account number: Number of the securities account at the depository bank.

Clearing account: Account number of the cash clearing account at the depository bank.

House bank: Name of the bank at which the cash clearing account of the new securities account is kept. You can provide details for multiple house banks for each settlement currency.

House bank account: Name of the cash clearing account in the SAP system

Lock type: You have to enter the blocking type if a restraint on disposal applies to the entire securities account.

© SAP AG FSC010 5-365

Lock flag until: Date until which restraint on disposal applies for the securities account

Portfolio: Assigning the securities account to a portfolio.

Business area: The business area is taken from the securities account master data when you post a transaction. If the field is empty, the system takes the entry from the account assignment reference.

You can delete securities account master data if there is no position indicator and no transactions exist/have existed.

© SAP AG FSC010 5-366

© SAP AG 2006

Company codeCompany codepositionposition

Sec. acctSec. acct11

Sec. acctposition 1

Sec. acctposition 2

Individualitems

Individualitems

Sec. acctSec. acct22

Securities Account and Securities Account Group

Securities accounts are valuation and position management units. They are necessary for all financial transactions that require position management. Securities accounts enable functions such as securities account statements, position analysis, and securities account transfers. You can assign a securities account to a portfolio as a superior position-managing unit when you create securities account master data.

Average positions are formed at the portfolio level.

© SAP AG FSC010 5-367

© SAP AG 2003

Securities Account Position Indicators

In the securities account position indicator you can define different information relating to custody type, grouping of positions, or holding share. You can use this information for evaluation purposes as well to import characteristics for account assignment reference.

© SAP AG FSC010 5-368

© SAP AG 2003

Subledger Position Indicator

Subledger position indicators enable you to specify, for example, how you want the positions of a particular ID number to be managed and evaluated.

Key functions of the position indicator include, for example, allocating account assignment references (automatically if required) and assigning valuation and position management parameters. You can change the values suggested in the subledger position indicator for processes in account assignment reference and position management as long as there are no position postings present.

You can create position indicators manually or automatically. The process you want can be set in Customizing.

© SAP AG FSC010 5-369

© SAP AG 2003

Maintain Exchange by Company Code and ID Number

For each ID number you can enter multiple exchanges in the class master data for which you can maintain rates for this security.

To value a security, the system uses the price from the price table of the exchange entered in this table.

© SAP AG FSC010 5-370

© SAP AG 2006


Master Data

111

222





© SAP AG FSC010 5-371

© SAP AG 2006

PostingsAccrual/deferralValuationReversals

Enter orderEnter contractReversalsTransaction history

Settlement/controlConfirmation lettersNetting - Securitiesaccount transfersCorporate actions -ReversalsTransaction history


Release


Transaction and Position Management Process (1)

The organizational procedures of transaction management can be split up into several steps: You can create a security transaction directly as a contract or create it first as an order. The activity sequence to be followed is dependent on the processing category selected in Customizing (with or without settlement).

Within transaction management, you can branch from any application to the partner management functions in order to create, display, and change business partners, in addition to maintaining their payment details.

Each activity within transaction management (contract, processing, and others) can be analyzed in Cash Management.

© SAP AG FSC010 5-372

© SAP AG 2006

OrderOrder ContractContract

Transaction Management: Initial Variants

The Transaction Management functions enable you to manage transactions as orders, executed orders and contracts, and settled and posted transactions. You can map potential orders (order), orders that you conclude (execution or contract) and the securities transactions that you post (purchases and sales) in the system.

You can create a security transaction initially as an Order or enter it directly as a Contract.

© SAP AG FSC010 5-373

© SAP AG 2006

Company Code TR00ID NumberTransaction Type

113500100 PurchaseDeuba Deutsche Bank

Bond 96/06

Business Partner

Transaction

Order O Contract

External number assignment

Create Order: Initial Screen

Transaction

When you create a securities transaction, you are mapping an order or contract through the purchase or sale of securities. You specify which class you want each business partner to purchase or sell.

© SAP AG FSC010 5-374

© SAP AG 2006

Company Code TR00ID Number 113500Transaction type 100 Activity Order

Basic Data Limit

Trading

Partner Deuba

Sec. AcctOrder dateNominal amount

Deuba Acc101/20/YY200T

Trader Maier

Limit TypeLimit dateLimit price

Dmax,Pmax11/31.01/YY105

ConclusionContact person Mr. Bauer

Structure

Creating an Order

Transaction data includes: Basic Data:

Here, you enter the nominal amount for percentage-quoted securities and the number of units for unit-quoted securities. (You can determine whether a security is "unit-quoted" or "percentage-quoted" in the class master data of the relevant ID number).

The order date shows when the order was issued or created. Limit data: Here, for example, you can enter a suitable maximum/minimum price and a date up to which the order is effective.

© SAP AG FSC010 5-375

© SAP AG 2006

Company Code TR00ID Number 113500Transaction type 100 Activity Contract

Inventory Date Details

Amounts

Partner Deuba

Deuba Acc1Short-term inv.

Quantity position

Nominal amnt

Rate

Payment amount

200.000,00

Position Value DateCalculation datePayment date

01/22/YY-10

Structure

100

EUR

%

Sec. AcctGeneral valuationclass

CouponRound. rule

Accrued interest calculation

Executing an Order

EUR

If you want to execute a transaction after you have placed a securities purchase/sales order, you have to enter this change in the system. Then the order is executed. You have to add to or change the existing order entries by entering the actual transaction data. For example, you enter the actual execution price.

The general valuation class helps you assign the position in the parallel valuation areas. Date details (in the sample data, the system assumes you want to execute the order the day the order is placed): The position value date tells you when the position is available in the system (usually order date plus two days).

The calculation date is relevant for financial mathematics in relation to the conditions. This date enables you, for example, to calculate the interest accrued for interest-bearing securities and indicates the last day the vendor is entitled to earn interest (usually order date plus one day).

When you execute an order, the payment date refers to the day you post the payment amount and the data is updated in Cash Management. (usually order date plus 2 days).

The dates can be populated using rules specified in Customizing. You can use rounding rules defined in Customizing for the accrued interest calculation.

© SAP AG FSC010 5-376

© SAP AG 2006

Company Code TR00ID Number 113500Transaction Type 100 Activity Contract

Other Flows

Main flow

Net payment amount

Bewegung Bezeichnung Richtung Zahlbetrag W hrO870 Stückzinsen 7.200,00 EURO312 Provision nicht akt. 1.000,00 EUR

208.200,00-

Other Flows

Bart Bezeichnung Zahlbetrag Whr RichtungO100 Kauf 200.000,00 EUR

EUR

F4

Other selection options

Execute Order: Other Flows

On the "Other flows" screen, the system automatically calculates the accrued interest for interest-bearing securities. For all types of securities, you can also create other flows, such as charges, brokerage, or commission, which accrue when you buy and sell securities.

In Customizing, you define the other flows you are permitted to use.

© SAP AG FSC010 5-377

© SAP AG 2006

Company Code TR00ID Number 113500Securities Acct. Deuba Acc2

Cash Flow

ZhlgTermin Bart Bezeichnung Zahlbtr. ZW Richtg. Whr22.01.JJ O100 Kauf 200.000,00 EUR22.01.JJ O870 Stückzinsen 7.200,00 EUR22.01.JJ O312 Prov. n. akt. 1.000,00 EUR

Transaction cash flow

Execute Order: Transaction Cash Flow

When you execute orders, enter contracts, and settle (new) transactions in transaction management, the system displays the transaction cash flow.

For example, a purchase leads to an outgoing payment. The accrued interest is calculated on the basis of the condition entries which were defined (fixed) in the class master data for this ID number, as well as including the rounding rules, if required.

The transaction cash flow is displayed on the SAP List Viewer. You can set it up flexibly and therefore adjust it to suit the particular requirements of your company. You can set up your own display variants.

© SAP AG FSC010 5-378

© SAP AG 2006

Suggested Order Data Changes possible

:Number of unitsSec. price:

Company CodeID number

Nominal amntOrdercreated

Execute200.000100

or: Enter data

Create Contract:

TR00113500

ContractTransaction

Overview of Execution/Contract

A transaction can be in activity category "Contract" if an order that you created earlier (with any necessary changes/additional data) has been executed or

a contract has been created directly.

© SAP AG FSC010 5-379

© SAP AG 2006

Securities Account Class Cash Flow

The securities account class cash flow displays all flows of a securities account class position relevant to cash flow. This may include condition details (such as interest calculation method, number of days, percentage, and so on).

© SAP AG FSC010 5-380

© SAP AG 2006

Flow List

All flows for a position are shown in the flow list including accounting flows or write-ups and write-downs. Each flow is shown with its status(planned or actual record).

You can display all valuation areas in the flow list at the same time.

© SAP AG FSC010 5-381

© SAP AG 2006

Transaction category

Purchase Sale

Current activity category

Order SettlementContract Expired Order

General selections

Company codeReceivableID numberSec. acct:.

TR00

Output controlDisplay variant

Collective Processing in Securities: Initial Screen

The "Collective processing" function enables you to manage transactions efficiently. You can display information about the individual transactions depending on the criteria you select on the initial screen.

You can display lists of orders, contracts, settlements, and expired orders and restrict each of your selections even more (for example, for the company code or securities account).

© SAP AG FSC010 5-382

© SAP AG 2006

CoCd Transaction Actv.cat. Trans.type Name ID Number Short name Sec. Acct Nominal Price (Un. quote)

TR00 353 Contract 100 Purchase 113500 Bond 96/06 Deuba Sec Acc2 200.000,00 100TR00 352 Order 100 Purchase 113500 Bond 96/06 Deuba Sec Acc2 300.000,00 90

Billing ReverseOrder expiration Cash Flow History

Collective Processing: List

The collective processing list allows you to branch to the relevant transaction to display the (position) cash flow of the operative valuation area, or the history. It also has several important processing functions that enable you to change, execute, settle and reverse selected transactions.

The collective processing function allows you to display lists flexibly using the SAP List Viewer.

© SAP AG FSC010 5-383

© SAP AG 2006


Master Data

111

222



444 Accounting and Closing Operations- Posting transactions- Manual posting- Automatic debit position- Position Management- Closing Operations


© SAP AG FSC010 5-384

© SAP AG 2006

Posting Transactions: Transferring Data to Financial Accounting using the Posting Report

Application


General selections

Company Code toTransaction toProduct type to

...

Posting control

Posting dateTest run


Before you post the transactions, you have to select the flows or positions of the transactions you want to post. You can have the system carry out a test run in order to check the accuracy of the posting entries in the posting log. When you execute the posting, flows and related documents are transferred to Financial Accounting.


You can post all valuation areas at once or just the flows of the operating valuation area (001). If you post only the operative flows, the flows of the parallel valuation areas must be posted or fixed using a separate posting report.

© SAP AG FSC010 5-385

© SAP AG 2006

TransactionTransaction

PostPost

113105207.200

Posting LogPosting Log4040 4501045010 200,000.00 EUR200,000.00 EUR SS4040 273100273100 7.200,00 EUR7.200,00 EUR SS50 113105 50 113105 207.200,00 EUR207.200,00 EUR NN

Accounting document generated in FIAccounting document generated in FI

4501045010200.000200.000

2731002731007.2007.200

Post Transaction

To transfer your data to Financial Accounting you must ensure that the appropriate accounts and the required document types already exist there.

© SAP AG FSC010 5-386

© SAP AG 2006

FI- General LedgerTreasury Subledger

Treasury Ledger

Integration Between General Ledger and Subledger

Ledger 1 Inventory311044

…

Expense118500

Unreal.112200

90 1

Bank clearing acct220155

91

3 3

Securities purchase

Valuation


…

Expense118500

Unreal.112200

91


91

1 1

Securities purchase

Valuation

Valuation Area 001 - Trading PositionValuation rule for fixed-interest bondBrokerage not capitalizedValuation at market value

Valuation area 002 - Financial Assets

Valuation rule for fixed-interest bondBrokerage capitalizedAmortization

Valuation area 003 - Financial assets

Valuation rule for fixed-interest bondBrokerage capitalizedLowest Value Principle

Transaction ManagementPurchase of a fixed-interest bond at CHF 90 with a broker's fee

of CHF 1

Valuation area 004 - IFRS

Valuation rule for fixed-interest bondBrokerage capitalizedValuation at market value


…

Expense118500

Unreal.112200


90 1 91Securities purchase

Valuation

Document #1

Document #4

Document #2

Document #5

Document #3

Example: Purchase of a zero bond at CHF 90 with a broker's fee of CHF 1 At the month end, the bond is valuated at a market value of CHF 93, the amortization is CHF 1.

This is the same example as before. The nominal value is EUR 100 to 90. The charge for each transaction is EUR 1.

The transaction is entered in Transaction Manager and as soon as the data is saved it is updated to the Treasury ledger. Using a special interface, the Distributor, the transaction data is updated to the relevant valuation area. First Valuation Area 001 is posted and it generates document 1.

The first valuation area 001 is posted and generates Document 1. Valuation areas 002 and 003 can be updated at the same time as valuation area 001 or later. Documents 2 and 3 are generated.

This example also contains valuation area 004, which is not updated to Financial Accounting. Therefore, the positions are only managed in the subledger and are not available in the general ledger.

At the end of the period, key date evaluation occurs at market value. On the key date, the bond has a value of 93, which is displayed as an unrealized gain in valuation 001 (Document 4 is generated). In valuation area 002, the same transaction is valuated according to the Amortized Cost Method instead of the market value. The value of the amortization for this period of 1, this is displayed as an unrealized gain (Document 5 is generated). Valuation area 003 valuates this transaction according to the lowest value principle; as a result, the gain is not attributed.

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The two slides should illustrate that the account numbers in all three valuation areas are the same. This means that the number of general ledger accounts must not be multiplied by the number of valuation areas.

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by

E.g.: Securities purchasePosting record (= "Posting specifications") :

(40) Balance sheet account to (50) Bank clearing account ... EUR

to 113105 ... EURDeutsche Bank—other postings

from

Transaction

Acct Determ.

- Changeable -

Bal. sheet account

from

Position Indicator

Acct assignment ref.

- Fixed -

here: 45000 SecuritiesFixed assets

Bank clearing account

Post Transaction: Overview

To post purchases/sales of securities: The balance sheet account is defined in the account determination. In addition to the securities balance sheet account, you can define other information (such as the business area) as an additional account assignment in Customizing. These are then automatically derived for the relevant business operation. In turn, you enter the account assignment reference in the position indicator. The indicator contains additional information about the position of the particular security. You cannot change the balance sheet account in the account determination when you post a transaction.

The bank clearing account is read from the transaction. You can change this account in account determination when you post the transaction.

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Company Code TR00ID number 113500Securities Acct. Deuba Acc2

Update type Update type SE3012 SE3012 ((Commission, not capitalized)Commission, not capitalized)

AmountAmount 100 EUR100 EUR

Post

Posting Log

4040 479100479100 100.00 EUR100.00 EUR5050 113105113105 100,00 EUR100,00 EUR

Manual posting

You use Manual Posting for flows that are not entered in Transaction Management and that are therefore assigned to positions and not to individual transactions.

You can use the manual posting function to enter irregular or subsequent posting activities (such as one-off commissions) by ID number and securities account. It allows you to include and process several update types. The "Post" function generates actual records that are transferred immediately to Financial Accounting. The "Save without posting" function creates planned records which are later posted using the manual debit position function and then transferred to FI.

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G/L accounting

G/L account posting

General ledger only

Manual Posting – For all Security ID Numbers

Posting involving several security ID numbersPosting involving several security ID numbers

Example: Securities account chargesExample: Securities account charges

If postings do not relate to one security ID number in a particular securities account (for example, securities account charges), they are entered in the general ledger in Financial Accounting.

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Alternative I:

Bank Account

Dividends Nominal interest

Bank clearing account

Automatic Debit Position

Account statement

Bank clearing to revenue

Bank to bank clearing

FI

Automatic Debit Positions I

F

P

The automatic debit position function enables you to automatically process activities that occur regularly whose dates and amounts are fixed in advance. It can be used, for instance, to post interest, dividend or repayment flows, in other words, flows that are generated from the conditions.

Planned records must exist (such as planned records for interest received) before you can use the automatic debit positions function.

To use the automatic debit positions function, you must first post all the activities that affect the position for the ID numbers and securities accounts you have selected up to the date when you want to perform automatic posting.

There are two procedures for processing activities that recur regularly: Alternative I: When you use the one-step procedure, you post the flows directly to the bank clearing accounts. These are cleared in Financial Accounting when the bank statement is imported.

Alternative II: In the two-step procedure, you first post the expected payments to receivables accounts. When the bank statement has been imported, the bank clearing accounts are cleared in the subledger accounting and the automatic debit positions function is triggered.

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UType Description Status Nominal amnt Crcy StmntAmnt Settlmt.curr.SE1000 Purchase fixed 120.000,00 EUR 120.000,00 EURSAM5013 Dividend planned 1.600,00 EUR 1.600,00 EUR

... ... ... ... ... ... ...

Automatic Debit Position I: Planned Record

The automatic debit position function processes planned records that are generated from the conditions and are for regularly occurring payments.

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Company CodeProduct typeID numberSec. acct

General Accrual/Deferral

totototo

Posting Control

TR00

514000

Instead of due dateInstead of current date

...

...

...

...

Up To and Including Due DateAutomatic posting parameters

Automatic Debit Position I: Initial Screen

Posting DateDocument date

Test run

For automatic debit positions, you use selection criteria to select the relevant planned records. Entering a date in the Up to and including due date field means that the system generates only planned records that are due up to this date.

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Pos.val.dte Flow type Doc.type FI doc. no. Post. date Post.yearPKey For.curr. amount Loc.curr.amount G/L acct

16.02.YY 5013 Dividend SA 0000648 16.02.YY YYYY40 1,600.00 EUR 1,600.00 EUR 113105 Dt. Bank interim postings50 1,600.00 EUR 1,600.00 EUR 272100 Securities revenue

ID number 514000 Dt. Bank Registered Stock

Securities Account (Class) Cash Flow

Pos.vl.dte UpdateType Description Status Nominal amnt Crcy SttmntAmnt Settlmt.curr.02/03/YYYY SE1000 Purchase fixed 100.000,00 EUR 200.000,00 EUR05/17/YYYY SAM5013 Dividend fixed 1.600,00 EUR 1.600,00 EUR

... ... ... ... ... ... ... ...

Posting Log

Automatic Debit Position I: Posting Log

In the one-step procedure, the automatic debit position function transfers the selected planned records as actual records in CFM and automatically forwards the relevant posting records (in this case, directly via bank clearing) to Financial Accounting.

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1

1

IP

Alternative II:

IP

F I

Dividend/Nominal interest PP

Automatic debit positions Receivables to revenue

Receivables account F

Bank statement By bank-to-bank clearing

Bank account

Manual debit position By bank clearingon receivables

Bank clearing account F

Automatic Debit Position II: With Manual Debit Position Function

Two-step procedure: In the first step you use the automatic debit function to post the selected planned records. The relevant posting records are automatically forwarded to G/L accounting in Financial Accounting (in this case, using the interim receivables account). [In G/L accounting in FI a cash receipt triggers a posting to the bank clearing account.]

In the second step you fix the planned records for the automatic debit function. The relevant posting records are transferred automatically to G/L accounting in FI. There it is possible to clear both the receivables account and the bank clearing account. The update types for the manual debit position function are generated in settlement currency and in position currency. This means, for example, that it is also possible to represent interest payments for Euro bonds in USD in the system.

You generally use the manual debit position function to post-process and post activities that were created by the automatic debit position function. Whereas the automatic debit position function posts several activities at once, the manual debit position function only allows you to process one activity at a time.

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Pos.vl.dte UType Description Status Nominal amnt Crcy SttmntAmnt Settlmt.curr.01.21./YYYY SE1000 Purchase fixed 200.000,00 EUR 200.000,00 EUR01.21./YYYY SE8702 Accrued interestfixed 7.200,00 EUR 7.200,00 EUR01.21./YYYY SE3012 Comm.not.cap.fixed 1.000,00 EUR 1.000,00 EUR16.02.YYYY SAM5000 Nom. interest planned 12.000,00 EUR 12.000,00 EUR16.02.YYYY SAM6000 Nom. interest IPplanned 12.000,00 EUR 12.000,00 EUR

Automatic Debit Position II: Planned Record

The relevant planned records are selected in the automatic debit position. Activities that have been posted are shown in the fixed status, and the interest is shown in planned.

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Posting log (operative):

16.02.YY 5000 Nominal Interest SA 0000693 16.02.YY YYYY40 EUR 12,000.00 EUR 12,000.00 152050 Interest receivables50 EUR 12,000.00 EUR 12,000.00 273100 Interest income

Pos.val.dte Flow type Doc.type FI doc. no. Post. date Post.yearPKey For.curr. amount Loc.curr.amount G/L acct

ID number 113500 Bond 96/06

Automatic Debit Position II: With IP Records

When you use the two-step procedure, the automatic debit position function posts the selected planned records and transfers the relevant posting records (in this case: via the interim receivables account) automatically to G/L accounting in Financial Accounting.

You can configure your system (in Customizing) so that when you post the nominal interest the system posts the related tax flows automatically. The two-step process then collects all the related flows. This means that when tax flows are generated the system also generates the actual records for incoming payments.

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Pos.vl.dte UpdateType Description Status Nominal amnt Crcy SttmntAmnt Settlmt.curr.01/21/YYYY SE1000 Purchase fixed 200.000,00 EUR 200.000,00 EUR01/21/YYYY SE8702 Accrued interest fixed 7.200,00 EUR 7.200,00 EUR01/21/YYYY SE3012 Comm.not.cap. fixed 1.000,00 EUR 1.000,00 EUR02/16/YYYY SAM5000 Nom. interest fixed 12.000,00 EUR 12.000,00 EUR02/16/YYYY SAM6000 Nom. interest (IP) planned 12.000,00 EUR 12.000,00 EUR02/16/YY+1 SAM5000 Nom. interest planned 12.000,00 EUR 12.000,00 EUR

... ... ... ... ... ... ... ...

Automatic Debit Position II: Planned Record IP

After automatic debit position, posting is carried out and the relevant activity is displayed as actual records.

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Company Code Position

at portfolio level

at security account group level

at security account level

Position Management Options

at single position level

It is very important that you decide at which level you want to manage your securities positions. The main purpose of position management is to provide the basis for valuing your positions and determining price gains/losses.

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Portfolio 1

Portfolio 2

Transaction 3+4

113500

716460

Transaction 5+6

113500

716460

Receivable 7

113500

Transaction 1+2

113500

716460

Position Management: Portfolio-Related

For position management regarding portfolios, the system defines portfolios that each have individual transactions assigned to them when the transactions are entered. Each securities account group represents a position-managing unit.

Each portfolio is defined in Customizing and represents an organizational unit in the company code that enables financial transactions to be summarized to perform aggregated position analysis.

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Sec. Acct 2

113500

716460

Sec. Acct 3

113500

716460

Sec. Acct 4

113500

Sec. Acct 1

113500

716460

Sec. acct group 1 Sec. acct group 2

Position Management: at Security Account Group Level

To manage positions at securities account group level, you define portfolios to which you assign several securities accounts (with their respective positions). A securities account group is a superior unit for managing positions. This means that securities account positions belonging to a securities account group are seen as a single unit.

A securities account group is an organizational unit within a company code that allows you to group certain financial transactions and positions and to perform aggregated position evaluations.

You can also define the securities account groups you have created as a basis for valuation. You define security account groups in Customizing. You assign securities accounts to a securities account group when you create master data for the securities account.

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Securities Account 2

113500

716460


113500

716460


113500


113500

716460

Position Management at Securities Account Level

Position management at the securities account level means that you consider each securities account and its respective positions as a single unit.

Securities accounts are valuation and position management units. They are needed for all financial transactions that require position management.

You can use securities accounts to display securities account statements, evaluate positions, and transfer securities accounts. The securities accounts created in the system are usually related to real securities accounts managed at a bank.

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COMBA2 DEUBA1 DEUBA2 DREBA1 DREBA2 DREBA3COMBA1

Company codeposition

is divided into positions in several different securities accounts

Position Management at Securities Account Level

Purchases and sales of securities

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Flexible Position Management Procedures Enable You to Map Different Methods of Financial Reporting

Customizing

Sequ

ence

of t

he

valu

atio

n st

eps

durin

g ke

y da

te v

alua

tion

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Classification Allows the Position to Be Managed According to Different Procedures

P a r a l l e l v a l u a t i o n a r e a s


Sale of a stock1,000 units EUR 270.000

Valuation: Mark-to-Market Valuation: Lowest value principle

HGB IASSale of a stock

1,000 units EUR 270.000

Sale of a stock

1,000 units EUR 270.000

Position mgmt procedure

Derived Business OperationsGenerate valuation-area-dependent price gains/price losses/amortizations

HGBKG

IASKV

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Classification Allows the Position to Be Managed According to Different Procedures

P a r a l l e l v a l u a t i o n a r e a s


Purchase of a Bond500.000 Nominal 102 %

Amortization: Net SAC Amortization: Gross SAC

X- GAAP Y GAAPPurchase of a Bond

500.000 Nom. 102 %

Purchase of a Bond

500.000 Nom. 102 %

Position mgmt procedure

Derived Business OperationsGenerate valuation-area-dependent price gains/price losses/amortizations

X-GAAP Post

Premium

Y-GAAP Post

nominal

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Interest accrual/deferral:Interest accrual/deferral:11 Difference procedure*Difference procedure*22 Reset proceduresReset procedures

Amortized costAmortized cost

Reset accrual/deferralReset accrual/deferral

Reverse accruals/deferralsReverse accruals/deferrals

*currently not supported for securities

Settlement Tasks: Accruals/Deferrals

You perform accruals/deferrals to assign receipts and expenditures to the accounting period to which they belong.

The accrual/deferral procedure describes how the expense and revenue accounts used are updated. The accrual/deferral activity is based on flows from selected business transactions that are relevant for accrual/deferral up to the specified key date. The system determines the accrual/deferral amount for each flow and generates the relevant accrual/deferral flows. You can execute the accrual/deferral run as a test run (accrual/deferral log) or you can post the accruals/deferrals immediately (accrual/deferral log and posting log).

You can use the "Reverse accrual/deferral" function to reverse accruals/deferrals that have been posted or reset.

If you used the reset procedure to perform accruals/deferrals, use the "Reset accrual/deferral" function to write back the accruals/deferrals.

The amortized cost method is available in the Securities area as a special procedure for accruals/deferrals, in particular for discounted bonds.

Customizing: Defining the accrual/deferral:

- Specify the linear accrual/deferral method - Assign the accrual/deferral flow types you want to generate as reference flows for the flows

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you want to accrue/defer.

