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© SAP AG 2003

FSC010 SAP Treasury ProcessesFSC010 SAP Treasury and Risk Management Processes

THE BEST-RUN BUSINESSES RUN SAP

© SAP AG 2005

FSC010SAP Treasury and Risk Management Processes



© SAP AG 2003

Copyr ight 2005 SAP AG. All r ights reserved.

No part of this publication may be reproduced or transmitted in

any form or for any purpose without the express wri tten consentof SAP AG. The information contained herein may be changed

without prior notice.

Copyright



© SAP AG 2003

Target group

zParticipants: Project leaders

Project team members

Consultants

Users

z Duration: 5 days


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Course Overview

Contents:

z Course Goals

z Course Objectives

z Contents/

Course Overview Diagram

z Main Business Scenario



This course wil l prepare you to:

z Create and manage process-oriented transactions inTransaction Manager, Market Risk and Credit Risk

z Configure and carry out typical business processesin these areas.

Course Goals



Course Objectives

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

z Use the support tools for back-office processing

z Descr ibe the interrelationships in SAP CFMTransaction Manager

z Set up the necessary structures for short, middle

and long term liquidity management

z Explain the different ways of monitoring and

controlling market and credit risks



Course Overview: Units

Unit 2 Transaction Manager: Basics

Unit 3 Transaction Manager: Money Market

Unit 4 Transaction Manager: Foreign Exchange,Derivatives

Unit 5 Transaction Manager: Securities Management

Unit 6 Market Risk Analyzer

Unit 7 Credit Risk Analyzer

Unit 1 Course Overview



z You want to get an initial overview of the

components of Transaction Manager, Market Risk

Analyzer and Credit Risk Analyzer.

z You wil l learn about the business processes within

the components.

z You are currently using or have successfullyimplemented the SAP R/3 FI module. You now want

to set up a system to manage short, medium andlong term company liquidity and make use of risk

management facilities.

Main Business Scenario






Transaction Manager: Basics







Identifying processes in Treasury

SAP Treasury overview


Corporate Finance

Management functions

(treasury and r isk Management)

Business partner

Standing instructions

Banks

Overview of financial instruments

Transaction Manager Basics:



© SAP AG 2003

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

z Give an overview of SAP Treasury

z Explain the various corporate finance managementprocesses and the standard functions of SAP CFM

z Process your SAP business partner

z Explain the role categories used in SAP Business PartnerCFM and create business partner relationships

z Set up standing instructions and define authorizations forbusiness partners

z Differentiate between banks in general,business partner banks and house banks

Transaction Manager Basics:Unit Objectives



© SAP AG 2003

Corporate Finance Management comprises the

following components:

Transaction Manager supports the management

of financial transactions and positions

You can use Market Risk Analyzer to analyze interest rate,

currency and stock risks

Credit Risk Analyzer is used to determine the

credit risks and includes an online limit check

SAP Corporate Finance Management: Overview



© SAP AG 2003

TransactionManager

RiskManagement

PriorityPriority

1 Ensuring liquidity 95

2 Optimiz ing f inance costs 92

3 Optimizing yields on financial assets 74

4 Securing costs (example: againstpossible exchange rate f luctuat ions) 61

5 Securing turnover (example: againstpossible exchange rate f luctuat ions) 52

6 Prof it contr ibut ion wi th activemanagement of open posi tions 30

%

SAP Treasury: Transaction and Risk Management

ObjectiveObjective CompanyCompanyWeightingWeighting



© SAP AG 2003

Corporate HeadquartersCorporate Headquarters – – TreasuryTreasury

Analyzer

FinancialMarkets

Credit

Risk Analyzer

Market

Risk Analyzer

nn

Transaction Manager

MoneyMarket

SecuritiesForeign

ExchangeDerivatives

BusinessPartner

InformationSystem

Financial Accountin g

Configuration of SAP Treasury Components



© SAP AG 2003

Transaction Manager

. . .