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Maintain security pricePosting LogValuation Log

Position valuation

Closing Operations: Valuation - Position Valuation

You can value securities positions on any key date. This key date valuation is the valuation of positions for accounting purposes and uses the prices on a particular key date.

To value your positions, you first have to maintain the related security prices. If you want to value different positions, you use the classification according to price types (such as valuation, spot, middle, bid, ask or closing price) in the price table.

You set up valuation parameters in Customizing.

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Closing Operations: Position Valuation

The key date valuation can be done with or without reset. The valuation is controlled by the “Valuation category”.

The following valuation categories are available: Year-end valuation Mid-year valuation with reset Mid-year valuation without reset Manual valuation with reset Manual valuation without reset

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Closing Operations: Valuation - Posting

For key date valuation, all relevant valuation steps defined in the position management procedure are performed - for example, amortization, security and forex valuation.

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Sec. write-up/write-down (LC):Sec. write-up/write-down (PC) * book exchange rate, old

Foreign crcy write-up/write-down: Compares old book value (PC) * exchange rate (depending on valuation rule: acquisition price, priceon key date, and so on)

Sec. write-up/write-down (PC): Compares unit * sec. price(depending on val. rule: acq. price, price on key date, and so on)

Sec. write-up/write-down (PC): Compares unit * sec. price(depending on valuation rule:acquisition price, price on key date, and so on)

Sec. write-up/write-down (LC):Sec. write-up/write-down (PC) * Book exchange rate,old

A. Two-step: First security, then foreign exchangeSec. write-up/write-down (PC):Compares unit * sec. prices(depending on valuation rule: acquisition price, price on key date, etc.)

Foreign crcy write-up/write-down:New book value (PC) * exchange rates (depending on val rule: acq. price, priceon key date, etc.)

Sec. write-up/write-down (LC):Sec. write-up/write-down (PC) * book exchange rate, new

Total write-up/write-down (LC) -:Old book value (LC) -New book value (LC)

Foreign currency write-up/write-down:Total write-up/write-down (LC) -Sec. write-up/write-down (LC)

A. Two-step: First foreign exchange, then security C. One-step

11

22

33

44

Closing Operations: Foreign Currency Valuation

You can choose among three methods for valuing the performance of foreign currency securities. These differ in the way in which they calculate the profit/loss for the security and foreign currency components: A two-step procedure that first calculates the profit/loss for the security component, and then for the foreign currency component.

A two-step procedure that first calculates the profit/loss for the foreign currency component, and then for the security component.

A one-step procedure that calculates the total profit/loss in the local currency. PC: Position currency LC: Local currency

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ForeignForeign currencycurrency raterate

SecuritySecurity priceprice32 36 3932 36 39

1,801,80

1,701,70

1,501,50

SecuritySecurity profitprofit//lossloss

ForeignForeign currencycurrencyprofitprofit//lossloss

TwoTwo--step method (first security, then foreign currency)step method (first security, then foreign currency)

Foreign Currency Valuation: Example

Example: Two-step method (first security, then foreign currency)

Security price Foreign currency rate Purchase (1,000 units) 39 1,80 Preperiod valuation 32 1,50 Current valuation 36 1,70

In the preperiod, both the security and the foreign currency were written down. As a result of the underlying valuation rules, you have to write-up the current foreign currency rate and security price for the current valuation. In doing this, you first calculate the profit/loss in the security, then in the foreign currency.

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Master Data

11

22




55 Position Management- Corporate actions- Repostings

- Securities account, account assignment reference, valuation class

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Corporate Actions Are Directly Supported by the System

Capital increase against investments(subscription rights management, new stock)

Capital increase from retained earnings

Capital reduction

Stock Split

Exercising rights

Separating warrants and warrant bonds

Manually generated corporate action

You can represent the following activities in the Corporate Actions area: post subscription rights; transfer new stock; capital increases from retained earnings; stock splits; capital reductions; stock swaps; other corporate actions; convert issue currency.

You first define corporate actions centrally for all company codes. When you have activated the corporate actions, you can perform posting in each company code in which you manage positions belonging to the securities affected. From there, you update the securities positions and generate FI documents, if required.

You must also create the position indicators for all securities or securities accounts affected.

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or PI for security to be posted

Prerequisites

Post corporate actionper company code

Create corporate actionCross-company codes

Save

Activate

Corporate Actions: Overview

You can represent the following activities in the Corporate Actions area: post subscription rights; transfer new stock; capital increases from retained earnings; stock splits; capital reductions; stock swaps; other corporate actions; convert issue currency.

You first define corporate actions centrally for all company codes. When you have activated the corporate actions, you can perform posting in each company code in which you manage positions belonging to the securities affected. From there, you update the securities positions and generate FI documents, if required.

You must also create the position indicators for all securities or securities accounts affected.

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StockStockEUR 50EUR 50

Convertible bond

EUR 100.000,00

Subscription right

Convertible bondConvertible bond

Equitywarrants

Warrant bondWarrant bond

Warrant bond

EUR 100.000,00 ex

cum

new

Subscription

right

Conve

rtible

bond

Equity

Warrant bond

Warrant bond

Position Management: References – Overview

For position-changing activities that affect several securities the relationship between the securities is represented by the relevant references, if required. Example: You assign one reference to one subscription right; this entitles you to new stocks. You link convertible bonds and warrants to the relevant underlying transaction. You create a reference for the cum warrant to both the warrant bond ex and the warrant.

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Warrant: stocks

Warrant: interest

Warrant: index

Warrant: currency

Subscription right

Convertible bond

Warrant bonds

Callable bond

Putable bond

Position Management: References

Relationships between individual securities or particular rights are displayed as a reference. This is generated automatically when you enter the class master data once you have specified the ID number of the related security or the data for the right displayed.

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Prerequisites(Old) stocks in position

Post subscription rights (CorpAct)

Purchase/sell subscription rights, if required

Exercise subscription rights

New stocks in position

Transfer new stocks (CorpAct)

New stock position

Subscription right classPI subscription rightNew stock class

PI new stock

(Regular) Capital Increase: Overview

You have to satisfy the above prerequisites if you want to represent a capital increase in the system and execute the resulting transactions.

PI: Position indicator CorpAct: Corporate Actions

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NewNewStockStock

StockStockUNI 50UNI 50 Old stock Subscr.

Right


Right


Right


Right


Right

Subscr. right ratio 1:1Subscription ratio 5 : 1

Capital increase

In the case of a capital increase, existing stockholders have the right (in Germany) to obtain new stocks in proportion to the number of stocks they currently hold. This enables existing stockholders to maintain their share of voting rights and compensates for any negative price trend resulting from the capital increase.

The subscription right ratio indicates how many subscription rights are attached to an old stock. One old stock usually has one subscription right (ratio 1:1)

The subscription ratio indicates how many subscription rights you require to obtain one new stock.

Example: Capital increase from EUR 50 M to EUR 60 M. OK corresponds to a ratio of 50:10 or 5:1. 5 existing stocks to 5 subscription rights to 1 new stock.

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Book value

Old position

Value + acctg.Value

Old stocks Subscr.rights

- Sub.rts markdown

Subscr.rights

post

Capital Increase: Post Subscription Rights

The subscription price of the new stock is lower than the exchange price of the old stocks. As a result of this difference, the subscription right has a theoretical value equivalent to the difference between these two prices, taking into account the subscription right ratio.

The total value of a securities account position is not affected by the capital increase. The resulting subscription rights simply shift the value amounts in the position.

The value of the subscription right for accounting purposes differs from the theoretical value if the book value of the old stock is lower than its market value. In this case, you have to determine the accounting value of the subscription right and, in doing so, bring the theoretical value into line with the book value of the old stock.

The book value of the old stocks is, on the one hand, reduced by the amount of the accounting value of the subscription right. On the other hand, the subscription right is posted in the position such that the total position value is identical before and after the capital increase.

The system makes adjustment postings to the old stock position required for book value markdowns automatically.

Subscription right markdown occurs on the first day of the subscription period. The old stocks are traded as Subscription rights ex.

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The old stocks in the position are marked down by the value of the subscription right used for accounting purposes:

Markdown = Subscription right value xMarkdown = Subscription right value x Old stock book Old stock book valuevalueOld stock market Old stock market pricepricehere:here: 41.67 x41.67 x300300

350350= EUR 35,71= EUR 35,71

= Accounting = Accounting subscrsubscr. . rgtrgt valuevalue

You determine the theoretical value of the subscription right automatically using the following formula:

SubscrSubscr. . right right value value

mmcc

+ 1+ 1==

Here:Here: 5511 + 1+ 1

= EUR 41.67= EUR 41.67350 350 -- 100 100

+ Dividend disadvantage+ Dividend disadvantageKKaa -- KKnn

-- Dividend advantageDividend advantage

Capital Increase: (Theoretical) Value of Subscription Rights

The theoretical value of the subscription right is determined using the above formula: Ka: current exchange price of the old stock

Kn: subscription price of the new stock m: old capital n: amount of capital increase m/n: Subscription ratio

You convert the theoretical value of subscription rights for the subscription right markdown to the book value of the position in old stocks (value for accounting purposes).

Example: Old stocks position: purchased 200 units at EUR 300 Capital increase at a ratio of 5:1; (subscription right ratio 1:1) Subscription price EUR 100 Current exchange price for old stock: EUR 350

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PostingsPostings

40 194200 7.142,86 EUR50 133020 7.142,86 EUR N

40 133000 7.142,86 EUR 50 194200 7.142,86 EUR H

Post subscription rights

111 111

222 222

PK Account

Capital Increase: Post Subscription Rights

The old stocks position (ID number 111111) is marked down and the subscription rights position (ID number 222222) is posted, in both cases at an amount of 200 (subscription rights) x 35.71 EUR* (value for accounting purposes per subscription right) = 7,142.86 EUR* Rounding difference; the system uses exact values for calculation.

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PostingsPostings

222 222 222222:: 194200 to 133000194200 to 133000 5.357,155.357,15

333 333 333333:: 133020133020 8.357,158.357,15

to 194200to 194200 5.357,155.357,15to 113105to 113105 3.000,3.000,----

: 150 units at 35.72 EUR at asubscription price of 100 EUR pernew stock

SubR– Sales: 50 unitsSubR - purchases

Subscription rights posted

Exercise subscription rights

Capital Increase: Exercise Subscription Rights

You exercise subscription rights for all securities accounts in a company code. To follow selective strategies for individual securities accounts, you can first perform transfers, make additional purchases or sell subscription rights.

When you exercise subscription rights, new stock is added to your position. You post new stocks at the value of the relevant subscription rights and the subscription price paid. Example: Sale of 50 subscription rights. Subscription rights position: 150 units at EUR 35.71*. Exercise 150 subscription rights to obtain 30 new stocks (subscription ratio 5:1) with payment of EUR 3,000 (subscription price of EUR 100 per new stock). Exercise and post subscription rights (ID number 222222) at [150 x 35.71]* = EUR 5,357.15 *. Post new stocks (ID number 333333) at [5,357.15 + 30 x 100]= EUR 8,357.15 *.

Rounding difference; the system uses exact values for calculation.

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PostingsPostings

111 111111 111 4040 133020133020 8,357.15 EUR D8,357.15 EUR D

5050 194200 8,357.15 EUR C194200 8,357.15 EUR C

333 333333 333 4040 194200 8,357.15 EUR D194200 8,357.15 EUR D5050 133020 8,357.15 EUR C133020 8,357.15 EUR C

Axx

Bxx

PostPostNewNewStockStock

ID no.ID no.333 333 333333

OldOldStockStock

ID no.ID no.111 111 111111

PKPK Account AmountAccount Amount

Capital Increase: Transfer New Stocks

As soon as new stocks are aligned with old stocks, new stocks lose their status and are assigned to the old stocks position. When new stocks are transferred they are automatically assigned the ID number of the old stocks.

After you select the new stocks at company code level, all positions of this class are displayed in all the securities accounts of the company code. The posting transfer then takes place within the outgoing payments securities account. A securities account transfer is recorded in a posting log.

Example: 30 new stocks (ID number 333333) are transferred at a book value of 8,357.15 EUR to the old stocks position (ID number 111111).

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© SAP AG 2006

Company CodeID numberProduct type

TR00

44444401A

Deuba Acc2

Securities Account TransferDeuba Acc11000

XX,XX,XXXX700

Values

Securities Account Transfer: Process

Calculation dateNo. of units to be transferred

Source sec. accountNumber of units

Target sec. account

After you enter the data for the source securities account and the posting date, the system displays an overview of the securities account position from which you can select any number of units to transfer to the target securities account. The system generates the flows required for the transfer and updates the position of the respective securities account.

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Securities Account Transfer: Post

A securities account transfer is recorded in a posting log.

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Account Assignment Reference Transfer: Execute

The account assignment reference postings of a class are selected by identity numbers. The positions of the postings concerned are displayed by position management.

The new account assignment reference and posting day are provided on the selection screen. Postings can be carried out for one particular area or all valuation areas.

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Account Assignment Reference Transfer: Post

The balance sheet transfer is recorded in a posting log.

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Valuation Class Transfer: Execute

A valuation class must be transferred to transfer an asset class or position management of a position. For this transfer, you must select a valuation area and the specific valuation classes on the initial screen.

Valuation classes are transferred on the general valuation class level and are valid for all valuation areas.

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Valuation Class Transfer: Post

A securities account transfer is recorded in a posting log.

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Exercises 16

Unit 5: Transaction Manager: Securities Topic Master Data


• Create class master data

• Set up securities accounts

• Define position indicators

You want to invest long-term funds in stocks and in a bond that has just been issued. Since this is the first time you are investing in both types of securities, you must first maintain class data. You want to manage some of the investments separately, and open another securities account at your house bank specifically for these purchases.

16-1 You want to purchase stocks of the Deutsche Bank AG. Before you enter the transaction, you have to create the relevant class master data:

Use the following ID number: DE0005140## (##=PC no./Group number).


On the Basic data tab page: Field Name or Data Type Value

Issuer 1000

Nominal value 5

Issue currency EUR

Security type Regist. security

Stock category Common stock

Quotation Unit-quoted

Stock form Old stock

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On the Conditions tab page:


Eff. from 22.MM.YYYY

Amount 1,50

Due Date 22.MM.YYYY

Frequency Leave at 000

On the Exchanges tab page:


Listed X - select indicator

Exchange FFM

16-2 Preparatory data for exercise 19:

Create the following class: ID number: DE0008046##0. This is for a stock.


Go to the Basic data tab page: Field Name or Data Type Value

Issuer BKDRBANKDE

Nominal value 5

Issue currency EUR






Field Name or Data Type Values

Eff. from 26.MM+3.YYYY

Amount 0,75

Due Date 26.MM+3.YYYY


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Field Name or Data Type Values


Exchange FFM

16-3 Enter the class master data for the following step-up bond, which is repayable in full upon maturity: ID number: XS0001136## Product type: 04I Description: Step-Up Bond ## Classification: Bank Bonds Rating: Eff. from 15.03.YYYY-1 ; S&P; Aa Issuer: 1000 Issue currency: EUR Nominal value: 1000 Nominal per TU: 1000 Issue currency: 15.03.YYYY Term: 10 years Issue price: 100 % Conditions: from 15.03.YYYY-1 4 % from 15.03.YYYY 5 % from 15.03.YYYY+1 6%, whereby payments will now be made every 6 months Interest rate calculation method: act/actP Make sure that the due date always falls on a working day. Exchange: FFM (Frankfurt/Main) Use the cash flow to check that the conditions have been entered correctly.

16-4 You have opened a new securities account at the Deutsche Bank. Enter the securities account master data in the system: Securities account: Acc A## Depository Bank 1000 Clearing Account: 444556## Account number: 75352## House bank for EUR payments: 1000 House bank account for EUR payments: 1000 House bank for USD payments: 1000 House bank account for USD payments: 1050

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16-5 You want to purchase Deutsche Bank stocks for your new securities account. You want to create the position indicator manually.

Company Code: FS## General valuation class: 0001 ID number: DE0005140## Securities account: Acc A## Portfolio Portfolio1 Check whether an entry has been made in the account assignment reference and the position management procedure.

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Solutions 16

Unit 5: Transaction Manager: Securities Topic Master Data

16-1 You want to purchase stocks of the Deutsche Bank AG. Before you enter the transaction, you have to create the relevant class master data: Use the following ID number: DE0005140## (##=PC no./Group number). Enter the following data: Go to the Basic data tab page:


Issuer 1000

Nominal value 5

Issue currency EUR




Stock form Old stock On the Conditions tab page:



Amount 1,50

Due Date 22.MM.YYYY

Frequency Leave at 000 On the Exchanges tab page:



Exchange FFM

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Creating the stock

To create the stock, choose:

Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Securities Master Data Class (FWZZ)



ID Number DE0005140##

Choose Create (on the left of the ID number). A dialog box appears.


ID number DE0005140##

Product Type 01A Stocks

Short description Dt. Bank AG

Long name Deutsche Bank AG

Without reference X - select indicator

Choose Create.

Go to the Basic Data tab page. Enter the following data:


Issuer 1000

Nominal value 5

Issue currency EUR





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Go to the Conditions tab page. The dividend is suggested (taken from the product type).



Amount 1,50

Due Date 22.MM.YYYY


Select the Exchanges tab page.

Choose Insert Row on the lower left edge of the screen.

You now have an open row to enter data.




Exchange FFM

Save your data by selecting Save in the standard toolbar.

16-3 Preparatory data for exercise 19:

Create the following class: ID number: DE0008046##0. This is for a stock. Enter the following data:

Go to the Basic data tab page:


Issuer BKDRBANKDE

Nominal value 5

Issue currency EUR





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Amount 0,75






Exchange FFM

To create the class master data for a stock:

To create the stock, choose:




ID Number DE0008046##0

Choose Create (on the left of the ID number). A dialog box appears.



ID number DE0008046##0

Product Type 01A Stocks

Short description Dresdner Bank

Long name Dresdner Bank


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Choose Create.

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Go to the Basic data tab page. Enter the following data:


Issuer BKDRBANKDE

Nominal value 5

Issue currency EUR





Go to the Conditions tab page. The dividend is suggested (taken from the product type).



Amount 0,75



Go to the Exchanges tab page.






Exchange FFM

Choose Save to save the class data.

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16-3 Enter the class master data for the following step-up bond, which is repayable in full upon maturity: ID number: XS0001136## Product type: 04I Description: Step-Up Bond ## Classification: Bank Bonds Rating: Eff. from 15.03.YYYY-1 ; S&P; Aa Issuer: 1000 Issue currency: EUR Nominal value: 1000 Nominal per TU: 1000 Issue currency: 15.03.YYYY Term: 10 years Issue price: 100 % Conditions: from 15.03.YYYY-1 4 % from 15.03.YYYY 5 % from 15.03.YYYY+1 6%, whereby payments will now be made every 6 months Interest rate calculation method: act/actP

Make sure that the due date always falls on a working day.

Exchange: FFM (Frankfurt/Main)

Use the cash flow to check that the conditions have been entered correctly.

To create the class master data for a step-up bond:




ID Number XS0001136##

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In the subsequent dialog box, enter the following data:


Product Type 04I

Short description Step-Up Bond ##

Long name Step-Up Bond ##


Choose Create.

Go to the Search terms tab page.


Classification Bank bonds

Rating (Select Insert row)

Eff. from 15.03.YYYY-1

Institute Standard and Poor’s

Rating Aa

Go to the Basic data tab page.


Issue

Issuer 1000

Issue currency EUR

Nominal value 1.000

Nominal per TU 1.000

Issue start 15.03.YYYY-1

End of term 15.03.YYYY-1+ 10

End of term Set the checkmark

Issue rate 100

Structure

Quotation Percentage-quoted

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Go to the Conditions tab page.

Here you will find various pre-defined values. Interest rates and the final payment for condition items are displayed. Change the following value for the interest rate conditions:


Int.calc.method Act/ActP (ISMA)

Enter or confirm the following values:


Interest – eff. from 15.03.YYYY-1

Interest – Percent 4

Calculation date 14.03.YYYY

Due Date 15.03.YYYY

Frequency 012

Check the detailed information about this interest condition by selecting the row and clicking Detail (on the lower part of the screen).

An overview with two tab pages is displayed. Go to the Dates tab page and enter the following values:


Calendar 01

CR- Calendar rule (up to due date)

2 (next working day modified)

Calendar data is required for the working day check in the calendar rule.

Select Back in the standard tool bar to return to the overview.

Select ENTER to fill/update several fields.

Add a row to the condition items by selecting Insert row.

Select condition type 100 (interest) and choose Copy.

The new row is displayed.

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Enter the following values in the new row:


Interest – eff. from 15.03.YYYY



Due Date 15.03.YYYY

Frequency 012




Calendar 01



Choose Insert row to add another new line to the condition items.

The new row is displayed.

Enter the following values in the new row:


Interest – eff. from 03/15/JJJJ+1



Due Date 15.03.YYYY

Frequency 006

Before leaving the Conditions tab page, make sure that Calendar 01 is stored for each of the existing conditions .


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Calendar 01



To display and check the cash flow for this class, choose Cash Flow in the application tool bar. You can view the planned purchase and condition flows arising from the previously maintained condition types.

Return to your class creation transaction and select the Exchanges tab page.






Exchange FFM


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16-4 You have opened a new securities account at the Deutsche Bank. Enter the securities account master data in the system:

Securities account: Acc A## Depository Bank 1000 Clearing Account: 444556## Account number: 75352## House bank for EUR payments: 1000 House bank account for EUR payments: 1000 House bank for USD payments: 1000 House bank account for USD payments: 1050

Creating a securities account

To create the securities account, select:

Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Securities Master Data Securities Account Edit (TRS_SEC_ACC)



Company Code FS##

Sec. Acct ACC A##

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Choose Create.

Create without copy by choosing Create (green checkmark) in the dialog box.



Securities account Acc A##

Depository bank 1000

Clearing account 444556##

Sec. acct number 75352##

Payment Currency EUR

House Bank 1000

House bank – Account 1000

Insert a new row by selecting the appropriate pushbutton.



Pymnt Crcy USD

House Bank 1000

House bank – Account 1050

Go to the Other tab page. Enter the following values:


portfolio PORTFOLIO1

Choose Save to save the securities account master data.

The securities account is created.

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16-5 You want to purchase Deutsche Bank stocks for your new securities account. You want to create the position indicator manually.

Company Code: FS## General valuation class: 0001 - Exchange for valuation: ID number: DE0005140## Securities account: Acc A## Portfolio Portfolio1

Check whether an entry has been made in account assignment reference and position management procedure.

To create the position indicator, select: Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Securities Master Data Position Indicator Create (TPM55A)



Securities X – select indicator

Company Code FS##

Gen. Valuation Class 0001 – Trading IFRS/US-GAAP

ID number DE0005140##

Sec. Acct ACC A##

portfolio PORTFOLIO1

Choose ENTER.

Verify that the fields Position Management Procedure and the Account Assignment Reference are filled in the Subledger Position Indicator area of the next screen.

Choose Save to save the data.

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Exercises 17

Unit 5: Transaction Manager: Securities Topic Trading and Back Office


• Enter security transactions: Orders – Contracts

• Settle security transactions

• Reverse transactions

You want to increase your stock position using our long-term measures. You place an order with your house bank to purchase 30,000 Deutsche Bank shares. The bank executes the order and charges a broker's fee. After the transaction has been posted, you discover that incorrect data was entered. You have to correct this. You carry out a check using the cash flow. You also want to purchase fixed interest securities.

17-1 You placed an order to purchase 30,000 units of Deutsche Bank stocks on 05.MM.YYYY. (ID number: DE0005140## ). Enter this activity in the system. Note the transaction number ________________ .

First, enter the transaction as an order.

17-2 The bank confirms the order at a price of EUR 115, with the value date 2 days after the order was placed.

Enter this in the system and assume that the transaction is for securities account “Acc A##” with position value date 07.MM. YYYY. A position is posted only once this contract has been entered.

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17-3 You later find out that there was an error in the date(s) entered for the Deutsche Bank stock purchase. It is important that the position value date for this purchase is 08.MM. YYYY relevant. Correct this. • Use the Securities collective processing function to call up the orders,

contracts and settlements for your company code. • Select the relevant order execution and change the transaction.

17-4 Settle the transaction.

17-5 Preparatory data for Exercise 19:

Now purchase stocks (1000 units) of class DE0008046##0, which you created in exercise 16-2, at EUR 75 per unit (value date: 10.MM.YYYY)


Then settle the transaction.

17-6 Now purchase fixed interest securities of the class, which you created in exercise 16-3.

Use business partner 1000.

Create the transaction with a nominal amount of EUR 1 million at 102%.

(Position value date and payment date: 10.MM.YYYY Calculation date: one day earlier – inclusive)

Check the accrued interest calculation.


Calculate the transaction as described in exercise 17-4.

17-7 Using the cash flow in the HGB or IFRS valuation areas, obtain an overview of the position trend of your securities. To do this, use the Collective Processing function.

Also look at the details for the number of units/acquisition price/book price.

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Solutions 17

Unit 5: Transaction Manager: Securities Topic Trading and Back Office

17-1 You placed an order to purchase 30,000 units of Deutsche Bank stocks on 05.MM.YYYY. (ID number: DE0005140## ). Enter this activity in the system. Note the transaction number ________________ .

First, enter the transaction as an order.

To enter the order, choose: Accounting

→ Financial Supply Chain Management → Treasury and Risk Management → Transaction Manager → Securities → Trading → Create Financial Transaction (FTR_CREATE) Enter the following values:


Company Code FS##

Product Type 01A

Transaction Type 100 – Stocks-Purchase



Activity – Order X - select indicator

Choose ENTER.

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_ First, enter the transaction as an order.

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Flow Type 0100 - Purchase (trans.)

Sec. Acct ACC A##

Order Date MM/05/JJJJ

Number of Units 30.000

Limit price 116 EUR

Save the order by selecting Save in the standard toolbar.

17-2 The bank confirms the order at a price of EUR 115, with the value date 2 days after the order was placed. Enter this in the system and assume that the transaction is for securities account “Acc A##” with position value date 07.MM.YYYY. A position is posted only after this contract has been entered.

To enter this contract, choose: Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Securities Trading Edit Financial Transaction (FTR_EDIT)



Company Code FS##

Transaction Your transaction number from exercise 17-1

Choose Execute.

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Inventory

Securities Account ACC A##

General Valuation Class 1 Trading IFRS/US-GAAP

Date Details

Position Value Date 07.MM.YYYY

Calculation Date 07.MM.YYYY

Payment Date 07.MM.YYYY

Amounts

Number of Units 30,000 (taken from the order data)

Price (Un. quote) 115

Save the transaction by choosing Save in the standard toolbar.