US GAAP

HGB (GermanCommercial Code)

Asset Management

Organization

TransactionManager

Money MarketMoney Market

ForexForex

SecuritiesSecurities

DerivativesDerivatives

Treasury

Organization

Front

Office

Front

Office

Middle

Office

Middle

Office

BackOffice

Back

Office

T ti M F ti



© SAP AG 2003

Transaction Manager: Functions

z Comprehensive management of financial transactions andpositions

Trading and back office support

Monitoring, checking, and releasing Data transfer to financial accounting

(including accruals/deferrals and valuations)

z Flexible configuration of company-specific transaction and

posit ion management processes

z Assignment of financial transactions to portfolios or

management in securities accounts

z Flexible reporting and portfolio analysis

z Data interface

T ti M B i F ti



© SAP AG 2003

Central Functionsexamples: trader/user, currencies, correspondence,

financial mathematics, posting logic, payment

transactions, workflows, archiv ing, market data,

information system

FIFI

Financial

accounting

AM AM

Investment

accounting

COCO

Controlling

Central Data

example: business partner, banks

Financial Transactions Structure

Money Market

Forex

Derivatives

Securities

Transaction Manager: Basic Functions

S l f R f Fi i l I t t



© SAP AG 2003

Sample of a Range of Financial Instruments

Fixed-termdeposits

Deposits atnotice

Commercialpaper

Interest rateinstrument

Cash f lowtransaction

Facility

Product Types

DerivativesForexSecuritiesMoney Market Stocks Subscription

rights Investment

certificates Bonds Convertible

bonds Warrant bonds Warrants

Forex spottransactions

Forexforwardtransactions

Forex sw aps

Cap/Floor FRA Swaps

- Interest rates- Cross currency

interest rates

OTC options- Currencies- Interest rates- Securities- Swaption

Futures

Securing instrumentsInvestment/Loan

Instruments

Identifying Processes



© SAP AG 2003

Revenue/

Risk Goals

Revision of planning data

Feedback

Correctivemeasures

Documentation and control functions

Analysis andtrading process

Transaction and positionmanagement process

Analysis

(planning)

Decision

FinancialFinancial

TransactionsTransactions

Identifying Processes

Transaction Manager:



© SAP AG 2003

gTransaction and Position Management Process

Postings

Payment

transactions

Reversals

Acc rual/Deferral

Valuations

Create offer/order/contract

Exercise/expiration

Terminations

Rollovers

Exercising rights

User Authorization

Limit Management

Release

Settlement/Control Interest rate adjustment

Netting

Referencing

Confirmation Letters

Securities transfer postings

Corporate act ions

TradingTrading Back OfficeBack Office Accounting Accounting

Market Risk Analyzer



© SAP AG 2003

Currency riskCurrency risk Interest rate riskInterest rate risk Stock riskStock risk

Market risk procedureCash f low analysis

Value at risk

Sensitivities

Mark-to-market

Interest/Currency exposure

Organizational elementsReport ing characterist ics

Structured products

Flexib le portfo lio h ierarchies

Business areas

Decision support and simulation

Market data scenarios

Fictitious transactions

Market Risk Analyzer

Credit Risk Analyzer



© SAP AG 2003

Characteristics

Credit Risk

Analyzer

Transaction con-

clusions: updating

limits

OKLimit

check

CFM Transaction Manager CFM Transaction Manager

Exposure

8.5

632.3

688.1

12.3

Limit

10.5

700.7

716.7

4.8

Partner

Euro Bank

United Bank

Carlton

Brightline

ReportingReporting

Util. in %

80.9%

90.3%

96.0%

256.3%

Free Limi t

2.0

68.4

28.6

-7.5

Credit Risk Analyzer

z Integrated online limit check

z Analysis, measurement and

control of credit and settlement

risks

z Company-wide limit attribution

z Determining attributable

amounts with flexible

formulas

z Netting & collateral

Reports



© SAP AG 2003

Classic drilldown report

A B C

18,234.97 27,276.08 87,751.84

29,932.07 38,373.42 32,756.44

... ... ...

Object list

Graphical reports

0

20

40

60

80

100

A B C D

Reports

Business Partner: Standing Instructions



© SAP AG 2003

z Before you can conclude financial transactions witha business partner, you must create the partner

in the system. SAP Business Partner will help you

do this.

z In addition, you want to authorize specific businesspartners only for certain transactions.

z How can you automatically get suggestions for

business partner settings when creating transactions?

Business Partner: Standing Instructions

Business Partner: Defini tion



© SAP AG 2003

Person

Group

Organization

Organization

z A business partner is a person or legal enti ty withwhom/which you have a business relationship.

z There are 3 different business partner categories:

Business Partner: Defini tion

Overview of Extracted Business Partner Data



© SAP AG 2003

Overview of Extracted Business Partner Data

Company CodeCompany Code

DataData

GeneralGeneral

DataData

Account management Account management

Payment t ransactionsPayment t ransactions

Account interest Account interest

Payment dataPayment data

Autom. payment Autom. payment

transactionstransactions

Dunning dataDunning data

Correspondence dataCorrespondence data

BusinessBusiness

Partner Partner

Address overv iew Address overv iew

Credit prof ileCredit prof ile

Identification/BranchesIdentification/BranchesControlControl

Bank detailsBank details

Payment transactions/Payment t ransactions/

ValuationsValuations

Role dataRole data

Legal dataLegal data

Business year infoBusiness year info

Personal dataPersonal dataEmployment dataEmployment data

Additional d ata Add it ional data

Credit standingCredit standing

Fiscal dataFiscal data

Reporting dataReporting data

BusinessBusiness

Partner RolePartner Role

DescripDescrip --

tionstions

Init ial screen: Process Business Partner



© SAP AG 2003

Init ial screen: Process Business Partner

Characterist ics for Processing a New Business Partner:

• Person

• Organization

• Group

• Grouping

• BP Role

Business partner: Relationships



© SAP AG 2003

p p

Relationship

Relationship type

Relationship types

Parent company

Example:?Subsidiary

Dependenton classification

Outgoing relationship

"subsidiary of"

Rel. Type Description Rel. Cat Description

SUB2V. important

subsidiary0050

Subsidiary of

Subsidiary

Company-code Dependent Business Partner Data:Standing instructions



© SAP AG 2003

Standing instructions

PaymentPayment

detailsdetails

TransactionTransaction

authorizationsauthorizations

DerivedDerived

flowsflowsCorrespondenceCorrespondence

Business partner A

Standing Instructions:Business Partner Authorizations



© SAP AG 2003

Business Partner Authorizations

Assign

Business partner A

Transaction

authorizations

Authorization

X

CFM

FT deposit

51 A FT depos it

100 Investment

200 Borrow ing

Deposit at not ice

52 A Call money

100 Investment

200 Borrow ing

Money Market

Financial Transaction: Standing Instructions



© SAP AG 2003

Payment detailsPayment details

Assign Assign

CorrespondenceCorrespondence Derived flowsDerived flows

Assign

- Derivation procedure- House bank and

corresp. bank account

- Business partner

bank details

Business partner ABusiness partner A

- Confirmation

- Print

- Fax

- SWIFT, IDoc

- E-mail

- Counterconfirmation

Business Partner Standing Instructions: PaymentDetails



© SAP AG 2003

Details

Payment

details ID

Incoming Outgoing

CFMCFM

Money MarketMoney Market

FT deposit

51 A FT deposit

100 Investment

200 Borrow ing01 01x x

Assign

Currency Pay.

det. ID

House

bank

Account

ID

EUR 01 Deuba 1000

USD 01 Deuba 1050

......

......

......

......

......

......

BP ABP A

......

......

......

Business Partner Standing Instruct ions: Payment Details

Transaction: Correspondence



© SAP AG 2003

Example: Confirmations

by fax, e-mail, SWIFT

Fax

Example: dealing slips

External Internal

Co nf irmati on Co nf irmati on

Business Partner Standing Instructions:Correspondence



© SAP AG 2003

Correspondence

Correspondence

Counterconf. Print Fax SWIFT IDoc E-mailCFMCFM

Money marketMoney market

Fixed-term deposi t

51 A Fixed-term deposit

100 Investment

200 Borrow ing

Depos it at notice

51 B Call money

100 Investment

200 Borrow ing

Correspondence

type:

External

Assign

BP ABP A

Transaction: Derived Flows



© SAP AG 2003

Derivation rule

Interest incometax

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

z Flow 1200 Interest rate EUR 1,000

Flow 1800 Tax 1 EUR 300

Flow 1801 Tax 2 EUR 16.50

Business Partner Standing Instructions:Derived Flows



© SAP AG 2003

CFMCFM

Money marketMoney market

Fixed-term deposi t

51 A Fixed-term deposit

100 Investment

200 Borrow ing

Depos it at notice

52 A Call money

100 Investment

200 Borrow ing

Assign

TAX1

Derivation procedure

BP ABP A

Banks: Payment Details



© SAP AG 2003

BP Bank Details

bankaccount

House bankH bank account

Conclusion

transaction with

business partner A

Posting/Payment

enteredmanually

in transact ion

+ payment details

BankBankdatadata

Banks: Master Data



© SAP AG 2003

Bank country DE

Bank key:Bank key: 200 500 00200 500 00 Address

Deutsche Bank

Region

Street

City

Bank Branch

Control data

SWIFT codeBank group

Postbank AcctBank number

Banks: General Information

Bank country DE

Bank k eyBank k ey 200 500 00200 500 00

Addres sFinancial institute

Bank C

Region

StreetCity......