17-3 You later find out that there was an error in the date(s) entered for the Deutsche Bank stock purchase. It is important that the position value date for this purchase is 08.MM. YYYY relevant. Correct this.

• Use the Securities collective processing function to call up the orders, contracts and settlements for your company code.

• Select the relevant order execution and change the transaction.

To change the transaction: Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Securities Trading Collective Processing Securities (TS00)

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Enter or check the following values:


Company Code FS##

Select one transaction.

Select the transaction by positioning the cursor and selecting Change in the application toolbar.

The transaction is displayed.

Change the following values:


Date Details




Save the data by selecting Save in the application toolbar.

You will be taken back to Collective Processing.

You will receive the new data when you refresh the data with the appropriate button in the application toolbar.

17-4 Settle the transaction.

To settle the transaction, select: Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Securities Trading Collective Processing Securities (TS00)

Select your company code.

Select your transaction.

Choose Settle in the application tool bar.

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Select Save in the standard toolbar to execute the settlement.

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Alternatively, you can select: Securities Trading Edit Financial Transaction (FTR_EDIT)



Company Code FS##

Transaction Your transaction number from exercise 17-1

Choose Settle.

Save the displayed data by choosing Save in the standard toolbar.

The transaction is settled.

17-5 Preparatory data for exercise 19: Now purchase stocks (1000 units) of class DE0008046##0, which you created in exercise 16-2, at EUR 75 per unit (value date, calculation date and payment date: 10.MM.JJJJ). Then settle the transaction.

To help you, use the solution for exercise 17-2 (Purchasing Stocks) and exercise 17-4 (Settlement).


17-6 Now purchase fixed interest securities of the class, which you created in exercise 16-3. Use business partner 1000. Create the transaction with a nominal amount of EUR 1 million at 102%. (Position value date and payment date: 10.MM.YYYY Calculation date: one day earlier – inclusive) Check the accrued interest calculation.

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To purchase fixed-interest securities, choose: Accounting

→ Financial Supply Chain Management → Treasury and Risk Management → Transaction Manager → Securities → Trading → Create Financial Transaction (FTR_CREATE) Enter the following values:


Company Code FS##

Product Type 04I

Transaction Type 100 – Fixed-interest bonds-Purchase


ID Number XS0001136##


Choose ENTER.

On the Structure tab, enter or confirm the following values:



Sec. Acct ACC A##

General Valuation Class 1 IFRS/US-GAAP: Available for Sale /HGB: UV

Date Details


Calculation Date 09.MMJJJJ

Inclusive indicator X - select indicator


Amounts

Nominal amnt 1.000.000 EUR

Price (% Quot.) 102 %

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Check the calculated accrued interest flow and the net payment amount on the Other flows tab page.

Save the securities transaction by choosing Save in the standard toolbar.


Then settle the transaction as described in exercise 17-4.

17-7 Using the cash flow in the OPERATIONAL or IFRS valuation areas, obtain an overview of the position trend of your securities. To do this, use the Collective Processing function. Also look at the details for the number of units/acquisition price/book price.

Select Collective Processing to display the cash flow for the valuation areas (TS00). Restrict the selection to your company code.

Your transactions are displayed. Select the relevant transaction. Select Cash flow to view the requested data. In this overview, Position and Valuation Areas buttons are available in the application toolbar. You have the choice between IFRS and OPERATIONAL for the valuation areas.

In each case, you can view a list of planned position flows (subledger – cash flow).

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Exercises 18

Unit 5: Transaction Manager: Securities Topic Accounting


• Post transactions

• Enter postings manually

• Use the different debit position procedures

• Valuate positions for accounting purposes

The bank charges a commission fee, which you have to post. One of the postings must be reversed.

You valuate your security position at the end of the month.

18-1 You post settled transactions in the accounting area. Post the transaction for all valuation areas.

18-2 The bank charges a commission fee of EUR 1,000 with value date 11.MM.YYYY.

You want to enter this charge in the securities module and decide to post it to securities account “Acc A##” for the Deutsche Bank stock (ID no.: 5140##).

Post this flow manually with value date/position value date 11.MM.YYYY.

Display the posting journal for this ID number.

18-3 Your bank notifies you by telefax that the commission amount was incorrect. Due to a typing error, you have been charged EUR 1,000 instead of EUR 100.

Correct this mistake:

18-3-1 Reverse the posted charge (entering a reversal reason).

18-3-2 Enter the charge of 100 EUR, value date 11.MM.YYYY. Save the process without posting.

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18-4

18-4-1 The manual debit position of the charge is executed, so that the charge is posted.

18-4-2 You also wish to post dividends with value date 22.MM.YYYY. Use the automatic debit position function to do this.

18-5 At the end of the month, you want to value your position. Carry out a “mid-year valuation without reset”. For this key date valuation (Date: last day of the current month) a price rate must be maintained in the system. After the update run, check the relevant changes to the planned records in the cash flow for the valuation areas 001 IFRS and 002 OPERATIONAL.

18-5-1 Perform the accounting valuation: To do this, enter the current price of EUR 110 on the Frankfurt Stock Exchange as the valuation price for Deutsche Bank stock.

18-5-2 Check the log in the simulation (valuation test run).

18-5-3 After the update run, the cash flow (of the valuation areas) displays the posted write-down amount.

Use transaction TPM13.

18-6 As stock prices increase, you decide to sell part of your stock and realize your gains. You sell 20,000 units of Deutsche Bank stocks on 25.MM.YYYY at a price rate of 120 EUR.

18-6-1 Enter the order in the system.


18-6-2 Check and settle the transaction in the back office.

18-6-3 Then post the transaction for all valuation areas. Check the posted profit.

18-7 Display the transaction. Check the generated price gain in the cash flow of valuation areas 001 IFRS and 002 OPERATIONAL. To do this, use the Collective Processing function.

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Solutions 18

Unit 5: Transaction Manager: Securities Topic Accounting

18-1 You post settled transactions in the accounting area. Post the transaction for all valuation areas.

To settle the transaction, choose:

Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Securities Accounting Transaction Post (TBB1)

Ensure that you only select securities and that all valuation areas are posted. Perform a test run and then an update run. The posting log displays an overview of all posted flows.

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18-2 The bank charges a fee of EUR 1,000 with value date 11.MM.YYYY. You want to enter this charge in the securities module and decide to post it to securities account “Acc A##” for the Deutsche Bank stock (DE0005140##). Post this flow manually with value date/position value date 11.MM.YYYY. Display the posting journal for this ID number.

To execute the manual posting, choose:

Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Securities Back Office Securities Account Management Payments Manual Posting (FWBS)



Company Code FS##


Sec. Acct ACC A##

Choose ENTER.


Date Details 11.MM.YYYY

Now add a row (select Insert other flow). The dialog box Manual Posting: Process Flow appears. Select SE3015 as the update type (Charge). Enter 1,000 EUR as the settlement amount. Choose Copy. Save the data by selecting Post in the application toolbar. The posting log is displayed.

You can find the posting journal in Accounting in the securities information system (TPM20).

Select the required values and view the posting log. As usual, you can set the layout as you wish.

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You can view the securities account class cash flow by selecting Securities → Back Office → Securities Account Management → Position Information → Securities Account Cash Flow (TPM40). The charge is now posted.

18-3 Your bank notifies you by telefax that the commission amount was incorrect. Due to a typing error, you have been charged EUR 1,000 instead of EUR 100. Correct this mistake:

18-3-1 Reverse the posted charge (entering a reversal reason).

To correct the transaction, choose:

Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Securities Back Office Securities Account Management Payments Reverse Debit Position (FWOEZ)



Company Code FS##

Sec. Acct ACC A##


Click the selected row and select Reverse business transaction.

On the next screen, enter the following values in the Posting Control area:

Field Name or Data Type

Value

Reason for Reversal Process.error

FI Reversal Date Date of the original operation is proposed

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Save your data by selecting Reverse in the standard tool bar. The data is saved and posted in Financial Accounting. The reversal log is displayed.

(You can verify that the original process is no longer displayed using TPM40.)

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18-3-2 Enter the charge of 100 EUR, value date 11.MM.YYYY. Save the process without posting.

Call up the transaction as described in exercise 18-2. However, now enter 100 as the settlement amount.

There are two alternatives: 1. In practice, the activity is posted immediately (see exercise 18-2). 2. You can also save your data first and then post the flow with the debit position in a second step. Take alternative 2 by selecting Save Without Posting.

(The cash flow (TPM40) still displays the charge as Scheduled and not Fixed.)

18-4

18-4-1 The manual debit position of the charge is executed, so that the charge is posted. To execute the manual posting, choose:

Accouting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Securities Back Office Securities Account Management Payment Manual Debit Position (FWZE)



Company Code FS##


Sec. Acct ACC A##

Choose ENTER.

Select the required activity (Charge) and choose Post business transaction.

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The fields are predefined. Simply choose Save to post the activity.

You can view interesting information in the posting log.

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18-4-2 You also wish to post dividends with value date 22.MM.YYYY. Use the automatic debit position function to do this.

To execute the automatic posting, select:

Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Securities Back Office Securities Account Management Payments Automatic Debit Position (FWSO)



Company Code FS##

Up To and Including Due Date 22.MM.YYYY

You can perform a test run and then an update run.

18-5 At the end of the month, you want to value your position. Carry out a “mid-year valuation without reset”. For this key date valuation (Date: last day of the current month) a price rate must be maintained in the system. After the update run, check the relevant changes to the planned records in the cash flow for the valuation areas 001 IFRS and 002 OPERATIONAL.

18-5-1 Perform the accounting valuation: To do this, enter the current price of EUR 110 on the Frankfurt Stock Exchange as the valuation price for Deutsche Bank stock.

To valuate the position, choose:

Accounting Financial Supply Chain Management Treasury and Risk Management Basic Functions Market Data Management Manual Market Data Entry Securities and Indexes Enter Security Prices (FW17 or S_ALR_87008536)


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Exchange FFM

Choose Change.



Rate date Last day of the current month

Rate type: 01 Market price

Market value: 110

Save the data.

Confirm warning messages by choosing Enter.

18-5-2 Check the log in the simulation (valuation test run).

To perform the valuation, choose: Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Securities Accounting Valuation Execute Valuation (TPM1) (Kay Date Valuation)



Product Groups - Securities X - select indicator

Company Code FS##


Key date Last day of the current month

Valuation Category Mid-Year Valuation Without Reset

Perform a test run and then an update run. Possible processes are displayed. If the Status column is empty, a valuation has not yet been performed. (After a valuation for the key

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date has been performed, a green symbol is displayed in the status field and a further valuation is no longer possible.) To perform the valuation, select Execute valuation in the application toolbar.

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18-5-3 After the update run, the cash flow (of the valuation areas) displays the posted write-down amount. Use transaction TPM13.

To display the cash flow for the valuation areas:

Transaction call TPM13

Or Securities Information System Position Trend Position Flow List

18-6 As stock prices increase, you decide to sell part of your stock and realize your gains. You sell 20,000 units of Deutsche Bank stocks on 25.MM.YYYY at a rate of 120 EUR.

18-6-1 Enter the order in the system.

To enter this contract, choose: Accounting

→ Financial Supply Chain Management → Treasury and Risk Management → Transaction Manager → Securities → Trading → Create Financial Transaction (FTR_CREATE) Enter the following data:


Company Code FS##

Product Type 01A

Transaction Type 200




Choose ENTER.

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Enter the following values on the Structure tab page.


Flow Type Sale (transaction)

Sec. Acct ACC A##

General Valuation Class Trading IFRS/US-GAAP




Amounts

Number of Units 20.000

Rate 120

Check the quantity position before saving. On the Structure tab, choose Quantity Position. Check that you have 30,000 units “Without transaction“ and 10,000 units with transaction in the position.

Save the activity as usual.


18-6-2 Check and settle the transaction in the back office.

Proceed as described in detail in exercise 17-4.

18-6-3 Then post the transaction for all valuation areas. Check the posted profit. Proceed as described in detail in exercise 18-1.

18-7 Display the transaction. Check the generated price gain in the cash flow of valuation areas 001 IFRS and 002 OPERATIONAL. Choose the Cash Flow button of the Collective Processing function. Proceed as described in detail in exercise 17-7.

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Exercises 19

Unit 5 Transaction Manager: Securities Topic Position Management


• Enter a capital increase as a corporate action

A corporation in which you hold stocks performs a capital increase. You post the subscription rights to which you are entitled, and decide to exercise all of them. You later bring the new stocks into line with the old stocks.

19-1 You purchased 1000 units of Dresdner Bank stocks, with ID number

DE0008046##0, at EUR 75 in securities account Deuba Acc2 (see exercise 17-5).

Use the securities account cash flow to check this activity.

19-2 Due to a capital increase by the Dresdner Bank, you are entitled to subscription rights to purchase new stocks.

Create the following class master data:

19-2-1 New stock: ID number: DE0008046##2

Use the Copy function to copy the old stock (ID number DE0008046##0). (Also copy the basic data, conditions, and exchanges.) You must make changes to the stock form (new stock).

19-2-2 Create the subscription right as follows (use product type 03A):

ID number: DE0008046##6 Issuer BKDRBANKDE Issue currency: EUR ID number of underlying: DE0008046##2 Subscription price: 65 EUR Subscription ratio: 20 : 1 Subscription period: 14.MM+1.YYYY –

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28.MM+1.YYYY Exchange: FFM

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19-3

19-3-1 On the first day the subscription rights are traded (14.MM+1.YYYY), you post the subscription rights to which you are entitled with value date and position value date 14.MM+1.YYYY. Create the relevant corporate action and activate the process. When you enter the corporate action, make sure that you take into account the price of the reference stock (EUR 80) and the dividend disadvantage (EUR 0.75). The subscription ratio is 1:1. Note the corporate action ID number (CA number) ___________

You must also maintain the position indicator for subscription right postings. You can do this in two ways 1. You can create the position indicator manually (as described in exercise 16-5) or 2. you have the system create it automatically with the corporate action posting.

19-3-2 The corporate action is posted in your company code. The posting log displays the posted subscription rights and the subscription right markdown of EUR 636.16 for the old stocks.

The theoretical value of the subscription right is determines as follows: 75 * 0.678570 / 80 =: EUR 0.63616 For 1000 stocks with 1000 subscription rights you post subscription rights worth EUR 636.16 and subtract the relevant markdown for the old stocks.

19-3-3 Check the procedures in the IFRS and OPERATIONAL cash flows for both the old stock and the subscription right.

Position: - Old stock cash flow: DE0008046##0: 1000 units at (75 – 0.63616) = EUR 74.36384. - Subscription right cash flow: DE0008046##6: 1000 units at EUR 0.63616.

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19-4 On 18.MM+1.YYYY, you decide to exercise all the subscription rights. The new stocks are posted when you exercise the subscription rights. The security right, which was generated by subscription right link to new stock is also displayed. This was carried out when the class data was created in exercise 19-2.

Remember to create a position indicator before you post the new stock. You can do this in two ways 1. You can create the position indicator manually (as described in exercise 16-5) or

2. you have the system create it automatically with the exercising rights posting.

When you exercise the subscription rights you obtain 50 new stocks at a total value of EUR 3,886.16. (50 stocks at a subscription price of EUR 65 (= EUR 3,250) plus the subscription right value of EUR 636.16).

19-5 Assume that the new stock equals the old stock on 01.MM+2.YYYY.

19-5-1 Transfer this new stock to the securities account of the old stock as a corporate action.

Note the number of the corporate action _______.

19-5-2 Post the corporate action in your company code. When you have transferred the new stock, check the cash flow of both the new and old stock.

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Solutions 19

Unit 5: Transaction Manager: Securities Topic Position Management

19-1 You purchased 1000 units of Dresdner Bank stocks, with ID number DE0008046##0, at EUR 75 in securities account Deuba Acc2 (see exercise 17-5). Use the securities account cash flow to check this activity. To display the “Securities Account Cash Flow”, choose:

Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Securities Back Office Securities Account Management Position Information Securities Account Cash Flow (TPM40)



Company Code FS##


Sec. Acct ACC A##

You can see the purchase of 1,000 shares with a total value of EUR 75,000 in the position.

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19-2 Due to a capital increase by the Dresdner Bank, you are entitled to subscription rights to purchase new stocks.

Create the following class master data:

19-2-1 New stock: ID number: DE0008046##2

Use the Copy function to copy the old stock (ID number DE0008046##0). (Also copy the basic data, conditions, and exchanges.)

You must make changes to the stock form (new stock).

To create new stock as a class, select: Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Securities Master Data Class (FWZZ)

Enter the ID number of the new class.


ID number (new class!) DE0008046##2

Choose CREATE on the displayed screen.

A dialog box appears.

Set the With reference indicator.

The dialog box expands to display the Copy Reference area. Enter the ID number of the class intended as the template (DE0008046##0).

Enter the ID number of the new class.


Short name Dresdner NS

Long name Dresdner New Stock

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Copy reference DE0008046##0

(Also copy the basic data, conditions and exchanges.) Set the relevant indicator in the lower left area of the screen.


Basic Data X - select indicator

Conditions X - select indicator

Exchanges X - select indicator

Choose Copy in the lower area of the dialog box.

Before saving, change the stock form to New stock (Basic data tab page).


Stock form New stock


19-2-2 Create the subscription right as follows (use product type 03A): ID number: DE0008046##6 Issuer BKDRBANKDE Issue currency: EUR ID number of underlying: DE0008046##2 Subscription price: 65 EUR Subscription ratio: 20 : 1 Subscription period: 14.MM+1.YYYY – 28.MM+1.YYYY Exchange: FFM

To create the subscription right, select:


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Enter the subscription right ID number:



Choose Create on the displayed screen.

A dialog box appears.

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Select product type 03A.


Product Type 03A

Short name SubscRight DrBa

Long name Subscription Right Dresdner Bank


Choose Create in the lower area of the dialog box.

Before saving, enter the following values:

Basic data tab page:


Issuer BKDRBANKDE

Issue currency EUR

Add a new line for the subscription periods using Insert Row.


Subscription Right ID entered automatically

Underlying ID number (ID no.underlying)

DE0008046##2

Subscription ratio numerator (SubRatNumer)

20

Subscription ratio denominator (SubRatDenom)

1

Subscription price 65

Currency EUR

Subscript. period from 14.MM+1.YYYY

Subscript. period to 28.MM+1.YYYY

Description Choose your own

Go to the Exchanges tab page.


Exchange FFM

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19-3

19-3-1 On the first day the subscription rights are traded (14.MM+1.YYYY), you post the subscription rights to which you are entitled with value date and position value date 14.MM+1.YYYY. Create the relevant corporate action and activate the process.

When you enter the corporate action, make sure that you take into account the price of the reference stock (EUR 80) and the dividend disadvantage (EUR 0.75). The subscription right ratio is 1:1. Write down the corporate action number (CA number) ___________

You must also maintain the position indicator for subscription right postings. You can do this in two ways 1. You can create the position indicator manually (as described in exercise 16-5) or

2. You have the system create it automatically with the corporate action posting.

To create the corporate action, select: Accounting Financial Supply Chain Management Treasury and Risk Management Securities Back Office Corporate Actions (FWK0)

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CA number Leave blank

CA cat. Post subscription rights

CA type 70 – entered automatically

Choose Create.


Key date 14.MM+1.YYYY


ID subscription right DE0008046##6

Old stock ID DE0008046##0

Subscription right ratio 1:1

Divid. adv/disadv EUR 0,75

Market price old stock 80

The subscription right value is entered automatically when you choose ENTER.

Theoretical value of the subscription right: 80 - (65 + 0.75) / 20+1 = EUR 0.678571

Activate the corporate action by selecting Activate in the application toolbar. This also saves the corporate action.

Note the CA number ________________

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19-3-2 The corporate action is posted in your company code. The posting log displays the posted subscription rights and the subscription right markdown of EUR 636.16 for the old stocks.

The theoretical value of the subscription right is determines as follows: 75 * 0.678570 / 80 =: EUR 0.63616

For 1000 stocks with 1000 subscription rights you post subscription rights worth EUR 636.16 and subtract the relevant markdown for the old stocks.

To post a corporate action, choose Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Securities Accounting Corporate Action Post (FWKB)



Corporate action number ##

Company Code FS##


19-3-3 Check the procedures in the IFRS and OPERATIONAL cash flows for both the old stock and the subscription right.

Position:

- Old stock cash flow: DE0008046##0: 1000 units at (75 – 0.63616) = EUR 74.36384. - Subscription right cash flow: DE0008046##6: 1000 units at EUR 0.63616.

To display the cash flow, choose: Accounting Financial Supply Chain Management Treasury and Risk Management

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Transaction Manager Information System Reports Position Trend Position Flow List (TPM13)

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Product Groups - Securities X - select indicator

Company Code FS##

Valuation Area First, 001 (IFRS) then 002 (OPERATIONAL)


and DE0008046##6 (select Multiple Selection on the right, next to the entry field.)

Choose Execute.

You can modify the layout of the displayed list as required in the usual way.

You can see that, following the corporate action, the acquisition value of the old stock has been reduced by the theoretical value of the subscription right. The subscription right is also displayed.

19-4 On 18.MM+1.YYYY, you decide to exercise all the subscription rights. The new stocks are posted when you exercise the subscription rights. The system also displays the security right, which was generated by subscription right link to new stock. This was carried out when the class data was created in exercise 19-2.

Remember to create a position indicator before you post the new stock. You can do this in two ways 1. You can create the position indicator manually (as described in exercise 16-5) or

2. You have the system create it automatically with the exercising rights posting.

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When you exercise the subscription rights you obtain 50 new stocks at a total value of EUR 3,886.16. (50 stocks at a subscription price of EUR 65 (= EUR 3,250) plus the subscription right value of EUR 636.16).

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To exercise subscription rights, choose: Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Securities Trading Security Right Exercise (FWER)

Use the navigation tree on the left side of the screen to display existing rights. Choose ID number DE0008046##6 under Subscription right. The data for the subscription right appears on the left side of the screen.




Select ENTER and the subscription right position is displayed in the lower part of the screen, since the entered key date falls within the subscription period of the respective right.

Perform a test run by selecting Test Run in the application toolbar. However, you must first select the position.

To execute the update run, choose Save. The system produces a log for the procedure.

EUR 3,250 subscription price; Total posting amounts: Subscription price EUR 3,250.00 Subsc. right value EUR 636,16 Total EUR 3.886,16

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Cash flow for subscription rights (DE0008046##6): No position as at 18.MM+1.YYYY Cash flow for new stock (8046##2): 50 units at EUR 77.7232 (= EUR 3,886.16 for 50 units).

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19-5 Assume that the new stock equals the old stock on 01.MM+2.YYYY.

19-5-1 Transfer this new stock to the securities account of the old stock as a corporate action.

To transfer the new stock, choose: Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Securities Back Office Corporate Actions (FWK0)



CA number Leave blank

CA cat. Transfer new stock to old stock

CA type 60 – entered automatically

Choose Create.





New stock ID DE0008046##2

Old stock ID DE0008046##0

Activate the corporate action by selecting Activate in the application toolbar. This also saves the corporate action.

Note the ID number ________________

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19-5-2 Post the corporate action in your company code.

When you have transferred the new stock, check the cash flow of both the new and old stock.

To post a corporate action, choose Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Securities Accounting Corporate Action Post (FWKB)



Corporate action number ##

Company Code FS##


Posting log: Clear new stock EUR 3,886.16 Post old stock EUR 3,886.16

Cash flow new stock (DE0008046##2): No position as at 01.MM.YYYY Cash flow old stock (DE0008046##0): On 01.MM.YYYY: Position 1,050 units at 74.523810

1000 old stocks + 50 new stocks = 1,050 units. 1000 old stocks book value 75,000.00 ./. SR markdown 636.16 + 50 new stocks 3,886.16 ___________________________________ 1,050 stocks 78,250.00 1 stock 74,523810

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Market Risk Analyzer: Overview








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Price parameters

11

22

Course overview

33 Analysis structure and basic settings

44 NPV/sensitivity analysis

55 Value-at-risk evaluations

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Price parameters

Basic configuration of market risk analysis

Use of functions and tools of component risk analysis

NPV Analysis

Value-at-risk evaluations

This unit provides knowledge on the following topics:

Unit Objectives

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What is Market Risk?

RisksRisks

Area of OperationsArea of Operations Value/Finance AreaValue/Finance Area

Revenue risksRevenue risks Liquidity risksLiquidity risks

Technical...Technical...

Personnel...Personnel...

Market risksMarket risks Credit risksCredit risks

Interest rateInterest rate

Stock prices...Stock prices...

CurrenciesCurrencies

Default risksDefault risks

Country risksCountry risks

Settlement...Settlement...

RefinancingRefinancing

Date...Date...

Risk is the probability of loss from a financial transaction. The risk of a financial transaction is called a market risk when it results solely from changes in market parameters (interest rates, stock prices, currency exchange rates, volatilities, and so on).

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RiskControlling

III. Risk ManagementHedgingDiversificationCumulationLimiting

IV. Controlling in the narrower sense of inspecting management

I. Identifying risksRisk factors

II. Quantifying risksKey risk figures

Risk Controlling Process

In identifying risks, the next topic is which risks exist and which risks should be included in risk management. In identifying risks it helps to understand that risks have a cause and an effect (such as changes in value and revenue) on a certain object.

After you identify the risks, the next step is to decide which of the identified risks to analyze and which key risk figures to calculate.

Risk management focuses on limiting taking undue risks and distributing the sum of risks taken optimally among the individual sources of risk.

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Price parameters

11

22

Course overview


44 NPV/sensitivity analysis


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To evaluate transactions in risk analysis, you must fill out market data tables in the SAP system.

You can do this in the following ways:Manually

Excel interface

File interface

Datafeed

FTP access (Internet)

Datafeed server

Price Parameters: Business Scenario

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Yield typeIntraday indicatorInterest calculation method (360/360, actual/360, ...)Quotation type (bid, ask, middle)Currency(Interest) term (days, months, years)Calendar IDExchangeType of curve for forward calculationFixing periodWorking day rule

Reference interest rates(EUR, USD, GBP, etc)

GBP

USD

3 months 6 months 1 year

29.11.04

30.11.04

01.12.04

02.12.04

EUR

Reference interest rates

To store market interest rates in the system, you first have to create reference interest rates. You can define reference interest rates in the system that correspond to the parameters above. You can define as many reference interest rates in as many currencies as you like.

The reference interest rates are defined by currency, interest calculation method (such as 360E/360, Act/360), quotation type (such as bid or ask), term, and yield type.

The definition of the forward calculation of the curve type is especially significant for risk analysis. When you assign an interest rate to a yield curve, you define what interest rate structure is used to calculate forward interest rates in case that interest rate is used as the reference interest rate in products such as floating rate bonds, swaps, or caps. Then you can decouple the calculation of the forward interest rates from the curve that is used as a basis to calculate the zero bond discounting factors.

The reference interest rates compose the supporting points of the yield curves of various currencies. The reference interest rates also are assigned to yield curve types.

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Yield Types

3

4

5

6

7

1 2 3 4 5 6 7 8 9 10Years

Interest (%)Yields of Coupon BondsZero Bond Yields

Yields of coupon bonds vs. Zero bond yields

You can define par yield curves from securities with all-year coupon payment (securities having this coupon yield are quoted at par).

Zero bond yields are derived with finance mathematics from the par yield curves (bootstrapping).

Zero bond discount factors are calculated from the zero bond yield curves and are used to discount the payment flows.

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t

Interest Rate

Support points (reference interest rates)

interpolated values

Reference interest rates are transferredRemaining values are interpolated by the system

Yield Curve Maintenance

You need the relevant yield curves to determine the net present values. You can adjust the reference interest values to the support points daily. The SAP system uses the support points to calculated all the necessary values according to the type of interpolation for the yield curve by using linear or cubic spline interpolation.

Linear interpolation uses two known values to determine a value on a line between the two known values.

The annual support values are interpolated for curves of the par rate yield type up to the last reference interest rate (support point) defined in the yield curve for a maximum of 30 years. If the term of a calculated interest rate is outside the support points on a yield curve, the interest rate present at the upper or lower end is used instead.

Yield curves that are similar on a business level can be grouped into yield curve types. Then you can set the interest rate calculation method for each currency. You can define the valuation rule for transactions regardless of currency, since the system uses the yield curve needed when specifying the yield curve type in relation to the currency of a single transaction.

A yield curve type can indicate a market segment (swap market, government bond market) or the determination of the opportunity interest (in the sense of an internal market of the central fund manager).

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Yield Curve TypeDefining Yield Curve Types

Yield typeQuotation typeIntraday indicatorRead procedureInterpolation procedureBasis of interpolation

CurrenciesInterest calculation method by currencyReference interest rates by currency

EUR

%

Years

USDGBP

valid for the yield curve type

identifiedyield curve

Yield Curve Type

Yield curve types are described by attribute yield type, read and interpolation procedure, and many currencies. For each yield curve, the yield curve types have a grid point structure upon which the yield curves are formed.

A yield curve is constructed from the reference interest rates or grid points that have the following characteristics in common: Reference interest rates are assigned to the same yield curve type. Reference interest rates are defined for the same currency.

On the basis of this information, the expanded yield curve or interest table is constructed and contains the following values: The interest rates of the grid points The interpolated interest rates of the annual support values (for par rate yield type only) Zero coupon rates and zero coupon discounting factors of the grid points and the annual support values for par rate yield type.

The interest calculation methods of the yield curves and the reference interest rates may be different. When the set interest rates in the expanded interest table are saved, the conversion to the interest calculation methods of the yield curves occurs.

For enabled continuous compounding zero interpolation, zero rates with continuous interest calculation and the Act/365 interest calculation method are calculated from the zero bond discounting factors regardless of yield type.

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Today's yield curve(14.9.)

1 Month 1 year 2 years 3 years

4,3% 5% 5,7% 7%

Example: "Read back" read procedure

Searching for Interest Rates Through Read Procedures

maintained reference interest rates

14.9. 4,3% 5,7%

13.9.

12.9. 4,2% 5%

11.9. 4,2% 5% 5,6% 7%

10.9. 5,5%

If not all the reference interest rates are adjusted daily, you can define in the SAP system which previous interest rates to use as a reference. You can use the following alternative procedures: Read back: The last maintained interest rate is used for each grid point. Read directly: The present values for the condition date are used. Missing grid points are interpolated.

Read back directly: All grid points are read to a date. The system reads far enough into the past until all grid points have interest rates for a condition date.

Example 14.09 Read directly returns interest rates of 4.3% (<1 yr) and 5.7% (2 yrs) and interpolates the interest rate for the 1-year grid point and creates a flat yield curve for grid points with a term of over two years (3 years).

14.09 Read back returns interest rates of 4.3% (<1 yr), 5% (1 yr), 5.7% (2 yrs) and 7% (3 yrs)

14.09 Read back directly returns interest rates of 4.2% (<1 yr), 5% (1 yr), 5.6% (2 yrs) and 7% (3 yrs).

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Volatilities (reference int. rates,(Currencies, securities, ...)

Volatilities (reference int. rates,(Currencies, securities, ...)

EUR

Volty

Optionterm30 60 360

For evaluating optional financial transactions

Interest rate volatilities

Exchange rate volatilities

Security price volatilities

Stock index volatilities

Volatilities

The system enables you to define types of volatility. Each option type is assigned a certain type of volatility (such as the currency volatility for a currency option). If you expand this concept, you also can define volatilities independently from their defined assignments (see the following pages).

In addition, the system can define and calculate volatilities that are used for determining variance/covariance for value-at-risk evaluations.

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Statistics-calculator

VolatilitiesVolatilities

CorrelationsCorrelations

Volatility type

Correlation type

Holding period

Risk hierarchy

Time series

Calendar

Statistics Calculator

You can use the statistics calculator to calculate volatilities and correlations that are required to variance/covariance. You also can enter these values externally.

When you start the statistics calculator, you need the parameters above. You also can define whether it will calculate only volatilities or only correlations. After you start the statistics calculator, you can exclude certain volatilities and/or correlations.

Volatilities for zero coupon values are calculated in the interest area (the net present value always is calculated using the zero coupon values/curves). If you base calculations on par coupon curves, the assigned yield curve is used to transform the corresponding zero rates that the volatilities are intended for. The volatilities are saved in the interest volatility curve table. Historical volatilities calculated this way are different from the par rate volatilities (usually implicit volatilities) that are defined in the “interest volatilities" table. Interest volatilities from par rates are necessary for calculating interest options. There is no transformation to zero coupon volatilities for these calculations.

If interest volatilities are calculated using the statistics calculator based on original zero coupon curves, no transformation is necessary. You can save the calculated values directly to the "Interest Volatilities" table since you do not have to assign them to a yield curve (which is used to calculated the relevant zero rates for par rates).

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99,5Market Market DataData ShiftShift

interest+1%interest+1%

5,0

BondEUR 99.5 million

Loss of EUR 5 million

due to rise in interest

100.000Market Market DataData ShiftShiftRiseRise in Price+1%in Price+1%

1.000100

shares of X Profit of EUR 1,000 due to rise in stock price

100Market Market DataData ShiftsShifts

USD USD -- 1 1 centcentUSD USD -- interestinterest + 3%+ 3%

US dollarsDeadline item

Loss fromrise in USD interest

and reduction in USD

23

1 fa

ctor

shift

Ex.:

2 fa

ctor

shift

s

94,5

100.000

77

Market Data Shifts

Market data shifts enable you to check the NPV changes of items under conditions with simple changes.

Market data shifts are used only in NPV reports and to define scenario paths in asset liability management.

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Individualscenario, for example

• Turn in the yield curve• Reduction of volatility

• Reduction of the USD/EUR exchange rate

Bond optionlong callin USD

Int. Vola-tility

USD

8,5 million

1.5 million

USD

10 million

Loss frominterest, volatility,

and dollar exchangerate changes

Scenarios

Market scenarios provide the opportunity to alter the underlying market parameters. Then you can model the yield curves with graphic aides. In addition, you can define changes in volatility, exchange rates, or securities prices in the market data scenario.

You can put historical market data into scenarios and manipulate it. If a certain price parameter cannot be found in a scenario analysis, the missing parameter is replaced by the current market parameter when available in the SAP system(Replacement logic of the scenarios).

You can use scenarios in almost all evaluations of risk analysis instead of the current market prices.

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Interest rates from the money and capital markets and internal business rates are used to evaluate financial transactions in the risk analysis. To use these interest rates the interest tables in the SAP system must be maintained manually or automatically.

You can enter the following rate and price information into the SAP system: Exchange rates, security prices, reference interest rates, indexes, forward rates, as well as volatilities for currencies, securities, reference interest rates, and indexes.

Quality of the market data is the decisive factor for the analysis.

Price Parameters: Summary

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Price parameters

11

22

Course overview


44


NPV/sensitivity analysis

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To evaluate transactions in the risk analysis you have to provide financial objects with characteristics that allow for reporting along openly defined portfolio hierarchies.

The analysis structure provides the basis for:Defining portfolio hierarchies.

Defining the derivation of specific characteristics in the financial objects of single transactions.

Adequate reporting

Analysis Structure & Financial Object: Business Scenario

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The analysis structure contains all attributes that can be used as characteristics of a transaction for analysis purposes.

These attributes include default characteristics such as company codes, product types, portfolios, and others, as well as characteristics defined by the customers themselves.

The analysis structure is defined across all clients.

The analysis structure is enabled client-to-client.The portfolio hierarchy is defined based on the analysis structure.

Analysis Structure

The analysis structure is the technical basis for all activities in the Market Risk and Credit Risk components. They act as groupings of all characteristics that are utilized for reporting and analysis purposes and for structuring drilldown hierarchies.

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CreateCreate and and maintainmaintaincharacteristicscharacteristics

Create and maintainanalysis structure

DefineDefinecharacteristiccharacteristic valuesvalues

DeriveDerive characteristicscharacteristics

2

31

Creating an Analysis Structure

The analysis structure is the technical vehicle for all characteristics in risk management. You can define multiple analysis structures and assign multiple characteristics to them. Each client has exactly one analysis structure enabled.

The analysis structure forms the basis for the summarization levels that can be analyzed as part of the NPV, value-at-risk, gap, and ALM procedures. Each data pool transaction contains a finance object that allows assignments to the relevant portfolios of the summarization levels (views). Before the data interfaces are implemented, you must derive the analysis structure from the internal requirements. Otherwise you may have to adjust the transfer of the characteristics if they are not transferred completely.

You can redefine characteristics or copy them from the risk management field catalog or the profitability analysis field catalog. You can also use characteristics that are already present in the SAP system in reference tables. This procedure always is preferred from an integration perspective (copying criteria and entities) over creating new characteristics. For characteristics that you define, you must also define values of those characteristics.

Each transaction in the data pool has a finance object assigned to it. The finance object contains the corresponding transaction values for all characteristics of the analysis structure. The derivation of characteristics can be used to find the values of characteristics automatically.

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CharacteristicsCharacteristics

Business area

Company codeProduct type

Balance sheet item

Trader

Portfolio...

Business area

Company codeProduct type

Balance sheet item

Trader

Portfolio

...

Analysis StructureAnalysis Structure

Analysis Structure 1






Anyassignment

possible

Anyassignment

possible

Characteristics and Analysis Structure

You create characteristics independently of the data structures of the analysis structure. To create characteristics, you have the following methods available:

Copy from a reference table Define your own characteristics (with your own value maintenance, without value maintenance, related to a data element)

Copy from the field catalog of bank profitability analysis You define the analysis structure by selecting some of the characteristics from previously defined characteristics.

Groups of characteristics also are supported (dependent characteristics such as trader and company code). You can define the grouping for your own defined fields or copy it from the properties of a table field. Grouped characteristics always must be placed in a common analysis structure.

You also can use currencies as characteristics and refer to the TCURC table. Previously this was possible only by manually maintaining the corresponding values.

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Cha

ract

eris

tics

Cha

ract

eris

tics

Cha

ract

eris

tics

Product typeProduct type Bal. sheet itemBal. sheet item Profit CenterProfit Center TradersTraders Trade groupTrade group

Analysis Structure 1Analysis Structure 1 Analysis Structure 2Analysis

Structure 2 Analysis Structure 3Analysis Structure 3

Anal

ysis

str

c.An

alys

is s

trc.

Anal

ysis

str

c.Characteristics, Analysis Structure and Views

Analysis structures are defined across all clients. Each client has only one analysis structure enabled.

Characteristics are assigned to the analysis structures that represent the underlying data structure.

The investment structure is used to place portfolio hierarchies that make it possible in reporting to drill down on the analyzed results of an investment structure by values of the characteristics.

Attention: There is only one view in Corporate Finance Management that remains hidden. It is generated when the analysis structure is generated.

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on balance sheet

Total

off balance sheet

Money market

Zero bond

Loan

Derivatives

Floating rate bond

Liabilities

Assets

Receivablesin banks

Securities

Payablesto banks

Bond

Example of a Balance Sheet Reporting View

For overall bank control, you can create a structure that makes it possible to differentiate between assets and liabilities in relation to the transactions on the balance sheet. In addition, transactions off the balance sheet can be managed in their own portfolios.

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Characteristic Derivations

Derivation rules

AllocationsEnhancements

Access to tables

Deriving Characteristics

The derivation of characteristics in risk analysis allows for characteristics with values to be provided automatically and controlled with rules.

As of SAP Accounting in Release 4.0, you use a uniform tool for deriving characteristics in risk analysis and in bank profitability analysis.

In risk analysis, the derivation of characteristics for copying finance objects runs and effects the analysis parameters of the finance object.

You must enable derivation for an analysis structure. Derivation of characters used for the results area can be executed during the data transfer to the risk management data pool. The field contents are transferred that are present in the analysis structure as well as the results area.

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Evaluation Types

Generally applicable evaluation type

Evaluation types collect and contain evaluation-specific information related to using market data.

You can define evaluation types generally so that one and the same basis for evaluation applies to all financial products.

Evaluation types can be defined specifically for individual financial products (specific to valuation rules).

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Evaluation Types - Specific to a Valuation Rule

Default evaluation type (generally applicable)Specific evaluation types (product specific)

The valuation rule represents a central control instrument for evaluations. In the finance object, the valuation rule is an optional field. If it is not defined directly in the finance object, you can find it through other identities defined in Customizing.

The valuation rule is relevant for controlling the evaluation. As part of the general settings, defaults are set for market segment assignments or stocks are mapped to stock indexes. The valuation rule also influences the datafeed control and the summarized display of cash flow transactions by evaluation type. Depending on the valuation rule, it can override the general evaluation settings in the evaluation type for certain transactions. The valuation rule gains significance only when this function is used. If there are no settings defined for the valuation rule in the evaluation type, there is no reason to define different valuation rules. All transactions are analyzed according to the settings of the evaluation type.

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Maturity Bands

You can predefine maturity bands to generate certain cash flow views or due date views as part of reporting.

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1/15 2/15 3/15 ... ... 9/15 9/15...

1/15 1/31 ... 8/31 ... 8/31 8/31...

relative, from the valuation key date

2/28

absolute, from the evaluation key date

Applicable in NPV and gap analysis

Maturity Bands

Evaluationkey date

key dateEvaluation

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Price parameters

11

22

Course overview


44



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Structured products

FixedFixed Cash Cash FlowsFlows Variable Cash Variable Cash FlowsFlows UncertainUncertain Cash Cash FlowsFlows

Mark-to-Market Valuation

Deterministic instruments Optional instruments

Discounting with zero bond discounting factors for the relevant yield curves

1. Determining the forward rates from the relevant yield curve2. Calculation of future cash flows3. Discounting

Option price formulas?- Black & Scholes?- Binomial?- Garman/Kolhagen

Standard bondsFixed-rate loansMoney Market

Floating rate notesVariable-rate loans

Caps/FloorsFX options Swaptions

Swap/FRA

NPV Calculation

Mark-to-Market means valuing a position at the price that can currently be attained on the market. For long positions this means determining the achievable disposal price. For short positions it means determining the repurchase value.

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Calculating the yield curve valid at the horizon as the forward curve from the current market data

Discounting the cash flows after the horizon

Selection of the current transactions/positions

Determining the current market data

Date Terminology Used

Evaluation date= today Horizon

Outgoing cash flows

Cash flows before the horizon are not evaluated

Discounting

Evaluation date This is the day that market data are read. Forward data are calculated starting from this date. This is the date for which transactions are selected (status of the transactions on this date). If the evaluation date is before the current date (today), the market data are read from the historical tables and are observed from the historical status of the transactions.

If the evaluation date is after today, the latest market data found is interpreted as valid for the evaluation date and the forward data is calculated from this date.

Horizon Date when the results are calculated (evaluation date). All cash flows after this date are included in the calculation. Example: Evaluation date today, horizon in the future: The forward data is based on today's market data and is used to evaluate a transaction on a horizon date.

Time when the scenarios used are assumed to be valid.

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NPV=EUR 618.1 million

Total Cash Flow (millions of EUR)

-2500-2000-1500-1000-500

0500

12/9

3

06/9

4

12/9

4

06/9

6

12/9

8

Current int. rate structure in %

2,04,0

6,0

8,010,0

1 M 2 Y 4 Y 6 Y 8 Y 10 Y

NPV Analysis Example (1)

In this example, the valuation of a payment flow leads to a net present value of EUR 618.1 million.

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NPV risk

Int. scenario NPV Risk

IntSc 1 (+1%) 521,7 -96,4

Current IntSc. 618,1 0,0

IntSc 2 (-1%) 720,1 102,0

Parallel Shift

1 M 2 Y 4 Y 6 Y 8 Y 10 Y

IntSc 1 (+1%) Current IntSc. IntSc 2 (-1%)

2,03,04,05,06,07,08,09,0

10,0

NPV Analysis Example (2)

For a parallel shift of +1% of the yield curve, the net present value (NPV) is EUR 521.7 million in scenario 1. There is a risk of EUR 96.4 million. If the interest decreases by 1%, the same cash flow has an NPV of EUR 720.1 million and an opportunity of EUR 102.0 million.

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Key sensitivity figures

Macaulay duration: The Macaulay duration describes the term of the investment after which both inverse effects from rate changes and reinvestment success balance out exactly. This point in time is used as a planning horizon, and the investor istherefore immune to changes in interest.

Modified duration: The modified duration indicates how much of a percentage change in the value of an interest instrument occurs when the interest level changes by one percentage point. The modified duration therefore describes the elasticity of the NPV to changes in interest.

Convexity: Convexity describes the sensitivity of the NPV to the square of the changes in yield (description of the bend in the price curve). Convexity is therefore more precise than modified duration.

Basis point value: The basis point value provides the change in market value in all term areas when the market interest rates increase by one basis point (0.01%). Absolute changes are described here.

DurationExhibit 2

-2% 0%-1% 1% 2%

0%

-5%

-10%

10%

5%

P

P/P

ConvexityExhibit 3

-2% 0%-1% 1% 2%

0%

-5%

-10%

10%

5%

P

P/P

The risk of a fixed-interest security – apart from borrower's credit rating and market efficiency – is the change in the market interest rate during the term (interest rate risk). The interest rate risk can be divided into two basic components: the reinvestment risk and the price risk.

All repayments of an investment (repayment flows, interest, and compound interest) are subject to reinvestment risk when the repayments are before the investor's planning horizon. For example, when market interest rates are decreasing, coupon payments are reinvested only at a lower interest rate. If the due date of the investment passes the planning horizon, there is also a price risk, since the price during the term is determined by the market interest rate.

Changes in market interest rates effect both of these revenue components of an investment inversely: Rising interest means price losses on one hand, rising reinvestment revenue on the other. The key sensitivity figures support quantification and simple management of the risks and opportunities due to changes in interest rates.

For optional products, the Macaulay duration, modified duration, and convexity key figures are not calculated because it does not make business sense.

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Key sensitivity figures

• The sensitivity analysis returns key figures such as modified duration, Macaulay duration, convexity, base point value based on pre-defined portfolio hierarchies.

• Reporting is based on a portfolio hierarchy that is a path for disclosing evaluation results.

• This is how the corresponding key figures are presented at various summarization levels down to single transactions.

• Key sensitivity figures can be calculated in comparison with scenarios. Key figures are disclosed in parallel as key figures based on current market data and key figures based on data based on scenarios.

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Combination of two risk factors or risk types

Specifying the range and grid spacing

Generating grid points and simulating changes in net present value

Determining the least favorable factor combinations

Matrix Analysis

Evaluation Matrix

-10% -5% +/-0% +5% +10%

Risk factors: interest rate and volatility changes

0 BP

+5 BP

+10 BP

-5 BP

Para

llel s

hift

in in

tere

st ra

tes

Change in Volatility

worstcase

You can combine any two risk factors in the evaluation matrix. You then have the option of spacing the grid as you like so that you can determine which constellation of changes in underlying transactions and volatility for complex option portfolios can be determined that results in the highest portfolio risk.

The evaluation matrix represents a possible procedure for determining back-up collateral of equity capital for option price risks and is formulated accordingly in the Basel market risk paper and the European Capital Adequacy Directive (in Germany, Basic Rule I).

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Price parameters

11

22

Course overview


44



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Yield curve

Interest ratevolatility

Currencyexchange rate

Stock index

Securityvolatility

Stock indexvolatility

Currencyrate volatility

Securityprice

RiskRiskfactorsfactors

Abstract risk factors

Risk factors

Risk factors are the fundamental influence factors on the risk position of the bank. The system allows you to arrange the risk factors named above as nodes in a risk hierarchy. Note however that you can include the volatility risks only in the historical simulation.

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ConsolidationLEVEL 1

ConsolidationLEVEL Risk Factors

ConsolidationLEVEL 2

. . .

3 Mon. 3 Mon. EURIBOR EURIBOR EUREUR



2 yrs. EURIBOR EUREUR

3 yrs. EURIBOR EUREUR

3 Mon. LIBOR GBP

6 Mon. LIBOR GBP

1 yr. Swap USD

2 yr. Swap USD

Money market EUREUR

Capital market EUREUR

Interest GBP

Swap USD

Int.Int.

Definition of the risk hierarchy and analysis scheme

SAP Stock

ITL SPOT

GBP SPOT

Stock

Currency CurrencyCurrency

StockStockTotal riskTotal risk

Risk hierarchy

You can create risk hierarchies for value-at-risk evaluations. The risk hierarchy can have an unlimited number of market price parameters (risk factors) that can be grouped through the consolidation levels into a total risk.

You can define the issue of risk calculation in consolidation levels for each node individually. There are basic default aggregation types for the risks in the hierarchy that can be changed for individual nodes. It then makes sense to count on a correlated risk, but for stocks you must perform an addition of the risk aspects with the correct plus/minus signs.

You can account for volatility risks in the risk hierarchy by grouping the volatility risks of individual risk factors into as many risk nodes as necessary. For example, you can group the interest volatility risks by curve into an overall interest volatility risk, or the volatility risk of various exchange rates, security prices, stocks, or stock indexes. The volatility aspects are aggregated into an overall market risk.

Volatility risks are calculated only within the historical simulation since the underlying assumption of normal distribution for determining variance and covariance is not valid for volatilities.

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Variance/covariance matrix of risk factors

Derivation of VaRDerivation of VaR

Portofolio calculationΔ BW

Time seriesTime seriesTime series

Derivation of volatilities and covariances of risk factors

Historical simulation Calculation of Variance and Covariance

Monte Carlo simulation

VaR – Theoretical Calculations

The Historical Simulation, Variance/Covariance calculation, and Monte Carlo simulation can be mapped to the risk analysis for the calculation of Value-at-Risk.

The Historical Simulation provides various procedures for determining Value-at-Risk. You can use the Historical Simulation to arrange the Gains and Losses and the corresponding confidence level is used to determine the Value-at-Risk key figure. For example, to calculate a drift into the risk aspect, you also can choose Doubling of the gains and losses as a base, so that the determination of the Value-at-Risk is based on an even distribution. Another procedure for determining Value-at-Risk is using the assumption of a normal distribution as a basis for the gains and losses calculated.

The variance/covariance calculation is based on the method suggested by J.P. Morgan/RiskMetrics. You can determine volatilities and correlations in the risk analysis from SAP Banking or read them in as data records such as those values from J.P. Morgan.

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CHANGE IN MARKET PRICE

CHANGE IN PORTFOLIO

1 2 3 4 5 6 7 8 9 10 11 12 13

MP1 MP2 MP3 ... ... ... ... MPn

P1 P2 P3 ... ... ... ... Pn

Calculation of portfolio changes

due to historical changes in

market prices

Historical Simulation (1)

For all combinations of risk hierarchy nodes and portfolio hierarchy nodes, the historical simulation determines the gains and losses in the existing portfolio that for the future are based on the historical changes in market price: The historical changes in market price are determined with regard to the holding period. For the calculated changes in market price, the system simulates how net present values would change for the portfolio.

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Value at Risk - Overall Portfolio

-2,5

-2,0

-1,5

-1,0

-0,5

0,0

0,5

1,0

1,5

2,0

2,5

Valu

e at

Ris

k in

mill

ions

of E

UR

5% 15% 25% 35% 45% 55% 65% 75% 85% 95%Confidence interval

Sorting of portfoliochanges and "counting"

the Value at Risk

Value at RiskEUR 1,5 million

for 95% confidence

Historical Simulation (2)

There are different procedures for determining the Value at Risk: The relevant values are counted according to the confidence interval. Before being counted according to the level of confidence, the time series of portfolio gains and losses is doubled by counterpositioning each loss with a relevant gain and each gain with a relevant loss. This doubling ensures that the expected value of the change to the portfolio is zero and that the distribution on each side is even.

Instead of counting the discrete gains and losses, you can assume that they are distributed normally. The Value at Risk is then determined accordingly.

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Precision

Term

Completeevaluation

Delta-gammaprocedure

Delta procedure

Calculationof gains and losses

Historicalsimulationbased on gains and

losses

portfolio

Bonds

Option

Exoticoption

VaR Methods for Product-Dependent Evaluation

In complete evaluation, changes in NPV are simulated by applying the historical changes in market price based on the real price functions. The benefit of this procedure is the high calculation accuracy. The disadvantage is the calculation intensity of the procedure.

In delta evaluation NPV changes are simulated by applying the historical changes in market price to a standardized change in NPV. The advantage of this approximation is that this procedures is less calculation-intensive. However, the assumption that the NPV function is linear leads to inaccuracies especially in the range of option transactions.

The delta/gamma calculation returns more accurate calculation results than the Delta evaluation at a significantly higher calculation speed than Complete Evaluation. You can calculate the gamma add-on specifically by product or single transactions.

You can define these methods by product through the valuation rule in the combination procedure as well. To prevent the settings specific to the valuation rule from being ignored, you must enter the combination procedure in the VaR type in Customizing.

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NPV function

Approximation

NPV

market price

marketmarket pricepricedecreasedecrease

NPVNPVopprtyopprty

δελταδελτα valuevalue

marketmarket pricepriceincreaseincrease

ErrorError

NPVNPVRiskRisk

ErrorError

NPVNPV

Ris

kR

isk

δελτ

αδε

λτα

valu

eva

lue

NPVNPV

oppr

tyop

prty

Currentmarket price

Deviation Between Overall and Delta Values in the VaR (Value at Risk)

The graph shows the calculation error for an increase or decrease in market price with regard to the delta value. For an increase in market price, the risk for a long position is overestimated, and for a decrease in market price the NPV opportunity is underestimated. However, note that for a short position, risks are underestimated and opportunities are overestimated.

It is unrealistic to assume a linear relation between NPV and change in market price, especially for optional instruments. You must evaluate portfolios with a large portion of optional instruments using a full analysis.

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Confidencefactor

Confidencelevel

99,90% 3,0999,00% 2,3395,00% 1,6590,00% 1,2884,13% 1,0069,15% 0,5050,00% 0,00

Frequency

Change in value[millions of DEM]

0

» 95 %

» 5 %

-0,235

It is 95% probable that the loss is not greater than DEM 0.235 million.And it is 5% probable that the loss is greater than DEM 0.235 million.

2 x 1.65 x std deviation

VaR

Normal Distribution

Calculation of Variance and Covariance

The essential advantage of the variance/covariance calculation is the great scalability of the confidence level using the confidence factor (under the assumption that changes in market price are distributed normally). For example, one standard deviation has a confidence level of 84.13%. If the confidence level is increased to 95% you multiply the calculated value-at-risk by 1.65 for a confidence level of 84.13%.

Because you cannot assume that volatilities are distributed normally, the calculation of variance/covariance values do not provide any volatility risks.

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Creating a time series of

standard, normally

distributed, independent

random numbers for

each risk factor

Covariancematrix

VaRcalculationbased on a discrete

distribution similar to the

historical simulation

simulatedchanges in

market price for each risk factor

Choleskybreakdown

Monte Carlo Simulation

The SAP system assumes that the changes in risk factors are distributed normally with an expected value of zero and positive variance. The distribution parameters are determined from historical data (Structurized Monte Carlo).

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By the end of this unit, you should be familiar with the following functions:

Grouping all relevant risk factors in the risk hierarchy

Value-at-risk analysis based on

An historical simulation

The variance/covariance calculations

A Monte Carlo simulation

There is no "one true" VaR

Value-at-risk Evaluations: Summary

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t1 t2

P1 P2

Difference

Portfolio in t1

Value-at-Risk

Comparison

UnchangedPortfolio from t1

OriginalNPV for market

data in t1

NPV due to changed

market data in t2

Backtesting

Backtesting is a procedure required by oversight law to check internal models. In backtesting, the value at risk calculated in t1 is compared to the change to the portfolio from time t1 when the real change in market price is considered.

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Backtesting: Reporting

Graphical RepresentationDetermining the differences

Drill-Down through the portfolio hierarchies

Backtesting is available as its own key figure in the Results Database. In the Results Database overview, the calculated VaR values are displayed with the backtesting values, and the delta values for each individual day are given.

The Results Database provides the opportunity for an outlier analysis according to the guidelines of the Basel committee. You can perform this analysis for the entire portfolio and for each node of the portfolio hierarchy. The outliers are highlighted in red in the list.

The following displays are also available: Value-at-Risk and distribution of gains and losses QQ plot PP plot

Backtesting is the ex-post check of the Value-at-Risk values against the actual changes in portfolio value. Backtesting checks how adequately the calculated Value-at-Risk predicted the risk.

The Basel Committee for Banking Supervision requires an ex-post comparison for internal models of capital adequacy. The sum of the exceptions (realized gains/losses > VaR) of the last 250 days of trading (1 day as a holding period, 99% confidence level) is compared to the specifications.

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Basel backtesting judges internal models based on a traffic light method dependent on the number of outliers. The method is supported as part of backtesting of the Results Database in the desired form for the selected nodes: Green traffic light range 0 – 4 Yellow traffic light range 5 – 8 Red traffic light range 9 and higher

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Separation of Analysis and Reporting

Evaluation results are permanently available

It is possible to make additions to the results later

Flexible reporting on various key figures

multiple key dates (maximum of 12)

Results Database: Highlights

You use the results database to calculate, save, evaluate, and analyze key figures defined within end-of-day processing. This is an expansion of previous options for saving and presenting evaluation results.

The results database is distinct from the techniques used until now to create and save evaluation results in that the creation of results and their reporting are now separate. This has the following benefits: • You can report results data created once as often as necessary in various ways (different

compilation of key figures, different layout) without having to recalculate everything again. • The evaluation results are available for the long term, even for different releases, and can be

archived. • You can add to and correct the results at a later time. This is necessary for a change in

transaction position or for errors in evaluation.

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Architecture of the Results Database

Data pool

Market data

Filter&

Key figures

Procedure for single records

Procedure for final resultsReporting

Archive

1. You must define the key figures that you want to have calculated. 2. The key figures are assigned to the Procedure for Single Records and Procedure for Final

Results. 3. The key figures for single records for the selected finance objects are created and are saved to

the database. 4. The key figures for the final results are determined based on existing individual records and are

saved to the database. 5. The key figures posted in the database of final results are displayed using the Analyzer

Information System.

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Reporting in the Results Database

Default Key Figures in the Results Database

Aggregate display

Display of single items

You can display the values saved in the Results Database through the Analyzer Infosystem as an overview. You use the selected layout and the portfolio hierarchy to define how the calculated key figures are displayed.

You can use the portfolio hierarchy to display the values of the key figures for partial portfolios.

You can use a drilldown into the basic financial transactions to display the calculated key figures for single items.

You can compare periods of key figures ("historical development"). You can display the saved calculation bases. These are not effected by changes made later to the market data tables.

The functions of the SAP List Viewer are available for single items. All characteristics of the analysis structure can be shown and used for further analyses..

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Reporting in the Results Database

VaR key figures in the Results Database

Aggregate display

Display of the risk hierarchy

You can analyze the Value-at-Risk values further based on the risk hierarchy. You can display the Value-at-Risk values on the nodes of the risk hierarchy.

It is also possible to display the underlying distribution of profit and loss as a list of values and a graph.

You can use the Results Database to evaluate the VaR of a Portfolio for various confidence levels, holding periods, and VaR procedures (such as historical simulations, variance/covariance, or Monte Carlo simulations).

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Results Database: Procedure for Single Records

Filter

Set of values for characteristics

Selection criterion in the data pool

Run mode

Basic run

Correction run for transactions that are created after the single records are changed or placed in the system

Reversal run allows the single records for these transactions to be re-created

All key figures defined in an evaluation procedure are calculated even if they refer to basic key figures that are not defined in the procedure for single records.

Procedures for single records cannot be changed that already have data that was created for them.

You must use the following conventions: Key figures can be assigned only to procedures for single records or procedures for final results.

Key figures only for final results can be assigned only to procedures for final results. If data were created in the update run or if there are associated procedures for final results, no changes may be made to the procedures for single records.

You cannot assign the NPV basic key figure to a procedure for single records. Key figures of type Symmetrical Shift in Interest may not be added to the procedure for final results.

Key figures that are not in the associated procedure for single records cannot be used in the procedure for final records.

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Basic DataProcedure for single records

Portfolio hierarchy

Determines final results only for key figures that were created in a single record. The “Key figures for intermediate mathematical steps” are exceptions:

VaR key figures

Mod.Duration, Convexity, and the price value of a basis point (PVBP)

You can recalculate final results from the single records at any time.

Results Database: Procedure for Final Results

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Exercises 20

Unit 6: Market Risk Analyzer Topic Reporting in the Market Risk Analyzer


• Create a portfolio hierarchy

• Perform and analyze an NPV analysis.

• Perform and analyze a sensitivity analysis

The portfolio hierarchy describes the evaluation levels within MRA standard reporting and determines the depth of evaluation by its structure of levels. You can use the NPV analysis to calculate the Mark-to-Market values of single transactions.

20-1 Create a new portfolio hierarchy. Choose your own characteristics to reflect the depth of evaluation.

Assign the number 9## to your portfolio (## stands for your group number).

Choose company code, contract type, and product type as characteristics for your portfolio hierarchy.

20-2 Create a fixed-term deposit as usual. Transaction number:_______________________

20-3 Perform an NPV analysis.

You have several options in the system.

In Scenario 20-3-1 it is assumed that the market data is present in the market data tables in the system.

In 20-3-2, the current market data is read from a datafeed for the evaluation and used as a basis for the evaluation.

20-3-1 Perform an NPV analysis (evaluation type: RM01 – Standard (only Middle)).

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Search for the transaction just created in the opened analysis and display the detail log of the evaluation, the calculation details, and the detailed information on the transaction.

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20-3-2 OPTIONAL – Use current market data from the datafeed to perform an NPV analysis (Evaluation type: RM02 – Standard (only Middle) VWDWeb). Unlike exercise section a.), the evaluation is performed with market data shifts. You can use this to study the sensitivity of your portfolio to changes in interest or volatility. Use the options in the SAP List Viewer (subtotals, different layouts, expansion, and summary).

20-4 Perform a sensitivity analysis. In the opened analysis, search for the transaction you created in Exercise 20/2 . Display different key figures (such as Macaulay Duration, Fisher-Weil Duration) and information on how to calculate them. (For example, use the layout to show other characteristics and key figures in the details list.)

20-5 In contrast to NPV and value-at-risk analyses, where NPVs and time values are used to present risks, the gap analysis uses position and maturity volumes as well as cash flows and liquidities by key dates or periods and presents the gap items with relation to currency and liquidity risks. Perform an ALM single value analysis for your financial transactions (gap analysis). Analyze your entire portfolio with and without consideration of the non-balance sheet transactions. Check your portfolio by capital commitment and fixed-rate interest period.

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Solutions 20

Unit 6: Market Risk Analyzer Topic Reporting in the Market Risk Analyzer

20-1 Create a new portfolio hierarchy. Choose your own characteristics to reflect the depth of evaluation. Assign the number 9## to your portfolio (## stands for your group number).

Choose company code, contract type, and product type as characteristics for your portfolio hierarchy.

To create a new portfolio hierarchy, choose:

Accounting Financial Supply Chain Management Treasury and Risk Management Market Risk Analyzer Evaluation Control Portfolio Hierarchy Define (AFWPH)

Choose New Entries.

Enter the following values: Field Name or Data Type Value

Portfolio Hierarchy 9##

Authorization Group Leave blank

Filter Leave blank

Short description Hierarchy group ##

Portfolio 9##

Long Text company code/contract type/product typ

Choose ENTER.

Highlight your portfolio hierarchy by clicking the appropriate line (left side of the screen).

Double-click “Structure” in the Dialog Structure area.

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Choose New Entries.

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Enter the following values: Field Name or Data Type Value

First line

Characteristic Company Code

Sort 1

Second line

Characteristic Contract Type

Sort 2

Third line

Characteristic Product Type

Sort 3

Save your data by choosing Save in the standard toolbar.

The overview screen “Generation of Portfolio Hierarchy” appears.

You can display the detailed information for creating the portfolio hierarchy here.

Choose Back until you reach the SAP Easy Access Menu.

20-2 Create a fixed-term deposit as usual.

To create a new fixed term deposit, choose: → Accounting → Financial Supply Chain Management → Treasury and Risk Management → Transaction Manager → Money Market → Trading → Create Financial Transaction (FTR_CREATE)

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Enter the following data: Field Name or Data Type Value

Company Code FS##

Product Type 51A



Choose ENTER.

To create the transaction, enter the following values: Field Name or Data Type Value

Amount EUR 500,000.00

Start of Term Today (0)

End of Term +3 months (++3)

Int. rate 2.1 (percent)

Save your data by choosing Save in the standard toolbar. Transaction number:_______________________

20-3 Perform an NPV analysis. You have several options in the system. In Scenario 20-3-1 it is assumed that the market data is present in the market data tables in the system. In 20-3-2, the current market data is imported for the evaluation using a datafeed and used as a basis for the evaluation.

20-3-1 Perform an NPV analysis (evaluation type: RM01 – Standard only Middle Rates). Search for the transaction just created in the opened analysis and display the detail log of the evaluation, the calculation details, and the detailed information about the transaction.

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To perform the NPV analysis, choose → Accounting → Financial Supply Chain Management → Treasury and Risk Management → Market Risk Analyzer → Information System → Mark-to-Market → NPV Analysis (JBRX)


Evaluation currency EUR


Evaluation date Today (proposed)

Horizon Today (proposed)


Go to the Characteristics tab page.


Company Code FS##

(Additional Information: You can use the Characteristics tab to enter selection criteria to restrict the reports further (such as limiting them to the company code of course FSC010 with FS##). You also can select a particular transaction number, a business partner or portfolio.)

Choose Execute in the application tool bar.

If there are problems with executing the evaluation, you will receive a log that displays error and warning messages. This is a new session, which means that the results of the single value analysis are already available in another session. (Exit the log – close it by ending the session or choosing Back. If the evaluation runs without any problems, the system takes you

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directly to the “Single Value Analysis” screen. The overview on the right side of the screen is empty at first.

In the dialog structure on the left side of the screen click the node that contains the data of your company code. This selects the transactions assigned to this node and displays them.

Transactions highlighted in red have not been evaluated because of missing market data.

The fixed-term deposit that you created in the previous exercise is displayed.

Double-click the fixed-term deposit to select it. You then see the detailed information from the underlying transaction.

If required, go back to the “Single value analysis” overview.

Detail log Highlight your transaction again and choose Detail Log on the toolbar on the right side of the screen. A dialog box appears.

Choose Graphical List.

The list provides an overview of information about discounting the cash flow of the selected transaction to calculate the total NPV. It displays other key figures (such as clean price, duration key figures, and “Greeks”) by transaction type.

To exit the log, choose Back.

Calculation Bases Highlight your transaction again and choose “Calc. Bases” in the toolbar on the right side of the screen.

On the left side of the screen you can navigate as usual among the market data types. Select Current → Yld Curves → 1002-DD.MM.YYYY (for example).

Double-click the last level.

On the right side of the screen you will see the grid points for the evaluation of the underlying yield curve. The zero coupon values and the zero bond discounting factors are also listed. For values between the grid points, the interpolated values are given.

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20-3-2 – OPTIONAL – Use current market data from the datafeed to perform an NPV analysis (Evaluation type: RM02 – Standard only Middle Rates VWDWeb). Unlike exercise section a.), the evaluation is performed with market data shifts. You can use this to study the sensitivity of your portfolio to changes in interest or volatility.

Use the options in the SAP List Viewer (subtotals, different layouts, expansion, and summary).

To perform the NPV analysis, choose → Accounting → Financial Supply Chain Management → Treasury and Risk Management → Market Risk Analyzer → Information System → Mark-to-Market → NPV Analysis (JBRX)









Company Code FS##

Go to the Report Layout tab page. Choose Market Data Shifts.

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Market Data Shifts (Click Multiple Selection to enter data 1000000000 and 2000000000

Scenario Leave blank

Key figure NPV (proposed)

Include Differences X - select indicator


During the execution, messages on the datafeed interface are displayed in the status bar.

As in the previous exercise, you receive the log or the direct view of the “Single Value Analysis”.

You can navigate here as described in the previous exercise.

In addition to the transaction market values based on current market data, the list provides the market data based on the underlying market data shifts and the differences.

Use the selection options of various layouts (such as FSC010) or create your own layout (create user-defined layouts individually and name them as follows: Group##).

Use the options for summarizing and expanding. Use the characteristics from the analysis structure that you displayed to form subtotals.

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20-4 Perform a sensitivity analysis. Search for the transaction you created in the opened analysis. Display different key figures (such as Macaulay Duration, Fisher-Weil Duration) and information about how to calculate them. (For example, use the layout to show other characteristics and key figures in the details list.)

To perform the sensitivity analysis, choose → Accounting → Financial Supply Chain Management → Treasury and Risk Management → Market Risk Analyzer → Information System → Sensitivity Analysis → Sensitivity Key Figures (AISS)









Company Code FS##


If there are problems with executing the evaluation, you will receive a log that displays error and warning messages. This is a new session, which means that the results of the single value analysis are already available in another session. (Exit the log – close it by ending the session or choosing Back.) If the evaluation runs without any problems, the system takes you directly to the “Sensitivity Key Figures DD.MM.YYYY Current Market Data” screen.

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The following key figures are displayed based on the selected portfolio hierarchy: (Macaulay duration, Fisher-Weil duration, convexity, sensitivity per basis point (PVBP)).

At the top of the screen you can expand the portfolio hierarchy nodes and display the calculated key figures on the subnodes.

To display the transactions assigned to this node in the detail view (at the bottom of the screen), double-click a key figure value.

To navigate to the single transactions, double-click the line. For information about the calculations, select the Detail Log button.

To display the underlying market data of the calculations, select Calc. Bases.

You can use the layout to show other characteristics and key figures in the details list. The normal functions of the SAP List Viewer are available.

20-5 In contrast to NPV and value-at-risk analyses, where NPVs and time values are used to present risks, the gap analysis uses position and maturity volumes as well as cash flows and liquidities by key dates or periods and presents the gap items in relation to currency and liquidity risks.

Perform an ALM single value analysis for your financial transactions (gap analysis).

Analyze your entire portfolio with and without consideration of the non-balance sheet transactions.

Check your portfolio by capital commitment and fixed-rate interest period.

To perform the NPV analysis, choose → Accounting → Financial Supply Chain Management → Treasury and Risk Management → Market Risk Analyzer → Information System → Cash Flow/Gap Analysis → ALM Single Value Analysis (JBRTOBJ_CFM)



Portfolio Hierarchy Node Leave blank

Go to the Evaluation Parameters tab page.


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Date of Evaluation +1 (today plus 1 day)

Horizon +1 (today plus 1 day)


ALM evaluation type RM01

Maturity Band 2




Company Code FS##


If there are problems with executing the evaluation, you will receive a log that displays error and warning messages. This is a new session, which means that the results of the ALM single value analysis are already available in another session. (Exit the log – close it by ending the session or choosing Back. If the evaluation runs without any problems, the system takes you directly to the “Display of Results of ALM Single Value Analysis” screen.

The portfolio hierarchy is displayed on the left side of the screen. You can use the portfolio hierarchy to select subportfolios. To select the transactions of your company code, double-click your company code on the left side of the screen (subportfolio). All the transactions in your company code are displayed irrespective of their contract type or product type. The report provides the following evaluations (tab pages): - Average Position - Key Date Position - Maturity Evaluation - Cash Flow Evaluation - Liquidity Evaluation - Currency Liquidity - Net Interest Income Evaluation

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Average position: The Average Position section of the report displays in the maturity band the transactions selected through the portfolio hierarchy. It also calculates the average active and passive interest rates. The average position of each period and the gap items are displayed.

Key Date Position: The Key Date Position section of the report displays the key date positions for the key date of each maturity band. It also calculates the gap items and the average active and passive interest rates of the key dates. Maturity Evaluation: The Maturity Evaluation section of the report displays the capital processes by the defined maturity date. It also calculates the gap items and the active and passive interest rates of the capital processes.

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Cash Flow Evaluation:

You can use the position and process view to present the interest rate risk as calculated cash flows differentiated by currency or as various currencies grouped together. Volume inflow and outflow and interest payments corresponding to the interest commitment of the underlying items are included in the displayed cash flows. Interest rates are not shown.

Liquidity Evaluation:

The liquidity evaluation primarily deals with capital commitments, meaning that this evaluation involves the interest and capital payments corresponding to the capital commitment of the underlying transactions.

The liquidity evaluation does not include capital payments that do not flow in reality and that serve only as a basis for interest calculations for certain transactions (such as nominal capital for FRAs or for swaps without capital exchange), although these payments are displayed in the other evaluations.

The liquidity evaluation includes incoming and outgoing payments, payment gaps, and cumulative payment gaps from liquidity flows, but does not include interest rates.

Currency Liquidity: Similar to the liquidity evaluation display, but without conversion to the evaluation currency.

Interest Result Evaluation The Net Interest Income Evaluation section of the report displays the active and passive volumes in the maturity band. It also lists the interest revenue of the active and passive sides of the maturity band and the resulting balance. (Note: The “Data Relevant for Display” button in the application toolbar provides many options for structuring the displayed data (such as displaying transactions on and off the balance sheet, interest commitment or capital commitment, cash flows to be displayed).

(Note: The “Transaction View” button in the application toolbar provides the option of highlighting a maturity band date in the details of the transactions that are contained here and of navigating to the "Financial Transaction" (button).

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Exercises 21

Unit 6: Market Risk Analyzer Topic Reporting in Market Risk Analyzer

(RDB)


• Perform a value-at-risk evaluation in the results database

21-1

21-1-1 Call the Analyzer Information System with the variant FSC010. Display the subportfolios of the portfolio hierarchy.

21-1-2 Analyze the historical trend of a key figure for the period 01/01/2005 to 06/30/2005.

21-1-3 Display the single record for a selected node in the portfolio hierarchy. Branch from the single position display to the transaction.

21-1-4 Display the single record of a financial object and branch to the detail log of the single record calculations.

21-1-5 Display the calculation bases (market data) of a key figure.

21-1-6 Display the risk hierarchy for closer analysis of the calculated Value-at-Risk. Analyze the profit/loss distribution for a selected node in the risk hierarchy.

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Solutions 21

Unit 6: Market Risk Analyzer Topic Reporting in Market Risk Analyzer (RDB)

21-1 Call the Analyzer Information System with the variant FSC010. Display the subportfolios of the portfolio hierarchy.

To create a new portfolio hierarchy, choose:

Accounting Financial Supply Chain Management Treasury and Risk Management Market Risk Analyzer Information System Analyzer Information System (AIS_STDREP)

Run the report with the parameters of the FSC010 variant (Get Variant…). Enter the following values:

Field name or data type Values Portfolio hierarchy 400 Portfolio hierarchy node Leave empty Key dates 30.06.2005 Initial layout RM002 Remaining layout fields Leave empty

Run the report by choosing Execute (or F8).

You can see the portfolio hierarchy in the top left area of the screen. You can see the calculated key figures in the top right area of the screen. The lower area of the screen displays the tabs Single Records, Risk Hierarchy and Matur. Band.

Choose Portfolio Hierarchy in Full Screen Mode in the application toolbar.

Analyze the key figure “VaR-HS (95/1)“. When you add the values of the individual nodes (product type), you discover that this is a non-additive key

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figure, that is, the total value on the top node is smaller than the sum of the subnodes.

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Highlight the top node from the portfolio hierarchy: Result. Choose Expand subtree to expand the portfolio hierarchy. The system displays the values for the different key figures at subportfolio level.

21-2 Analyze the historical trend of a key figure for the period 01/01/2005 to 30/06/2005.

Select the key figure “NPV (gen.)” on the top node of the portfolio hierarchy. Choose Historical Trend.

Enter the following parameters: Field name or data type Value Start date 01.01.2005 End date 30.06.2005 Time periods daily

Choose Details to display the calculated values. The system displays two values.

Exit the display by closing the window.

Choose Standard Display in the application toolbar.

21-3 Display the single records for any node of the hierarchy. Go to the single records display in the financial transaction.

Double-click the key figure “NPV (gen.)” on the top node of the portfolio hierarchy to display the single records with the calculated key figures. The single records then appear in the lower half of the screen.

Double-click one of these single record items to drilldown to the transaction. Choose Back to return to the results database.

21-4 Display the single record of a financial object and branch to the detail log of the single record calculations.

Select a calculated key figure in the single positions display. Choose Single Records. The dialog-box displays single record numbers for the selected value. Branch from the dialog-box to the detail log by clicking a selected single record number. You can now view the detailed calculations of the key figure. To exit the log, choose Back.

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21-5 Display the calculation bases (market data) of a key figure.

Select any key figure in the single record display and choose Calculation Bases. By clicking “Print Preview” in the application toolbar, the following window displays all relevant market data. To exit the display, choose Back.

21-6 Display the risk hierarchy for closer analysis of the calculated Value-at-Risk. Analyze the profit/loss distribution for a selected node in the risk hierarchy.

Select the Risk Hierarchy tab page to analyze the calculated Value-at-Risk. Choose Interest Rate on the left side of the risk hierarchy screen. Expand the EUR currency subnode to see on which node of the risk hierarchy the VaR occurs.

Select the upper node of the key figure “VaR-HS (99/10)” in the risk hierarchy area. Select P/L in the risk hierarchy application toolbar. The generated profit and loss is displayed on the left side of the following screen. The generated values are graphically represented on the right side of the screen and shown in relation to normal frequency distribution on the lower part of the screen. Click the Profit/Loss column on the left side of the screen. Choose Sort in Ascending Order to sort the values. The smallest value of the calculated distribution represents the Value-at-Risk on the basis of the key figure definition (period and level of confidence). This value is also displayed in the risk hierarchy. To exit the screen, choose Back.

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Credit Risk Analyzer: Overview








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Unit 7 Credit Risk Analyzer (CRA)

Limit Management

CRA process (Limit Process)

11

22

CRA functional approach

33

44

55 Additional functions of Limit Management

CRA basic terms

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CRA 1: Functional Approach

Concept of SAP Credit Risk Analyzer

Basic configuration knowledge

- Determination procedure

- Default risk rules

- Formula structure

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Who Needs to Use a Limit System?O

perational controlO

perational controlG

lobal Control

Global C

ontrol

Traders or credit analysts are supported when assessing existing limit specifications.

Customer advisers can create, release, or block limit specifications, if necessary, for their customers.Customer advisers can call up a current status of the limits, utilization, and collateral at any time.

Credit risk controllers can use a range of flexible methods to measure and report on credit risk in a portfolio.

Credit portfolio managers can assign and monitor limits for individual portfolio segments or for entire portfolios and analyze portfolios according to various criteria.

Treasury and Risk Management The tightening of regulations on risk control confirms the growing importance of analyzing and limiting insolvency risk. It also makes business sense to have system support for measuring, analyzing and managing or limiting counterparty default risks.

SAP's Credit Risk Analyzer incorporates central limit management functions, enabling you to set limits for counterparty default risk and monitor them online. You can then let the system calculate the settlement and default risks arising from your activities on the financial and capital markets, as well as classical credit risks. By defining differentiated upper risk limits, you can restrict potential losses on financial transactions as a result of business partner insolvency. In the same way you are able to have control over traders by using a system of limits.

The default risk and limit system contains an extensive range of standard reports for evaluation and analysis purposes. This system is linked to the SAP drilldown tool and SAP query. You can display all the existing utilizations in aggregated form for any given key date and, with the appropriate system settings, take business partner relationships into account. This allows you to track limit utilization over time and see exactly which transactions affect it. You can monitor all trading activities, therefore providing you with a high level of security.

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Credit risk subdivided into

Settlement risk subdivided into

Classic credit risk (counterparty risk/issuer risk)

Counterparty risk from the trading bookFrom trading transactions plus a term-related and risk-related add-on for covering potential positive changes in market value

Direct settlement riskExists for the duration of the period between an advance payment/delivery being made and a return payment/delivery being made.

Return payment risk

What are the Subdivisions of Types of Risk?

Counterparty/Issuer Risk

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Risk Types

Time

Exposure

End of transaction

Settlement period

Credit Risk Settlement-risk

t1 t2

Without clearing house

With clearing house

t3

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SAP Solution: Default Risk and Limit System

S i n g l e T r a ns a c t i o nCheck

S i n g l e T r a ns a c t i o nCheck

Receivableclosing

Limit Check:

O.K.

End-of-Day Processing

Exposure8.5

632.3688.112.3

Limit10.5700.7716.74.8

PartnerEuro BankUnited BankCarltonBrightline

ReportingUtil. in %

80.9%90.3%96.0%

256.3%

Avail. Limit2.0

68.428.6-7.5

Limit

AttributableAmount

T r a n s a c t i o n

M a n a g er

T r a n s a c t i o n

M a n a g er

Inquiry

mySAPBankingTreasury

The default risk and limit system support the quantification of various risk positions and default risks in line with the current market position. The risk exposures (attributable amounts) from the individual transactions then are compared with the centrally-defined limits.

The exposures are calculated as part of end-of-day processing, and can be updated during the day using the integrated default risk limit check. This means that traders can use the integrated limit check before concluding each transaction to determine online the exposure linked to the financial transaction. They then can let the system check this exposure against limits stored centrally in Limit Management. Once the transaction has been concluded, the exposure automatically increases the utilization of the affected limits. As a basis for the integrated limit check, all the financial positions must be valued consistently. The system displays the result of the limit check and generates a log for later evaluations.

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Requirements for Limit Management

What requirements are placed on limit management?• Multiple views definitely could exist in credit risk analysis. Possible views might be, for

example, internal/external views or different exposure views into which one transaction can flow with different attributable amounts. That would make it possible to determine attributable amounts for the same transaction in the different risk views using different formulas.Conclusion: Flexibility in relation to the definition of viewing options

• For similar transaction types (such as fixed-term deposits and deposits at notice), it must be possible to make a flexible decision about whether completed transactions can be included in a credit risk analysis flow together with similarly generated attributable amounts or differentially.

Conclusion: Flexibility in relation to determining attributable amounts related to products• In one view, the analyses, that is the comparison of an attributable amount from a

transaction, and the defined limit specification should occur flexibly at different levels and in various dimensions. The dimensions are determined by characteristics such as company code, business partner, traders, and others.

Conclusion: Flexibility in relation to the depth of evaluations

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example, internal/external views or different exposure views into which one transaction can flow with different attributable amounts. That would make it possible to determine attributable amounts for the same transaction in the different risk views using different formulas.

Conclusion: Flexibility in relation to the definition of viewing optionsSAP Credit Risk Analyzer Solution

=> Determination procedure

• For similar transaction types (such as fixed-term deposits and deposits at notice), it must be possible to make a flexible decision about whether completed transactions can be included in a credit risk analysis flow together with similarly generated attributable amounts or differentially.Conclusion: Flexibility in relation to determining attributable amounts related to products

• In one view, the analyses, specifically, the comparison of an attributable amount from a transaction and the defined limit specification should occur flexibly at different levels and in various dimensions. The dimensions are determined by characteristics such as company code, business partner, traders, and others. Conclusion: Flexibility in relation to the depth of evaluations

Note: Requirements for Limit Management

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Determination Procedure

• Determination procedures describe the perspectives on risk that a risk controller may have as part of Reporting.

• Such perspectives can be, for example, internal or external, OR Internal Exposure with attribution of nominal value for all transactions/Internal Exposure with NPV attribution of all transactions, and so on.

• The determination procedure forms the basis for looking at a transaction from different points of view.

• The combination of a determination procedure (of a risk perspective) and the default risk rule of a transaction yield a formula that is used on the transaction(s) having the relevant DRR. This results in each perspective on risk and each transaction having one single attributable amount.

• Of course the same default risk rule can be assigned to multiple determination procedures. The assignment logic is always 1:n. That means that a transaction can return various (n) attributable amounts

A determination procedure encompasses all rules and definitions that are necessary, in relation to transactions with default risk, to determine

Risks related to a certain risk type From a certain business perspective.

This definition is explained as follows: If credit and settlement risks are determined for a transaction, two determination procedures must be defined (one determination procedure for each risk type).

If you want to evaluate a transaction by different methods, you do so using different determination procedures. You can evaluate a transaction from the perspective of supervisory law as well as internal risk in parallel.

Within a determination procedure you can evaluate various transactions having different risk properties.

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Attributable Amount Determination

Transaction

Attributable amount 3Attributable amount 2Attributable amount 1

Default risk rule

Risk 3Risk 2Risk 1

Determination procedure 3Determination procedure 2Determination procedure 1

Risk amount 3Risk amount 2Risk amount 1

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example, internal/external views or different exposure views into which one transaction can flow with different attributable amounts. That would make it possible to determine attributable amounts for the same transaction in the different risk views using different formulas.

Conclusion: Flexibility in relation to the definition of viewing optionsSAP Credit Risk Analyzer Solution

=> Determination procedure• For similar transaction types (such as fixed-term deposits and deposits at notice), it must be

possible to make a flexible decision about whether completed transactions can be included in a credit risk analysis flow together with similarly generated attributable amounts or differentially.

Conclusion: Flexibility in relation to determining attributable amounts related to productsSAP Credit Risk Analyzer Solution=> Default risk rules

• In one view, the analyses, that is the comparison of an attributable amount from a transaction, and the defined limit specification should occur flexibly at different levels and in various dimensions. The dimensions are determined by characteristics such as company code, business partner, traders, and others. Conclusion: Flexibility in relation to the depth of evaluations

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Default Risk Rules

• You define default risk rules in Customizing.

• Default risk rules are automatically assigned to single transactions using a derivation tool.

• Each transaction then receives just ONE single default risk rule.

• This single default risk rule serves as an ID for risk attribution

• Default risk rules can be used in general for a group of financial products (such as general money markets) or be assigned explicitly to single transactions (such as fixed-term deposit, borrowing = DRR 1 / fixed-term deposit, investment = DRR 2).

The default risk rule supports grouping transactions into groups whose contents are evaluated in the next step according to uniform methods and procedures.

The definition of default risk rules is set in Customizing. The rules can be derived from product types or individually.

The default risk rule is used to determine whether to calculate settlement risks (in addition to credit risks) for transactions assigned to the rule.

This is also when you specify how to define the relevant transactions terms (risk commitment period, market value change period) uniformly.

Transactions that are evaluated according to different methods within a uniform business perspective (for example, supervisory law) must be assigned to different default risk rules.

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Default Risk Rules

Automatic Determination – Example:

If product type = 51A (Fixed-term deposit) AND Transaction type = 100 (investment), THEN DRR = MM00000001

Default risk rules are determined automatically when a transaction is determined

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Attributable amount 1

Financial transaction

Default risk rule

Determination procedure 3 (counterparty limit)

Determination procedure 2 (trader limit)

Determination procedure 1 (Exposure)

Formula 3Formula 2

Formula 1

Attributable amount 2Attributable amount 1

1 : :n Assigning det. proc. to limit type

Probabilities of default

Recovery Rates

Add-on factors

Limit specifications

If a transaction contains multiple risks (counterparty credit risk, issuer credit risk, counterparty settlement risk), multiple attributable amounts can be generated. This is controlled by the choice of determination procedure which forms the methodical unit for determining attributable amounts for the counterparty/issuer default risk for all transactions of a certain risk view. This means that if a transaction contains both credit risk and settlement risk, then at least two determination procedures are required to measure both these risks. This methodology enables the attributable amount of a transaction to be calculated for the same risk type in different ways. You can use two different determination procedures to evaluate the credit risk of a money market transaction from the perspective inside the company, for example, as well as from the risk perspective of supervisory law. From within a determination procedure you can evaluate transactions that possess different risk properties. This makes it possible to attribute money market transactions with their nominal values and derivatives with their NPVs to a limit. You can perform this flexibly according to your individual needs.

Another important factor in determining the attributable amount is the default risk rule. This rule specifies which criteria to use to determine the market value change period and the risk commitment period of a transaction. You can choose “Term end of the transaction” or “Fixed rate period of the transaction” among others. The Recovery Rate determination is also defined in the default risk rule.

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Formulas for determining attributable amounts

Possible formulas for determining attributable amounts= Nominal value

= NPV

= NPV+(Nominal value*AddOn)

= NPV+(NPV*AddOn)

= Nominal value*default probability

= NPV*default probability

= NPV+(Nominal value*AddOn)*default probability

= Nominal value*Recovery Rate

= NPV*Recovery Rate

= NPV*Recovery Rate*default probability

= (NPV*AddOn)*Recovery Rate*default probability

= (Nominal value*AddOn)*Recovery Rate*default probability

= NPV+(Nominal value*AddOn)*Recovery Rate*default probability

= return payment amount–advanced payment amount

= ......... Other standard formulas

= Individual formula structures using a user exit

* AddOns are dependent on market value change period of a transaction* Recovery Rates are derived as percentage add-ons from the business partner rating and the risk commitment period of

the transaction* Probabilities of default are derived from the risk sensitivity of a transaction

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External Basic Key Figures

SAP

External formulasUser Exit

AttributableAmount

⌧Add-on factor⌧Probability of default⌧Recovery Rate

basic key figures

Externalbasic key figures

externalbasic key figures

If you cannot use the default formulas to calculate the attributable amount, you can get external amounts or key figures for formulas and use an available user exit to process them.

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Limit Management


11

22


33

44


CRA basic terms

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Fixed-termdepositsDeposits atnoticeCommercialpaperInterest rate instrumentCash flowtransactionFacility

Product Types

DerivativesForexSecuritiesMoney market

StockSubscriptionrightsInvestment certificatesBondsConvertiblebondsWarrant bondsWarrantsMBS (as of ERP2005)

ABS (as of ERP2005)

Spot exchangetransactionsForward exchangetransactionsForeignexchangeswaps

Cap / FloorFRASwaps- Interest rates- CurrencyOTC options - Currencies- Interest rates- Securities- Swaption

Listed options and futures

Hedging instrumentsInvestment/Borrowinginstruments

Selection of Financial Instruments

Within short-term transactions, money market or foreign exchange transactions provide the option of bridging liquidity deficits or surpluses. For mid- and long-term areas, investments and borrowings are represented by securities transactions.

Derivative financial instruments, on the other hand, help you secure against interest rate and currency risks

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CreatingCreating financialfinancial transactionstransactions

CreatingCreating businessbusiness partnerspartners

Customizing

ControlData

Roles Relationships General

Prerequisitefor

Prerequisitefor

Business Partner

Each financial transaction is recorded as a transaction with a (specific) business partner. For this reason the business partner data must be present before the transaction is recorded.

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Limit Management


11

22


33

44


CRA basic terms

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What requirements are placed on limit management?• Multiple views definitely could exist in credit risk analysis. Possible views might be, for example,

internal/external views or different exposure views into which one transaction can flow with different attributable amounts. That would make it possible to determine attributable amounts for the same transaction in the different risk views using different formulas.Conclusion: Flexibility in relation to the definition of viewing options SAP Credit Risk Analyzer Solution=> Determination procedure

• For similar transaction types (such as fixed-term deposits and deposits at notice), it must be possible to make a flexible decision about whether completed transactions can be included in a credit risk analysis flow together with similarly generated attributable amounts or differentially.Conclusion: Flexibility in relation to determining attributable amounts related to productsSAP Credit Risk Analyzer Solution=> Default risk rules

• In one view, the analyses, specifically, the comparison of an attributable amount from a transaction and the defined limit specification should occur flexibly at different levels and in various dimensions. The dimensions are determined by characteristics such as company code, business partner, traders, and others. Conclusion: Flexibility in relation to the depth of evaluationsSAP Credit Risk Analyzer Solution=> Limit types

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Limit Types

Limit types define the depth of a risk view (or of a determination procedure)

One limit type is always assigned to a determination procedure.

That limit type always is valid for a particular risk view where the attributable amounts are compared against a limit specification.

You can define multiple limit types as part of one determination procedure (the relationship is 1:n).

One limit type contains one or more characteristics that form the basis for a limit value (Example 1: A TRADER cannot trade more than n Euros in COMPANY CODE X with BUSINESS PARTNER Y in the MONEY MARKET AREA. / Example 2: The trading volume in COMPANY CODE X cannot be greater than N Euros).

Combining characteristics is flexible and expandable.

The limit type is the key limit management instrument. You must first define limit types in the system settings before you can create limits and calculate the relevant limit utilizations.

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Limit Types with N Dimensions

Money market

EUR 8 million

Euro Bank

EUR 22 million

Connor

EUR 3 million

Euro Bank/money market/Connor EUR 300.000

Germany

EUR 200 million

USA

EUR 200 million

LT1: Country

Banks

EUR 500 million

Industry

EUR 400 millionLA2: Industry

Forex

EUR 8 million

United Bank

EUR 20 million

Bauer

EUR 3 million

LT5: Trader LT45: LPG/Trader

Bauer/Forex

EUR 1 million

LT33: Partner/LPG/Trader

Germany/Banks EUR 100 millionLT12:

Country/Sector

Combination oflimit charac-

teristics values

You can combine multiple limit characteristics to create multidimensional limit types. You have the option of combining various limit characteristics when you define a limit type,

which provides many opportunities to restrict your default risks and to monitor your trader activities. The limit specification then is defined in a combination of limit characteristics values. In the example above, Trader Bauer was allowed to take a maximum default risk of one million Euros in the Foreign Exchange Transactions product type. It was irrelevant which business partner was involved in the transaction.

If you define a three-dimensional limit type, you can also take the business partner into consideration. Then you can ensure that your money market trader does not exceed a certain exposure with a business partner. You can do this, for example, by defining a limit type with the characteristics of Trader, Limit Product Group, and Business Partner and by determining an amount limit for the exposure.

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Limit Types: Characteristics

The following characteristics are available by default in the SAP system:

Company Code Product type Limit product group Business Partner

Industry Trader Security ID number Country

Portfolio Currency Monitoring unit Contract type

Contract type

There are also 15 characteristics that can be defined individually for evaluation purposes. Those characteristics do not have to exist already in other parts of the system.

Client Characteristic 1 Client Characteristic 5 Client Characteristic 9 Client Characteristic 13



Client Characteristic 4 Client Characteristic 8 Client Characteristic 12

In addition, up to 50 characteristics can be taken directly from tables or from the Market Risk Analyzer and be made available in the Credit Risk Analyzer.

You can assign the limit characteristics listed above either individually or in any combination to a limit type:

The business partner can be interpreted as the counterparty or the issuer. The monitoring unit is a free field in the transaction data and you can enter anything you want in it. A limit can be assigned to all transactions having the same field assignments.

You can use a user exit to derive up to 15 customer characteristics from existing limit characteristics. This enables you, for example, to create a limit for the Latin America country group, against which every transaction with business partners in this region would be checked. In this case, Latin America would be a value of the customer characteristic "geographic country group".

Note: The characteristics, "country for country risk", "internal organizational unit," and "country rating" characteristics are available in the banking solution only.

Generated characteristics are characteristics that are generated in the active analysis structure of the Market Risk components and are placed and used in Limit Management. These characteristics are user-defined.

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Default risk rule

Determination procedure 3

(counterparty limit)


(trader limit)


(Exposure)

Formula 3Formula 2Formula 1


Probabilities of default

Recovery Rates

Add-on factors

Limit type 3 – DP3 Counterparty

(Co. Code/BP)

Limit type 2 –DP2 Trader limit

(Co. Code/Trader)

Limit specification 3Limit specification 2Limit specification 1

Limit type 1 – DP1 Exposure

(Co. Code/BP)

Attributable amount 1 1: :n Assigning det. proc. to limit type

You can assign a determination procedure to multiple limit types with various evaluation hierarchies.

The limit utilization of a single record or transaction is the risk amount that was defined with the use of the attributable amount determination for a single financial transaction.

Using limit characteristics and their values, the utilizations of the single records are added to those of the totals records or the limit.

Hence the utilization of a limit is the total of the attributable amounts of all transactions that were attributed to the limit on the basis of their characteristic values. This amount is compared to the corresponding limit amount as part of the integrated default risk limit check and reporting or drilldown. During this process the attributable amounts from all financial transactions are updated in the relevant limits.

Newly concluded transactions increase the existing limit utilization either through the single transaction check (or the integrated default risk limit check) or through the end-of-day processing. Such transactions are dependent on the selected limit characteristics.

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Limit Management


111

222


333

444


CRA basic terms

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Online Limit Check

Limit specificationsLimit characteristic values

Combinations of limit characteristic values

Limit Exposure Evaluation

CRA 4: Process (Limit Process)


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Limit Types and Limit Specifications

Combination of characteristics values that determines the depth of evaluation.

You can use the validity periodto scale and archive limits over time.

Critical limit utilizations create warning messages when the corresponding utilization is reached.

Max. risk commitment periodsallow you to restrict limit values related to term.

ExampleNo more transactions may be concluded with counterparty DST Bank (KONT_DST) in company code CFM1 that exceed a volume of EUR 10 million

You can specify limits for all defined limit types that correspond to your company's willingness to take risks. The specified limits serve as quantitative test aspect for determining at a later time whether limits were kept. Each limit specification contains an internal limit that is checked each time a financial transaction is created.

When you define single- and multi-dimensional limit types, you enable the creation of a hierarchical limit specification structure.

The number of dimensions in the hierarchy tree increases at lower levels. Note that each business partner is assigned exactly one country and one industry. It is therefore

unnecessary to combine the business partner with these characteristics.

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Example of Determining Exposure

Transaction

Default risk rule

DP04 – Expected LossDP03 – External Gross Exposure

DP02 – Internal Gross Exposure

DP 01 – InternalNet Exposure

LT01/DP01 –Company

code/Trader/BP/Product type

LT01/DP01 –Company

code/BP/Product type

LT01/DP01 –Company code/BP

LT01/DP01 –company code

EUR 100,000,000 EUR 10.000.000 EUR 2.000.000 EUR 1.000.000

Fixed term depositBP = Deutsche BankTrader = MüllerDeposit EUR 2,000,000

Attributable amount = EUR 2,000,000 = Nominal value

Limit not exceeded

Avail. limit: 98 million

Limit not exceeded


At the limit

Avail. Limit: 0

=> Warning message

Limit exceeded


⇒ Warning message

⇒ Message sent to persons responsible

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Limit Utilizations: Online Check when Creating Transactions

You can execute an online check from the transaction creation screen before saving the transaction.

The Credit Risk Analyzer supports an integrated default risk limit check (IALP). Traders can use this function to determine the transaction risk and check the transaction against the limits defined in Limit Management before the transaction is finalized.

Once a transaction has been concluded, the exposure automatically increases the utilization of the affected limits. As a basis for the integrated limit check, all the financial positions must be valued consistently. The system displays the result of the limit check. To do this, limit utilizations are determined from the single transaction exposure calculated on the basis of current market data. They are then updated in Limit Management. In addition to the utilizations for each specified limit, the system also generates individual records for each transaction. You can therefore see the impact of individual transactions on the total utilization and use this information as a basis for changing financial transactions during the course of the day.

The integrated default risk limit check is an instrument that you can use to monitor risk as early as possible. This is controlled by means of the limit type. For each limit type you define whether the limit level is relevant for the integrated default limit check process.

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The end-of-day processing function calculates single or multiple attributable amounts for each transaction on the basis of the current market data and updates all the relevant limit characteristic value combinations accordingly.

Any errors are written to a processing log.

The attribution of default risks reduces the available limit (the difference between the limit and the limit utilization).

To update limit utilizations start a report in batch mode. Once the limit utilizations have been determined in this process, they are updated in the corresponding limit.

In addition to end-of-day processing, you can also use single transaction checks that allow you to update limit utilizations whenever you want.

You can use an evaluation type (see appendix) to determine which market data is used for calculating NPVs.

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Limit Exposures

Breakdown of the total limit utilization at the level of single transactions

Limit exposure at the counterparty level

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Limit Management


11

22


33

44


CRA basic terms

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Consideration of corporate relationships

Interim Limits

CRA 5: Additional Functions of Limit Management

Release Procedure

Reservations

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Interim Limits

Limit amount

Time

Interim limit 1

Reference Data

Interim limit 2

• Interim limits are used for the organizational approval process

• Interim limits are temporary limit adjustments (such as in the Trading area)

• You can create multiple interim limits that overlap chronologically

• Interim limits can eventually become permanent limits

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Corporate Relationships

• Corporate relationships of the business partner can be taken into account as part of Credit Risk Management.

• Parent-subsidiary relationships can be represented according to their share ratios. The financial transactions of the subsidiary are added proportionally to the limit utilizations of the parent company.

• Financial transactions of the parent company also can be attributed as a percentage to limits that are valid for the subsidiary.

• In Customizing you can define the how deeply you want to evaluate relationship networks.

• You determine in Customizing the type of attribution by the limit type.

Default risks related to a subsidiary can be attributed either solely to the subsidiary or to both the subsidiary (always at 100%) and to the parent company (at 100%).

In Business Partner Customizing (Transaction BCA0) you can define a relationship type that allows you to attribute default risks to multiple parent companies. This relationship type is defined in the business partner master data of the group subsidiary by entering an attribute record (at any percentage, for example, corresponding to the share proportion).

The country risk in the country of incorporation for the parent group is not affected by transactions with foreign subsidiaries.

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Limit release according to the dual control principleTwo different users

Changes move the release back one step

Not released (Status 0)

Flagged (Status 1)

Released (Status 2)

Release Procedure

You can enable the release procedure in Customizing by setting a flag (release active) for each limit type.

When you specify the initial status, you define whether the release procedure begins with not released (Status 0) or flagged (Status 1). This setting is dependent on the the organizational processes at the company.

You can release each specification individually or as a group for certain limit types. Each change in the limit specification (such as increasing a limit) moves the release step back one level.

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Exercises 22

Unit 7: Credit Risk Analyzer Topic Limits and Limit Types


• Specify and create limits

• Perform an online limit check

• Use the standard reporting tool

The limit characteristic values assigned to the limit type define limits and update limit utilizations.

22-1 Preparation Activity:

To calculate the limits adequately and to avoid exceeding the limit the first time you create a limit, the volume of trading transactions you created in the last four days in your company code FS## is determined as part of the preparation activities. Open the “NPV analysis” report from the Market Risk Analyzer section (use the “CRA-Bestand” variant)(Exercise 2—3).

Enter the following data: Field Name or Data Type Values Company Code FS##

Write down the total from the Nom. Amt in Eval. Crcy column: __________________

22-2 Create a new limit specification for limit types 201(DP20: CoCod/BP (Nominal) Gro) and 121 (DP12: CoCod/BP (Stlmt.Risk)).


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Field Name or Data Type Value Company Code FS## Business Partner 1000

Enter the following specified values: Field Name or Data Type Value Valid From Date Yesterday Valid To (internal) 31.12.9999 Limit Currency EUR Internal Limit Amnt (Amount from Exercise 22-

1)+1 million Critical Limit Utilization 90 % Max. Risk Commit Per. Mth 9999 Limit check

22-3 CAUTION: Only start this exercise after the instructor has triggered end-of-day processing.

Create a fixed-term deposit and execute an online limit check before you save this transaction. Open the last transaction tab and check the utilization of the limit you just created.

Enter the following data: Field Name or Data Type Value Company Code FS## Product Type 51A Transaction Type 100 Business Partner 1000

Enter the following data: Field Name or Data Type Value Flow Type 1100 (proposed) Amount 500.000,00 Start of Term Today's date End of Term +3 months Interest Structure – Percentage 2 %

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Rate Int.calc.method Act/360 (proposed) Frequency At end of term Shift due date to end of term X - select indicator

Write down the number of the fixed-term deposit __________________ .

Keep the report screen open (for further activities, open a new session).

22-4 Use standard reporting for limit utilizations to check the limit exposure. Select the “TRAINING” variant.

To execute this action, you open a second session (since the report display is updated later online).

After you select the “TRAINING” variant, enter the following values on the Direct Characteristics tab page: Field Name or Data Type Value Company Code FS## Business Partner 1000

Exit the exposure and go to the transaction.

Use the detail log for calculating limits to check how the attributable amount was generated.

From the overview of limit utilizations, open the single utilizations and view the transactions that are responsible for using the limit.

22-5 Create a second fixed-term deposit to increase the limit utilization. Perform an online limit check as part of creating a transaction and check the utilizations more closely. Leave the open report from section 21-4 and use the first session from exercise 21-3 to enter the second transaction.


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Enter the following data: Field Name or Data Type Value Flow Type 1100 (proposed) Amount 450.000,00 Start of Term Today's date End of Term +3 months Interest Structure – Percentage Rate

2 %

Int.calc.method Act/360 (proposed) Frequency At end of term Shift due date to end of term X - select indicator


22-6 Return to the session with the open report on the limit utilizations and choose “Refresh” to refresh the display. You can see the traffic light for the limit utilization change from green to yellow. Check the individual utilizations of the limit.

22-7 Create a third fixed-term deposit to cause the limit to be exceeded. Leave the report from section 21-6 open and use the session from exercise 21-5 to enter the third transaction.


Enter the following data: Field Name or Data Type Value Flow Type 1100 (proposed) Amount 100.000,00 Start of Term Today's date End of Term +3 months

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Interest Structure – Percentage Rate

2 %



22-8 Return to the session with the open report on the limit utilizations and choose “Refresh” to refresh the display. You can see the traffic light for the limit utilization change from yellow to red. Check the individual utilizations of the limit.

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Solutions 22

Unit 7: Credit Risk AnalyzerTopic Limits and Limit Types

22-1 Preparatory Activity To calculate the limits adequately and to avoid exceeding the limit the first time you create a limit, the volume of trading transactions you created in the last four days in your company code FS## is determined as part of the preparation activities.

Open the “NPV analysis” report from the Market Risk Analyzer section (use the “CRA-Bestand” variant) (Exercise 20-3). Write down the total from the Nom. Amt in Eval. Crcy column: __________________ .

For the evaluation, select the following menu path:

Accouting Financial Supply Chain Management Treasury and Risk Management Market Risk Analyzer Information System Mark-to-Market NPV Analysis (JBRX)

Choose Get Variant… to select the “CRA-Bestand” variant in the application toolbar.


Enter the following data: Field Name or Data Type Value Company Code FS##

Start the report by selecting Execute.

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Write down the total from the Nom. Amt in Eval. Crcy column: __________________.

22-2 Create a new limit specification for limit types 201(DP20: CoCod/BP (Nominal) Gro) and 121 (DP12: CoCod/BP (Stlmt.Risk)).

To create a new limit template, choose: Accounting Financial Supply Chain Management Treasury and Risk Management Credit Risk Analyzer Master Data Limits Maintain (TBL1)

You are now in a table. Choose Create limits.

A dialog box appears. Enter the following data: Field Name or Data Type Value Company Code FS## Business Partner 1000

Choose Continue.

Enter the following specified values: Field Name or Data Type Values Valid From Date Yesterday Valid To (internal) 31.12.9999 Limit Currency EUR Internal Limit Amnt (Amount from Exercise 22-

1)+1 million Critical Limit Utilization 90 % Max. Risk Commit Per. Mth 9999 Limit check

Save the data.

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Choose Back to return to the initial screen and repeat the whole process for Limit type 121.

Use the same amounts, limits, and so on.

(CAUTION: After this exercise, the instructor will centrally trigger end-of-day processing (KLNACHT)). When the instructor has done this you can continue with Exercise 22-3.

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22-3 CAUTION: Only start this exercise after the instructor has triggered end-of-day processing.

Create a fixed-term deposit as the contract and execute an online limit check before you save this transaction. Open the last transaction tab and check the utilization of the limit you just created.


Keep the report screen open (for further activities, open a new session).

To create a fixed-term deposit, choose: Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Money Market Trading Create Financial Transaction (FTR_CREATE)


Choose ENTER.

Enter the following data: Field Name or Data Type Value Flow Type 1100 (proposed) Amount 500.000,00 Start of Term Today's date Validity Period End +3 months Interest Structure – Percentage Rate

2 %

Int.calc.method Act/360 (proposed) Frequency At end of term

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Shift due date to end of term X - select indicator

Switch to the Default Risk Limit tab page.

To perform the online check, click Limit Utilization Details in the Functions area of the screen. Check the attribution of this transaction against the limit you maintained in section 21-2 of the exercise.

In the list you see the utilized amount and the remaining difference between it and the limit maintained. When the traffic light is green, you can see that no limit is exceeded and nothing has approached the limit.

Close the window.


In the dialog box that appears, choose Continue to confirm that no limit has been exceeded.

The status bar displays the message “Fixed-term deposit xxxxxx created in company code FS##”.

Write down the number and keep this screen open (for further activities, open a new session).

22-4 Use standard reporting for limit utilizations to check the limit exposure. Select the “TRAINING” variant.

To execute this action, open a second session (since the report display is updated later online).

Exit the exposure and go to the transaction.

Use the detail log for calculating limits to check how the attributable amount was generated.

From the overview of limit utilizations, open the single utilizations and view the transactions that are responsible for using the limit.

To check the limit exposure, choose Accounting Financial Supply Chain Management Treasury and Risk Management Credit Risk Analyzer

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Information System Reporting Utilizations Overview: Selection Using All Characteristics (TBLB)

Select Get Variant… to select the “TRAINING” variant in the application toolbar.

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After you select the “TRAINING” variant, enter the following values on the Direct Characteristics tab page: Field Name or Data Type Values Company Code FS## Business Partner 1000

Run the report.

In the open report, check the limit amount, utilization, and remaining available limit.

The list displays the validity date of the limit and the associated limit amount plus the percent limit. In the two right-hand columns you can read the utilization amount of the transactions you entered and the remaining limit. Double-click the first data field of a line/the line to select it. You reach the list of the single utilizations.

From the list you can determine the attributable amount for each single transaction. Highlight the row of the transaction most recently created and choose Attributable amount determination in the application toolbar. In the log that appears, double-click the first row that appears on the left side of the screen under Determination Details.

The details are displayed. You see the creation of the attributable amount and potential formula components.

To exit the log, click Back.

You are back in the overview Single Utilization Records. Leave the selection on the (last created) transaction and choose Master Data.

This displays the transaction you created in section 21-3.

Select Back in the standard toolbar to exit the screen. You are back in the Single Utilization Records display.

Choose Back to go to the display of the limit utilizations (Overview of Limit Utilizations – Selection Using All Characteristics). Leave this screen open.

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22-5 Create a second fixed-term deposit to increase the limit utilization. Perform an online limit check as part of creating a transaction and check the utilizations more closely. Leave the open report from section 21-4 and use the first session from exercise 21-3 to enter the second transaction.


To create a fixed-term deposit, choose: Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Money Market Trading Create Financial Transaction (FTR_CREATE)

Enter the following data: Field Name or Data Type Value Company Code FS## Product Type 51A Transaction Type 100 –

Investmemt Business Partner 1000

Choose ENTER.

Enter the following data: Field Name or Data Type Value Flow Type 1100 (proposed) Amount 450.000,00 Start of Term Today's date Validity Period End +3 months Interest Structure – Percentage Rate

2 %


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Switch to the Default risk limit tab page.

To perform the online check, click Limit Utilization Details in the Functions area of the screen.

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Check the attribution of this transaction against the limit you maintained in section 21-2 of the exercise. In the list you see the utilized amount and the remaining difference between it and the limit maintained. When the traffic light is yellow, you can see that no limit is exceeded, but the boundary of 90% that you entered has been exceeded. The limit has not been exceeded, but the warning or tolerance boundary has been crossed.

Close the window.


In the dialog box screen that appears, choose Continue to confirm that no limit has been exceeded but that the warning boundary has been exceeded.


Write down the number and keep this screen open (for further activities, open a new session).


22-6 Return to the session with the open report on the limit utilizations and choose “Refresh” to refresh the display. You can see the traffic light for the limit utilization change from green to yellow. Check the individual utilizations of the limit.

Change to the specified session.

Continue as described in section 21-4. After completing the exercise, leave this session open also.

22-7 Create a third fixed-term deposit to cause the limit to be exceeded. Leave the report from section 21-6 open and use the session from exercise 21-5 to enter the third transaction.


To create a fixed term deposit, choose: → Accounting → Financial Supply Chain Management → Treasury and Risk Management → Transaction Manager → Money Market

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→ Trading → Create Financial Transaction (FTR_CREATE)

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Choose Enter.

Enter the following data: Field Name or Data Type Value Flow Type 1100 (proposed) Amount 100.000,00 Start of Term Today's date End of Term +3 months Interest Structure – percentage Rate

2 %


Switch to the Default risk limit tab page.

To perform the online check, click Limit Utilization Details in the Functions area of the screen. Check the attribution of this transaction against the limit you maintained in section 21-2 of the exercise. In the list you see the utilized amount and the remaining difference between it and the limit maintained. When the traffic light is red, you can see that the limit has been exceeded.

Close the window.

Save the transaction. In the dialog box that appears, choose Continue to confirm that a limit has been exceeded.


Write down the number and keep this screen open.

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22-8 Return to the session with the open report on the limit utilizations and choose “Refresh” to refresh the display. You can see the traffic light for the limit utilization change from yellow to red. Check the individual utilizations of the limit.

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Appendix 1

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User guide

Options for help

User-specific settings

Contents

Note: SAP Navigation

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Logging On to the System

If you experience problems logging on, contact your user administrator, Tel. 1972

You can define your own text to be displayed on the initial screen:

See SAP Note 205487

SAP systems are client systems. Using the client concept, it is possible to operate multiple companies in one system that are operationally independent of each other. The SAP BW and SAP KW components are exceptions, only one client is used for each respectively. Each user session only has access to the data of client selected at logon.

A client is an organizationally independent unit in the system. Each client has its own data environment and as a consequence, its own master and flow data, assigned user masters, and specific Customizing parameters.

To enable users to log on to the system, a user master record must be created for them for the relevant client. For reasons of access protection, a password is required to log on. The user cannot see the password as it is entered (the system displays asterisks only).

SAP systems are multilingually structured. The language for the current session is set with the Language entry field.

Multiple logons are logged as of SAP R/3 Release 4.6. This is for security reasons as well as licensing reasons. After the first logon, additional logons by the same user trigger a message that offers the user three choices: End the existing session(s), continue with logon Leave the existing session(s) alone, continue with logon (will be logged) Terminate logon

You can define your own text to be displayed on the logon screen in different ways. For more, see SAP note 205487.

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Role-Based User Menu

A user menu contains the activities that the user is allowed to perform according

to his or her role in the system

Users choose their own favorites, which

shorten navigation time

SAP Easy Access is the standard entry point into the system. You navigate the system using a concise tree structure.

A role describes a usefully defined quantity of activities in the system. They represent the range of functions that are typically required by the user at the workplace.

Before a user of the SAP system can work with user-specific menus or menus related to the workplace, roles must be set up with the Profile Generator.

Roles are also used to assign authorizations for the activities listed in the menus to the users. Predefined user roles for all application areas are included by default.

When assigning your user to a role, you can choose between your user menu and the standard SAP menu.

You can find the roles that are delivered by SAP by default by choosing Other menu on the SAP Easy Access initial screen.

In addition to their roles, end users can personalize their initial screens in the system with favorites. You can create your own Favorites List and fill it with the transactions, reports, files, and web addresses that you use most.

You can create favorites either using the Favorites menu option or simply by dragging and dropping the desired item into your favorites folder with the mouse.

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Maintaining Your Own User Profiles

User Edit Goto System Help

Maintain User Profile

User

Last changed by

ESCH

MENZEL 08.12.2002 21 : 46 : 37 Status Saved

Address Defaults Parameter

StartMenu

Logon language

Output ControllerOutputDevice

Output immediatelyDelete after output

Decimalization

Date format

1.234.567,89

1,234,567.89

1 234 567,89

DD.MM.YYYY

MM/DD/YYYY

MM-DD-YYYY

YYYY.MM.DD

YYYY/MM/DD

YYYY-MM-DD

Personal time zoneCET

CATTTest status

Input fieldsCheckboxes

Radio buttons

Title barStandard toolbar

Menu bar

Application toolbarCommand field

DEV (1) (100) TWDF0670 OVR

Tab page

Status bar

Command field: You can access applications directly by entering their transaction codes in the command field (which is hidden by default). The transaction code of an application can be found either in the SAP Easy Access menu tree (see “User-Specific Personalization” ) or in the relevant application under System → Status.

Standard toolbar: The buttons in the standard toolbar are displayed on each SAP screen. The buttons that you cannot currently use are grayed out depending on the application. If you hold the cursor over a button for a moment, a little flag will appear with the name or meaning of the relevant button. Here you can see the corresponding function key setting. The application toolbar displays the buttons that you can use in the current application.

Checkboxes: Checkboxes enable you to select multiple options at the same time within a group.

Radio buttons: You can choose only one option at a time. A tabstrip displays multiple information screens more clearly. Status bar: Displays information about the current system status: for example, warning messages and error messages.

Other elements include: Menu bar: The menus displayed here depend on the application in which you are currently

working. These menus provide you with submenu options. Title bar: The title bar names the function that is available to you.

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Calling System Functions

Menu Edit Favorites Extras

SAP Easy AccessOther menu

FavoritesURL - SAP Service MarketplaceSM50 - Process OverviewSM04 - User List

Role SAP_BC_BASIS_ADMINSystem: Running OperationSystem ConfigurationPerformance AnalysisProblem Analysis

OverviewRZ20 - CCMS Monitoring

Details

Create session

End session

User profile

Services

Utilities

List

Services for object

Object history

Own spool requests

Own jobs

Short message

Status...

Log off

System

Command field

SAP Easy Access and favorites list

Menu

You can call system functions in the following ways: Using the mouse, by selecting a(n) - Menu option - Favorite - Entry on SAP Easy Access

Using the keyboard (ALT + the underlined letter of the desired menu option) By entering a transaction code in the command field: Each function (not each screen) in SAP systems is assigned a transaction code (T-code). The assigned transaction code can be called from every screen of the system. For example, to display the customer master record, you can enter “/n” and the relevant transaction code: “/nsu3”. You can determine the current transaction code with the Status entry in the System menu for the running processing. Other possible entries: - “/n” ends the running transaction. - “/i” deletes the current session. - “/osm04” opens a new session and branches to the entered transaction (SM04).

You can also reach the command field with the keyboard. With the combination CTRL+TAB, the cursor jumps from one (input) field group to the next. You can jump within a field group with TAB.

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By entering “search_sap_menu” in the command field, you can display the menu path for desired SAP transactions. You can also search for text strings.

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Field Help: F1, F4

F4 HelpF1 HelpMeaning offields and technical

Information

Display ofpossibleentries

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Print parameter 2

Indicates whether spool requests are printed immediately.

Select this field to print your spool requests immediately.

Leav the field blank to retain spool requests in the spool system until they are released. To release these spool requests for printing, you can use System -> Services -> Output controller.

Performance Assistant


Output immediatelyDelete after output

Personal time zoneCET

CATTTest status

You can use F1 to display explanations about fields, menus, functions and messages. You can also use the F1 help to view the technical information for the relevant field. There you can also find, for example, the parameter ID that you can use for your user to store defaults on a value basis for input fields that also refer to this parameter ID.

You can use F4 to display information about possible entries. You can also access the F4 help by choosing the button directly to the right of the selected field.

When a field is displayed with a “check” symbol, you cannot continue until you have entered a permitted value. Using transaction or screen variants as well as with Customizing, a user can select many fields of an application as required or optional, hidden or invisible and filled with default values.

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Tools

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© SAP AG 2006

Settings

OfficeInformation SystemsTools

SAP menuFavorites

Other menu

SAP Easy Access

Menu Edit Favorites

Create role Assign users DocumentationSet start transaction

Settings

Technical details

Display documentation Shift+F6

Ctrl+Shift+F10

Shift+F9

Shift+F7

Extras System Help

Settings

This is used to specify settings

Display favorites at end of listDo not display menu, only display favorites

Do not display pictureDisplay technical names DEV (1) (100) TWDF0670 OVR

Options

New Visual Design...

Clipboard

Generate graphic

Create shortcut...

Activate GuiXT

Default size

Hardcopy

Quick Cut and Paste

Spelling Check

Sapgui Help

About ...

A range of settings simplifies working with the system

There are many personalization options available to the end user in the system. These include: Under Extras → Settings, you can configure the display of your initial screen. For example, you can deactivate the screen in the right part of the window or activate the technical names (transaction codes) in the SAP Easy Access menu.

Under Customizing of Local Layout, you can activate quick cutting and pasting, for example. Under Options ..., you can change the reaction speed of the quick info that is displayed when you “touch” an icon or button with your cursor.

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SAP Library

SAP Library

SAP Web Application Server, Release 6.10, June 2001

© Copyright 2001 SAP AG. All rights reserved.

SAP Library

Getting Started

SAP Web Application Server

SAP Knowledge Management

Help on Help

Help on the WebCopyright

Open all Close all

Previous Next Synchronize

Business unitShow/Hide Tree

SAP Library Getting Started Release Notes IMG Glossary Search Help on Help

Local intranet

SAP systems offer detailed online help. You can access help from every screen of the system. You can always request help by choosing the Help menu or the relevant button (yellow question mark).

You can also access the SAP Library on SAP Service Marketplace quickly and simply. There you will find the SAP Online Documentation (the SAP Help Portal) under Education and Training. There you can access the help in HTML format as well as perform efficient full-text searches. If you have installed the SAP Library, you also have these options within your company, of course.

You can access the Help Portal directly under http://help.sap.com.

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Appendix 2

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© SAP AG 2006

Business Partner: Functions and Roles

NaturalPerson

Organization

IssuerIssuerDepositoryDepository bankbankTrust Trust companycompanyPayer/Payer/payeepayeeAssigningAssigning institutioninstitutionGuarantorGuarantor

BorrowerBorrowerAgent/Agent/counterpartycounterpartyNotaryNotarySurveyorSurveyor Interested Party

CounterpartyBeneficiary

Several roles or functions can be assigned to one business partner. A role (= role category) specifies the characteristics a business partner must have before you can perform certain transaction activities with that partner. The functions of the business partner in financial transactions are described in business partner roles (categories).

The role category also determines the rights and obligations of the business partner in a given business transaction. Example: A business partner can act as a counterparty.

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Forex Spot Transactions/Forward Exchange Transactions

Spot TransactionsDue immediately, that is, on the second bank workday after conclusion of the contract

Purpose: mainly for processing international payment transactions Payment transactions

Forward TransactionsSettlement of the transaction on the arranged date (usually 1-12 months)

Settlement rate/forward rate (also outright rate) is fixed upon conclusion of the transaction

Purpose: hedging of exchange rate risks – reliable calculation basis, especially in international trade

With spot transactions, internationally traded currencies are bought or sold against other currencies on the value date.

With forward transactions, however, they are traded at a certain time in the future, and the relevant markup or markdown to calculate the forward rate is added. The back office processing of foreign exchange transactions requires that the authorized banks are defined in the system as authorized business partners with corresponding payment details.

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Evaluations

Parallel Position ManagementEvaluations

Inventory

- SAP list viewer display- Branch to the position flows- Branch to the posting journal- Determine the positions per valuation area at the key date

Flows

- Branch to the posting journal- Branch to the original business transaction- All business transaction flows from the TR ledger

Posting Journal

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ExampleExample: Forward Exchange : Forward Exchange TransactionTransaction

Forex transaction: USD/EUR

Contract Date: 01.03.YY

Value date: 31.05.YY

USD purchase amount: 1,000,000 USD (Forward rate)EUR sale amount: 1.700.000 EUR

Spot rate: 1,65Forward rate: 1,70

Valuations on 31.03.YY and 30.04.YYFinal valuation on 31.05.YY

Local currency = EUR

Valuation

In forex valuation, in the case of valuation at the current forward rate or with swap/swap comparisons, the term of the swap is no longer determined as the period between the key date and the due date of the transaction, but rather as the period between the spot date (calculated from the key date) and the due date of the transaction.

If you select the field Perform posting immediately, the flows generated by the valuation are posted immediately. Otherwise, the flows must be posted later using the appropriate functions.

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First valuation: 31.03.YY

Second Valuation: 30.04.YY

End valuation: 31.05.YY

Forward rate: 1.70 Local currency = EUR

Date Forward rate EUR Unrealized Realized

01.03.YY 1,70 1.700.00031.03.YY 1,65 1.650.000 - 50.00030.04.YY 1,72 1.720.000 + 20.00031.05.YY 1,69 1.690.000 - 10.000

Example: Forward Exchange Transaction

Valuation

This is an example for the following scenario: Creating and reversing provisions Showing realized loss

In the valuation 30.04.YY there is an unrealized gain. This, however, does not have to be disclosed according to German trade and tax law.

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Provision LiabilitiesProvision Assets

EUR bank account

Balance Sheet

P&L

First valuation: 31.03.YY

Unrealized loss50 T1

Clearing account

USD bank account

Realized loss Realized profit

Unrealized profit

Forward rateon conclusion: 1.70

Forward rateon market: 1,65

50 T 1

Creation of passive provision and display of unrealized loss

Valuation: G/L Accounting

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Provision LiabilitiesProvision Assets

EUR bank account

Balance Sheet

P&LUnrealized loss

50 T

Clearing account

USD bank account


Unrealized profit1

20 T

20 T

2 50 T 150 T2

50 T 2 2


Forward rateon market: 1.72

Writing-off of passive provisions, creation of active provisions, display of unrealized profit

Second valuation: 30.04.YY


In Germany, unrealized gains and asset provisions are not disclosed.

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Provision LiabilitiesProvision Assets20 T

EUR bank account

Balance Sheet

P&L

Realization: 31.05.YY (after posting the transaction, the system creates a derived business transaction)

Unrealized loss50 T

Clearing account

USD bank account


Unrealized profit

3

1

50 T20 T

20 T

2

2

2

1.70 M EUR

1 M USD

1.70 M EUR 1 M USD10 T 3

10 T3

50 T 1

50 T 2 20 T3


Spot rate on market: 1,69

The final valuation of forward exchange transactions is carried out with the help of a currency clearing account. The update is carried out based on the forward rate that is fixed in the transaction. The foreign currency amount is translated at the current rate of exchange.

The difference (realized gain/loss) is determined by the closing valuation, it is held in Treasury as a valuation flow, and is transferred to Financial Accounting during the posting run.

In order to determine the (profits and/or ) losses made, you must first post the transactions.

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The purchaser acquires the right (the seller accepts the obligation) to buy (seller: supply) or sell (seller: accept)

- At a certain time (European option) or within a certain time period (American option)

- A certain foreign currency amount (underlying)

- At a certain price (strike price)

To buy (seller: to deliver) or to sell (seller: take delivery of)

For this right, the buyer pays the vendor an option premium.

The vendor of the option then has the obligation to deliver (or take delivery of) the currency amount.

Calls: Purchaser acquires the right to buy (seller must deliver)

Puts: Purchaser acquires the right to sell (seller must buy)

Cash settlement or physical settlement (delivery / take delivery)

Currency Options

Example call: For a USD/EUR call at the strike price of 1.80, the purchaser has the right to obtain a particular USD amount at the strike price from the seller. The purchaser will only exercise this right if the market price is higher than the strike price at the time of exercise or within the exercise period. This way, the purchaser can acquire the foreign currency amount cheaper using the option than on the market.

Example Put: For a USD/EUR put at the strike price of 1.80, the purchaser acquires the right to sell a particular USD amount to the seller at the strike price. The purchaser will only exercise this right if the market price at the time of exercise or within the exercise period is less than the strike price. In this case the purchaser can obtain a higher price for the foreign currency amount using the option than the price on the market.

Background: The purchaser of a call wishes to hedge against rising prices and the purchaser of a put hedges against falling prices. The vendor reckons with the opposite price development and wants to improve his or her position by collecting the option premium.

There are two categories of barrier options - knock-in options and knock-out options. With knock-in options, the option right only comes into effect when the market price falls below

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(Down & In) or rises above (Up & In) the barrier. With knock-out options, the existing option right expires when the trigger price is touched (Down & Out, or Up & Out).

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Derivatives: Exercise OTC Currency Options 1 and 2

OTC Currency Options1 and 2

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Master Data

Futures account

Transaction entry

Margin Management

Derivatives: 4 – Futures

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Futures

Master DataMaintain class data/assign exchanges

Futures account

Futures account - class position

Enter security prices

Transaction entryOPEN transaction

CLOSE transaction

MARGIN Management

Determination of exchange rate gains with Close transactions

In principle, the application does not refer to any specific exchange or any specific financial product. You make the system aware of the exchanges and products by means of Customizing.

The exchange, as the institution that enables the free trade of contracts between partners, collects insurance payments from the trading parties in the form of additional (initial), premium, spread/non-spread, and marginal payments. These payments put the exchange in a position to offset all the contracts of all participants in the market. They payment amounts are the result of different calculation algorithms depending on the product type. With futures and future-styled options, the gains and losses are calculated daily as a Variation margin and cleared immediately.

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Securities

Futures Interest rate

Index

Master Data

Futures are forward exchange transactions with standardized structures. The standardized contract elements are stored in the class data.

You process the master data for futures using the same transaction as for the class data in the securities area. This means that you automatically have the use of functions that were also available for the securities class data. These functions include assignment of secondary indexes, integrated assignment of exchanges and the copying function.

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Futures account

Company CodeFutures accountName

TRXX

POS_01_DB

Futures account _01_DB

Bank informationDepository bankClearing accountFutures account no.

House BankHouse BankHouse bank acct.

2222444644555666DEUBA

DBGIRUN

Bank Data

Management unit

Position Management

Futures account - class position Information for margin calculation

A futures account is a management unit that is used in position management. It is required for futures because they must be managed just as all other positions. As a rule, the futures accounts defined in the system correspond to the real futures accounts held at the bank.

Before you can set up a futures account, the futures account bank must be defined as a business partner in the role of a depository bank.

In the back-office area for listed derivatives, you can see the reports “Futures Account Cash Flow” and “Position in Futures Account”.

In order to manage classes in a futures account, you need the class position in the futures account. You can find the information for margin calculation in the class position for the futures account. To enable a position with margin calculation to be managed, you must select future style as the settlement method when you make product type Customizing settings for futures. You also enter the exchange and the rate category for the margin calculation. This data does not then have to be entered in the posting report.

The same account assignment reference is used for a class position in a futures account in the case of all Open and Close transactions.

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Open purchase

Open sale

Close sale

Close purchase

FUTUREFUTURE

SettingSetting usingusingconsumptionconsumption followfollow--upup actionaction(LIFO or FIFO etc. or manually)(LIFO or FIFO etc. or manually)

Offset by:

Transaction Entry: Open and Close

In the context of these transactions, the terms purchase and sale do not describe the increase or decrease in positions; rather, they define the direction of a forward transaction. Positions are therefore built up whether you purchase or sell.

Open transactions refer to the build-up of positions whereas Close transactions refer to the reduction of positions.

The decrease in the position is brought about by a counter-transaction with the same class, and the counter-transaction is identified as an offsetting transaction (Closing). This facility to leave the market again at any time without obtaining the consent of the counterparty is one of the two important characteristics that distinguish listed options and futures from the options and forwards traded in the OTC area. The second characteristic is the strict standardization of contract contents.

Futures are managed in Single Position Management. Each Open generates a new single position. This can be closed by one or more (part) Close transactions.

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OPEN transaction

- Purchase- Sale

Variation margin

- Accounting - Daily

CLOSE transaction

- Purchase- Sale

100

101

98,5

t1 t2 t3 t4

Price (Un. quote)

Days

+VM

-VM

Margin Management

Futures are subject to the future-style settlement method. This means that by comparing the current settlement price with the previous day's price (on the first day with the cost price), the price change of each position is determined. The difference is converted to the number of ticks. This number multiplied by the tick value results in an amount that is immediately debited from or credited to the margin account. The variation margin represents the daily gains and losses in the mark-to-market valuation method. In this sense, it is not a margin. The variation margin is, therefore, not a valuation but a settlement method using the daily valuation at market prices. The variation margin method should prevent unmanageable payables/receivables amounts building up between the counterparties over a long period of time. The payables/receivables are, therefore, reconciled immediately on the day they arise. The maximum loss is thus only one day's fluctuation. In the variation margin process, although the amounts are credited to/debited from the margin account daily, and even discounted, they are unrealized gains/losses. The position itself is pending. Consequently, in accounting you must differentiate these amounts clearly from those amounts that have arisen as realized gains/losses from the closing of positions. As far as the margin management posting is concerned, we distinguish between the variation margin and the close margin. In the case of a close transaction, the margin flow is stored as “scheduled” and then updated automatically when changes occur in closing. In order to fix the flows, you must post the margin flows with report TPM25. This

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report is for posting closing flows only. A prerequisite, however, is that all business transactions (Open/Close) are already posted.

In addition to the margin calculation, futures can be calculated in the same way as the other transactions.

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Appendix 3

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ID number

Issue

IssuerNominal value

Conversion

Reference security

118900 Convertible bond 99/03

Basic Data

Premium Conversion period Conversion ratioAmountCurrency EUR

Fromto

NumeratorDenominator

2

1

100

Create Class: Create Convertible Bond

Class master data for convertible bonds consists of basic data, conditions, and additional entries. Selected fields in the basic data screen for convertible bonds are explained below: Reference security The security that can be used as a reference for the conversion.

Conversion period from/to: Period in which conversion is possible. Conversion ratio - numerator/ denominator: The Conversion ratio numerator tells you how many units of nominal value of the bond are required to convert it into the given number of stocks in Conversion ratio denominator.

Example: A nominal value of (2 x 100) 200 EUR is converted into 1 stock.

Conversion premium: The amount to be paid for each stock in the case of a conversion.

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ID number

Nominal value...

Option

Cum / Ex Number of warrantsBond exEquity

119805 Warrant bond 00/05

Basic Data

cum213200

548432

5

1000

Create Class: Create Warrant Bond

The class master data for warrant bonds consists of basic data, conditions, and other data. Selected fields in the basic data screen for warrant bonds are explained below:

CUM/EX bond: Indicates whether the bond is traded with a warrant (cum) or without a warrant (ex)

Number of warrants: Indicates how many warrants are attached to a bond per unit of nominal value. Example: 5 warrants are attached to a nominal amount of EUR 1000 of the bond.

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ID number

Underlying

ID NumberExercise price Currency

242385 Warrant ...

Basic Data

StructureOption categoryClearing of

CallDelivery

Exercise TypeExercise typeExercise minimum

Option ratioNumeratorDenominator

Fromto

European

Class Master Data: Create Warrant

Class master data for warrants consists of basic data and reference entries, if they are required. Below is a description of selected fields in the basic data screen for warrants (in this case, equity warrants): Option category: 1: Call 2: Put

Settlement: 1: Cash settlement 2: Delivery

Option rat. numer. / The number of warrants that you require Option ratio denom: in order to trade the number of units of basis values entered in the "Option ratio - Denominator" field.

Exercise type: 1: European 2: American

Exercise minimum: Number of warrants to be exercised at minimum as stated in the issuing conditions.

Exercise price: The amount to be paid for the underlying value when you exercise the warrant.

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At this point, you are not required to enter the "Option category" and the "Settlement type" in the structure characteristics when you create the class master data for a warrant. You can add this data later when you exercise the warrant.

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NewNewsec. acctsec. acct

ExistingExistingsec. acctsec. acct

Create andCreate andlocklock

Lock sec. Lock sec. acctacct

(Partially) (Partially) lock positionlock positionOrOr

In Customizing: Define blocking flagsIn Customizing: Define blocking flags

Note: Restraint on Disposal

You can restrict the disposition for each securities account for Part of the position of a particular security The total position of a particular security The whole securities account position.

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Closing Operations: Manual Valuation

For manual valuation, the security prices are not read (maintained for each exchange), but read from a special table.

Values are specified for each position in the table to which the position is to be written up or down. (to be maintained with the TRLV_VALV_MANUAL VAL maintenance view or transaction TPM74). The prices here are not specified for each unit or as a nominal price, but for each position managed by the Transaction Manager.

Manual evaluation does not support amortizations.

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800 stocks ID no. 444 444

Capital Increase from Retained Earnings

RatioRatioRatioRatio

Numerator 4Numerator 4Denominator 1Denominator 1

Select position

No.units old No.units newSec. acct ID

10001000800800DeubaDeuba Acc1Acc1

Execute

Capital increase for ID no. 444 Capital increase for ID no. 444 444444 executedexecuted

Result: 1000 stocks ID no. 444 444

Capital Increase from Retained Earnings

For a capital increase from retained earnings, open retained earnings are converted into capital stock. All stockholders therefore have the right to bonus stocks in proportion to the numbers of stocks they currently hold. The ratio indicates how many (old) stocks you require to obtain one bonus stock.

To execute a capital increase from retained earnings, you select the positions of all securities accounts in a company code. The number of units managed in the securities accounts is adjusted on the basis of the subscription ratio and the individual book value is corrected accordingly.

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1000 stocks ID no. 444 444Nominal value EUR 50Price EUR 560

Sec. acct ID No. units old No. units new

Stock Split

Stock split

SplitSplit ratioratio Numerator Numerator 11Split ratioSplit ratio Denominator Denominator 1010

Select position

DeubaDeuba Acc1 Acc1 1000 1000 10.00010.000

Execute

Stock split for ID no. 444 Stock split for ID no. 444 444444 executedexecuted

Result: 10,000 stocks ID no. 444 444

A stock split leads to an increase in the number of stocks for fixed stock capital, and reduces the nominal value per stock. The split ratio indicates the ratio by which the nominal value is reduced.

You execute a stock split for the relevant ID number in the company code. The system automatically adjusts the number of stocks and the book price. You have to maintain the nominal value reduction as well as the dividend adjustment amount manually in the class master data. The system automatically recalculates the cash flow on the basis of the data that has changed.

Since you can enter your own split ratio, you can also represent reverse splits in the system, for which the split reduces the number of stocks.

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10.000 stocks ID no. 444 444

Capital Reduction

Capital Reduction

RatioRatio Numerator Numerator 1010Ratio Ratio Denominator Denominator 11

Select position

Sec. acct ID No. units old No.units new?

DeubaDeuba Acc1 Acc1 10.000 10.000 1.0001.000

execute

Capital reduction for ID no. 444 Capital reduction for ID no. 444 444444 executedexecuted

Result: 1000 stocks ID no. 444 444

You execute a capital reduction to reduce the stock capital (or common stock) to compensate for losses, repay capital or convert stock capital to reserves. A capital reduction leads either to a reduction in the nominal value per unit or (more commonly) to a grouping of stocks.

A capital reduction is represented in the system as a group of stocks. The ratio indicates the ratio of old stock capital to new stock capital. You select the positions affected by the reduction for the entire company code and display them for each securities account. The number of units and the book values are adjusted according to the subscription ratio entered.

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1.000 stocks ID no. 444 444

Stock Swap

Stock Swap

Swap ratioSwap ratio Numerator Numerator 1010 Denominator 1Denominator 1old ID number: 444444 new ID number 111111old ID number: 444444 new ID number 111111

Select position

Sec.acct ID 444444 111111

DeubaDeuba Acc1 Acc1 1.000 1.000 100100

Execute

Stock swap for ID no. 444444 / 111111 executedStock swap for ID no. 444444 / 111111 executed

Result: 100 (more) stocks ID no. 111111

When you perform a stock swap, you swap stocks belonging to two issuers or swap different stock forms of an issuer (such as preference stocks against common stocks).

The position of stocks to be swapped is reduced in the system and the position of stocks to be received is increased by an identical book value in the same securities account. The system automatically recalculates the cash flow for the relevant securities on the basis of the data that has changed.

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•Exercise convertible bond

•Exercise warrant

•Detach warrant bond

•Exercise subscription right

•Give notice on bonds

• ID Number

• Specific data depending on right to be exercised (for example, term, exercise price for warrant)

Header Data

RightsFor example:

• Exercisewarrants

• Expiration

Inventory

• Nominal amount

• Number of units

• Units to be exercisedetc.

Exercise Rights

You represent the activities above using the Exercise security rights function. The exercise rights function contains header data, data on the rights and the position.

The header data includes relevant class information for the securities. The rights data lists the various options you have of exercising the right. The position data includes, for example, the number of units to be exercised or the nominal amount.

You can use a specific reversal function to reverse these activities.

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Prerequisites

Convertible bond in position

Stock classPI stock

(Partly) exercise convertible bond

Stocks in position

Convertible Bond: Overview

You can convert convertible bonds to stocks of the issuer concerned within a certain time period.

If you exercise a conversion right, the system determines the number of stocks to be obtained and, if required, the premium to be paid according to the share you have selected for conversion. When you convert them, the bond position decreases and the stock position increases according to the conversion ratio. The book values of the positions are updated on the basis of the book prices at the time of the conversion (and the premium, if required). The planned flows of the cash flows are adjusted according to the changed positions.

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Prerequisites

2

Warrant in position

Class underlying

PI underlying(Partly) exercise warrant

Cash settlement

Delivery

1

Equity Warrants: Overview

Warrants guarantee the right to purchase or sell an underlying transaction against a payment amount determined at issue at a certain time or within a certain period of time. Underlyings are units (for example, stocks), currencies, or interest transactions. You can create both traditional warrants within warrant bonds and covered warrants in the equity warrants function.

When you exercise a warrant, the system displays information on the related underlyings. If the cash settlement is planned, the cash settlement is calculated per subscription unit on the basis of the current price of the underlyings to be entered. In the case of delivery, the system generates the flows for the corresponding principal change.

Warrants that have not been exercised can be exercised as expiration by means of the Exercise rights function.

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Warrant bond cum in position

Class bond exPI bond exClass warrantPI warrant

(Partly) detach warrant bond

Stock classPI stock

(Partly) exercise warrant

Warrant bond ex in positionStocks in position(Warrant bond cum in position - if required)

Prerequisites

Warrant Bonds: Overview

Warrant bonds provide you with an option that enables you to reference stocks belonging to the issuer. You can trade bonds and options together (warrant bond cum), or separately (warrant bond ex, warrant).

You enter warrant bonds cum, warrant bonds ex, and warrants each as a class in the system. When you detach a warrant, the old position of the warrant bond cum decreases and the position of the warrant bond ex and the warrants increases. The book values of the positions are updated on the basis of the book prices when they are detached. The planned flows of the cash flows are adjusted according to the changed positions. You exercise warrants as described earlier.

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Calculation of Forward Interest Rates

Interest rate 2 months = 3 %/yearInterest rate 5 months = 5 %/year

-100 100.49

1 month 2 months

1 month 2 months 3 months 4 months 5 months

-100 102.05

1 month 2 months 3 months 4 months 5 months

- 100.49 102.05

5%

3%

6.36 %

Forward Interest Rate 2-5

Wanted: An interest rate valid for an interest period beginning in two months and lasting for three months.

Forward interest rates reflect the interest calculation of future investments or borrowing transactions, determined by today's yield structure. For normal yield structure, the forward interest rates corresponding to the term lie above the coupon yields (and vice versa with an inverse yield structure).

Forward interest rates are required for the evaluation of FRAs Swaps Caps/Floors Floaters Loans.

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© SAP AG 2003

Volatility typesVolatility types

Customizing:Define Volatility Type

Bid/middle/ask classificationCharacterization as individual or average volatility for caps/floors

Volatility nameVolatility name

Customizing:Master Data for Volatilities

You can individually assign volatilities to optionsAssignment via evaluation-type/valuation rule

Depicting Volatilities

Volatility types represent the previous volatility concept that specifies volatility types depending on the option type. Volatility types are assigned to transactions in the evaluation type on the Evaluation type and Valuation-Rule-Specific views.

Volatility names now allow you to define abstract volatility types that can be assigned to the financing options with the evaluation type and the valuation rule during the valuation. By defining evaluation types, both volatility procedures can be used on the option price valuation. Volatility names are assigned to transactions in the evaluation type on the Valuation-Rule-Specific view.

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Moneyness =Strike – Current rate

Current rate

Call

Put

-1 < 0

0 < 1

In-the-money

0

0

At-the-money

0 < 1

-1 < 0

Out-of-the-money

Moneyness

The moneyness factory describes generally how far an option is out of or in the money.

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Graphical Yield Curve Maintenance in the Scenario

SAP Statistics Graphic

Scenario High InterestPercentEUR

0990

Indiv. Shift

Rotation

Total Shift

Mirror Image

InterpolationEUR 09906.5.

2.4.3.1.0.

SAP Presentation Graphic

DEM 0990

You can change yield curves graphically in scenario maintenance. In doing so, new values can be assigned to the curve by changing the interpolation, by rotating it or switching to the mirror image, as well as with individual or total shifts. The change is carried out by directly editing the graphic.

You can save the changes as numerical values after when you are finished.

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Graphical Yield Curve Maintenance: Examples

Int. rate Int. rate

TermTermGrid point Grid point Grid point

Mirror Image

Rotation (with shift)

Fixing for mirroraxis Fixing of center of

rotation

Shift forrotation

The examples listed above show the changes you can make to the yield curves graphically: Mirror image: For the mirror image, a grid point is fixed to the yield curve which an (imaginary) horizontal mirror axis runs through. The original yield curve is reflected over this axis.

Rotation (with shift): First a grid point is fixed to the yield curve as a center of rotation. Then the rotation is carried around the previously fixed center of rotation by shifting another grid point.

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Manual entryFile interfaceDatafeedThe following price information can be, among other things, imported into the SAP system with a datafeed:

Exchange ratesSecurities pricesReference interest ratesIndex valuesVolatilities

To be able to use the datafeed link, you must maintain the RFC connection which ensures the communication with the data provider. Data can be transferred between the external program and the SAP datafeed module synchronously or asynchronously.The application departments must maintain the translation table that maps the descriptions of prices of the data provider to the descriptions of the prices in the SAP system.External market data can also be read into the SAP system from files.The SAP system expects the input file to be of a certain file format.

Market data can enter the SAP system in the following ways:

Market Data Maintenance

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Corporate Corporate groupgroup

AccountsMoney market

Bond

Zero bond

Floater

AccountsMoney market

Bond

Zero bond

Floater

New York branchCologne branch

Portfolio Hierarchy

The figure displays a portfolio hierarchy of the branch and bank product characteristics.

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Forex Exposure

Payment flows from the operating business activity contain currency and interest rate risks.The forex exposure displays the amount that a currency risk is subject to.In CFM, operative cash flows are carried out in the SAP system with Cash Management.Cash flows from Cash Management are integrated by the creation of risk objects.

The purpose of the Cash and Liquidity Management connection is to transfer future payment flows from the cash position and to provide the liquidity forecast for risk analysis. The cash position displays the short-term-oriented view for monitoring the liquidity of the bank accounts. Information about customers and vendors and about subledgers can be evaluated in mid- and long-term with the liquidity forecast. These cash flows can be evaluated via their integration with risk analysis and together with existing hedge transactions, can display open risk positions of individual currencies.

On the side of the risk analysis, the generated cash flows are stored in the transaction form of the risk object (see the appendix). The only elementary transaction used is transaction form 100 (Fixed Cash Flow) to which all cash flows with a corresponding due date are assigned. So that the created risk objects can be used in the evaluations, a financial object is automatically created for each risk object. With suitable analysis characteristic values, risk objects can be used flexibly in the evaluations and in reporting.

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t1 t2

8.0For example:10 annualrecord

8.5

Logarithmic change:

--1 1 = = 6.25 %6.25 %8.0 %8.0 %8.5 %8.5 %

Relative change:

lnln

Absolute change:

8.5 % - 8 % = 0.5 %

That raises the That raises the question, for example:question, for example:

Is an interest rate change with aIs an interest rate change with alow interest rate level the same as with alow interest rate level the same as with a

correspondingly higher correspondingly higher interest rate level?interest rate level?

Time

= 6.0624%= 6.0624%8.0 %8.0 %8.5 %8.5 %

Absolute, Relative or Logarithmic Changes in the VaR

The user can specify for each evaluation run whether the historical changes are to be transferred based on absolute, relative, or logarithmic changes to the current marked price parameters.

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Financial Objects as Technical Requirements

• Financial objects are created 1:1 for each transaction. They areAUTOMATICALLY created when saving the transaction.

• Financial objects carry the information that is necessary for evaluations in the Market and Credit Risk areas.

• You are free to choose the scope of the information that can be collected in a financial object (Customizing). The scope depends on the depth of later evaluations.

• This information consists of characteristics (such as company code, portfolio, business partner), that characterize an individual transaction and allow you to perform evaluations with characteristic hierarchies.

• The characteristics are automatically derived from transactions, related business partners, or with your own set of rules to fulfill the individual reporting requirements of a company.

• The user does not need to play an active roll in generating financial objects.

You must maintain a financial object for each transaction in the data pool that contains information specific to risk analysis for this transaction. The characteristic values are also stored in the financial object to ensure the transaction's assignment to views and portfolio hierarchies. You must supply all characteristics of the analysis structure with values for each transaction. If you do not, the characteristics will be flagged as not assigned in the portfolio hierarchy. Financial objects link information necessary for reporting (characteristic values) with the information necessary for valuation (valuation rules, evaluation types),described in the following.

Financial objects can be created manually by transferring data from remote systems, or automatically with automatic financial object integration.

With the automatic financial object integration function, the financial object data can either be entered or derived immediately when entering master data. This function is available for the following transaction categories: risk objects, BCA accounts, variable transactions, loans, money market/forex/derivatives, securities account class positions, class positions in a futures account.

In order to use automatic financial object integration, you must set the indicator FO integration active in the IMG of the risk analysis for the transaction. The general part of the financial object is created when the analysis parameters are generated.

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Parts of a Financial Object

Financial object for transaction 3



General part• Company code• Object number• Status• Product type• Source system• Management data

Sing. trans. costing part• Transaction start/end• Bank product• Commission

RM part• RM area• Summarization rule• Valuation rule

External key figuresAdditional data

Limit part• Counterparty Risk Active

indicator• Country Risk Active

indicator*• Default risk rule• Limit product group• Monitoring unit• Country risk information*Additionally for positions:• Traders• Portfolio

There is a financial object for each transaction that is relevant for default risk. The financial object can have up to six parts, each of which contains certain component-specific data: General part RM part (market risk analysis and ALM) Single transaction costing part External key figures Additional data Limit part (default risk and limit system)

To determine attributable amounts within Treasury and Risk Management, the default risk limit part must be activated for the relevant transactions.

To be able to determine an attributable amount for counterparty/issuer risk and/or country risk, the corresponding indicator must be set (Counterparty Risk Active or Country Risk Active).

The following slide explains the functions of the fields in the limit part. * The country risk function is only available in mySAP Banking.

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Collateral agreements

Attribution in limit management(displayed in the single records of the limit utilization)

You can define collateral value as an amount, percentage or securities (stocks, bonds)

Single-transaction-related collateral

Possible limit characteristics: Company code, business partner, limit product group

No attribution from the single transaction check

Attribution in limit management(displayed in the single and totals records of the limit utilization)

Global collateral provision

Collateral Provisions

In the Default Risk and Limit System, certain information about collateral is required to enable the system to calculate attributable amounts correctly, and record secondary risk appropriately. Only collateral data that is relevant for these purposes is entered in the SAP system. Seen from a general business perspective, collateral has far more complex data.

The Default Risk and Limit System distinguishes between the following levels of collateral Global collateral (only used in mySAP Banking) Single-transaction-related collateral Collateral agreements

You require authorization object J_B_KLTCOD to process collateral (regardless of the level of the collateral). This is contained in authorization profiles F_T_FTLM_ALL and J_B_ISB_ALL.

General administration of collateral should be done by an external data processing system. To ensure consistent datasets, we recommend that you set up an interface between the SAP Limit System and your collateral management system. You can link the systems by using the RFC-enabled module KLSI01_SI_SAVE_RFC.

Changes are logged in the form of change documents.

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Limit Maintenance Locking Concept

There are two options for locking limits.You can lock individual limits for a limit type.Mass locking by all limit characteristics is possible, that is, all limits will be locked that are assigned to these limit characteristics.

With the single transaction check / integrated default risk limit check, a relevant message will be displayed for locked limits.Locked limits are indicated by a lock in reporting. Documentation in change documents

Selecting the limit?

Valid from Valid to Internal limit External limit Limit currency ProvDate ProvRec Note(t)

400 CoCd, BP 0001 Euba Euro Bank01/01/01 12/31/9999 500,000.00 400,000.00 EUR Freiberger released

Lock/Unlock

Limit type Descript. Lock CoCd Partner Name Note

Result: Lock set!

2

1

You can now lock limits with little effort. A report is available to you with which you can lock all or individual limit types that contain limit characteristics that have been previously defined. For example, you can lock or unlock all limits that affect a certain business partner. This places you in the position to react extremely quickly if changes to the business framework (such as the downgrading of a business partner's rating) are required.

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With the reservation function you can lock a free limit without closing an actual transaction

A reservation increases the limit utilization for all specified limit characteristic values.

Reservation periods of one or more days are possible

Reservations can be changed (for example, extended)

The RFC interface is used to transfer reservations (like the single transaction check)

Separate entry screens to enter the reservation directly in the limit system

Reservations are displayed individually directly in reporting to be able to differentiate them from transactions

Reservations

The reservation function enables you to reserve a free limit for a certain period. The attributable amounts can either be calculated by using basic key figures, or entered with the reservation.

There is an authorization object especially for the maintenance of reservations: F_T_VTBLR. Reservations are taken into account both during the single transaction check and in end-of-

day processing.

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Appendix 4

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Special Topics

Release workflow

Links between market places and BAPIs

Links to external confirmation systems

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Release Workflow: Overview Graphic

1. Approvalor rejection



Start WorkflowRelease

One-step approval Two-step Three-stepApproval Approval




G GA A

G

A

G

G

G

A

A

A

Inbox

Inbox

Inbox

If a transaction is rejected, it can be changed/reversed

Transaction release includes the following components: Integration of organization management into SAP Business Workflow (structure, task distribution by person responsible and job descriptions, dynamic task distribution by term from the context of the workflow and the objects being processed)

Integration of release management in SAP Business Workflow (release process flow, consideration of the release strategies (during the workflow) that can be customized in Treasury)

The release procedure deals with release and checking procedures within the organizational framework.

If a release is rejected, the previous employee who worked on it is informed by the release area and the transaction can be changed or reversed. After the changes have been made, the transaction must be released again.

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Release Workflow: Customizing I

.... Freigabeverfahren :....... Freigabebedingungen

Buchungskreis 1000 IDES AG

FreigabeverfahrenPArt GArt FrgabVerf.51A 10051B 10060A 101

.... Freigabeverfahren :........ Freigabebedingungen Buchungskreis 1000 IDES AG

Produktart 51B Festgeld internGeschäftsart 100 Anlage

FreigabebedingungenVTyp Akt. Freig.erf. Frg.stufen Geschäftsbearb.10 01 1 1

In Customizing, you can set the relevant procedure depending on the company code, the product type, and the transaction type.

In the release conditions, depending on the activity category and activity, you enter the release step and an instruction regarding the transaction release.

The release steps define how many people are required to release an object (for example, one release step: dual control principle (one processor, one person responsible for the release).

You use the transaction release to define what the application does while the transaction is in the release workflow (for example, ongoing transaction during the release workflow is not permitted).

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Release Workflow: Customizing II

Display standard role 20000034 (TRTMTR_DEAL)

Creating responsibilities Example:

Employee assignment

Treasury Workflow 1st of two steps

Activating event linkage

Description From toProduct Type 51BTransaction Type 100current approval level 1Release steps 2Company Code 1000

Make the standard Customizing settings for the workflow. Display standard role 20000034 (TRTMTR_DEAL): The standard role describes the responsibilities for the individual approval steps. For each individual approval, the employee must be found in the system. To do this, a standard role has been built into the Workflow definition. However, this is still empty. To define the employees for an approval step, you have to create a responsibility in the standard role and assign it to a user/position. Change the responsibilities so that the "current approval step" is set to the relevant value, and the "release steps" are set to the maximum number).

You have the option of entering several users or positions that are to be notified if deadlines are exceeded (standard role 20000035).

Since this workflow is triggered by an event, you must activate the event linkage of the workflow used.

For more information about the release workflow, see the IMG documentation. A reporting overview is available that enables you to see, for each Treasury transaction, the release that was processed, when it was processed, and by whom.

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BAPIs: Standardized Interfaces for Business Objects

SAP Business Objects (BO) are central to the SAP system. They hold data and are a component of business processes due to their methods:


Application X

BAPIsBusiness Application Programming Interface

BAPI

BAPI

mySAP ERP

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FinancialFinancialtransactiontransaction

Integration ofSAP systems

BAPI

Close linkage(synchronous)

BAPILoose linkage(asynchronous - message-based)

BAPIAlternativefront end(browser,Java, VB...)

Integration ofnon-SAP systems

Collaborativebusinessscenarios

BAPIBAPI

Practical Examples for Business Application Programming Interfaces: BAPI

Business Application Programming Interface

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BAPIs for Financial Transactions

FinancialFinancialTransactionsTransactions

BAPI

BAPI

BAPI

Products:• Spot exchange andForward Transactions

• Fixed-term deposits anddeposits at notice

• Commercial Paper• Security order

Products:• Spot exchange andForward Transactions

• Fixed-term deposits anddeposits at notice

• Commercial Paper• Security order

Processes:• Support for the principal steps in the processing of financial

transactions• For example: creating, changing, displaying and reversing

Note the release information.

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BAPIExplorer

BAPI

BAPI

BAPI Products:Spot exchange andForward transactionsFixed-term deposits and deposits at noticeCommercial PaperSecurity order

Products:Spot exchange andForward transactionsFixed-term deposits and deposits at noticeCommercial PaperSecurity order

BAPIs for different business processes and business transactions are available.

Class master dataStocks, funds, shareholdingsSubscription rightsBondsWarrantsListed derivatives

Class master dataStocks, funds, shareholdingsSubscription rightsBondsWarrantsListed derivatives

Processes (Statement):Create contractDisplay contractContract objectsPartner assignment and partner relationship in the contractCreate collateralCreate collateral objectPayoffBorrower Change

Processes (Statement):Create contractDisplay contractContract objectsPartner assignment and partner relationship in the contractCreate collateralCreate collateral objectPayoffBorrower Change

For financial transaction management, the following new BAPI interfaces are provided for CFM: FixedTermDeposit DepositAtNotice CommercialPaper CashFlowTransaction InterestRateInstrument ForeignExchange SecurityTransaction

These business objects contain BAPI methods for creating, changing, displaying and reversing a financial transaction.

Depending on the product category of the business object, there are also additional BAPI methods for rolling over, terminating or processing main flows.

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Appendix 5

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Securities: Recording an Impairment

To record an impairment you must maintain the rate that is to be depreciated in a table. Use transaction TPM73 to maintain the VALV_SP_VAL_SEC table. You can enter the following fields:

For bonds (percentage-quoted securities): Valuation area, valuation class, company code, ID number, relevant category (securities account, lot, securities account group, portfolio) security price type (defined in the customized impairment procedure), key date, type (3=Impairment), and security price.

For stocks (unit-quoted stocks): The same as for percentage-quoted securities but with the security currency included.

For loans: Valuation area, valuation class, company code, contract, net present value type (defined in the customized impairment procedure), key date, type (3=impairment), net present value, and currency of the net present value.

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You use transaction TPM70 to post the impairments.

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Possible valuations (revaluation reserves titles) are reset and the impairment is recorded. After the impairment is recorded, the amortizations are set for other valuations. Write-ups and

write-downs after the impairment continue running normally within the key date valuation.

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Securities: Reversing an Impairment

You use transaction TPM71 to reverse recorded impairments.

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