(Account 889613262)

(Account 12345678)

Partner bank

House bank

... Function

BankBank

datadata

Business Partner Central Data: Bank Details



© SAP AG 2003

Central dataCentral data

Coun-

tryBank key Bank

accountPartn. bank

DE 600 501 01 5214561 A1

DE 100 500 00 18889 B1

Bank A

Bank B

DE 200 500 00 889613262 C1

Deutsche Bank

Business partner A

BankBank

datadata

Bank details

House Banks: Master Data



© SAP AG 2003

Corresponding bank

accounts:

12345678

. . .

Bank country DEBank keyBank key 200 500 00200 500 00

Address

Deutsche Financial

Region institute

Street Dt. Bank

CityBranch

Control data

SWIFT

Bank group

House banks

Bank dataBank data

BankBank

datadata

Company code 1000

BankBankdatadata

House Banks: Creating Master Data



© SAP AG 2003

Chart of

accounts

Bank account data

G/L account : 113100

Account

ID

Currency

Company code 1000

Corresponding bank accounts

House bank

Bank countr y

Bank key

GIRUN

12345678

EUR

DEUBA

DE

200 500 00

House Banks: G/L Accounts



© SAP AG 2003

FIFI-- General Ledger General Ledger

Company code 1000

G/L acct 113100

Chart of accountsChart of accounts EUREUR

Description Dt. Bank

:

Account currency EUR

:

:

Bank/Financial dataHouse bank Deuba

Account ID GIRUN

Cash management

level F0

Cash Management Account Name: Definition



© SAP AG 2003

CoCd

1000

.

.

.

CM acc. name

DB Dollars

G/L acc . no.

113150

Bank account

110113150

Description

Deuba

Dollar account

Cash posit ion/Group

Account CoCd 04/04/YY

DB Dollars

.

.

.

1000

04/03/YY

1,000.- 1,011.-

IMG: Cash management

Transaction: Payment Details Data



© SAP AG 2003

Paymentdetails

ID

Regu-

lar

Partner

?bank ID

Paymentmethod

Paymentprocess

House?bank

Acco unt?ID

01 DB Checking

01 DB USD

Company Code 1000

Product type 51A Fixed-term deposit Transaction type 100 Investment

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

+ EUR Deuba GIRUN

Transaction: Payment details

Conclusion

Financial trans. withbusiness partner A

Posting

+ Payment details

Example: fixed term depos it

Transaction Manager: Money Market Overview



© SAP AG 2003


Unit 3 Transaction Manager: Money market









© SAP AG 2003

Back office functions(example: fixed-term deposit

Accounting functions(example: fixed-term deposit)

111

222

Introduction to Money Market

333

444

555 Special functions

Trading functions• Fixed-term deposit• Depos it at notice

• Commercial Paper/Master agreement

• Interest rate instrument

• Cash f low transact ion

• Facility

Money Market: Unit Objectives



© SAP AG 2003

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

Carry out Money Market trading and back officeactivities

Use the support tools for back office processing

Understand integration with Accounting

Money Market: Business Scenario



© SAP AG 2003

After having famil iar ized yourself with the general

information and created business partners in thesystem, you want to get an overview of the functionsin Money Market.

What do you need to enter the trading area to create afinancial transaction?

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

What additional functions are there?

How can you ensure integration of the transactions in

Financial Accounting and Cash Management?

Money Market 1: Introduction



© SAP AG 2003

Definition/Characteristics

Product types in Money Market

Money Market: Product Types



© SAP AG 2003

Fixed-termdeposits

Deposits atnotice

Commercialpaper

Interest rateinstrument Cash f low

transaction Facility

Product Types

DerivativesForeign ExchangeSecuritiesMoney Market

Hedging

instruments

Investment/Borrowing

instruments

Production Categories and Types: Examples



© SAP AG 2003

510 Fixed-term depos it Fixed-term dep. (overnight)?520 Deposit at not ice Fixed-term dep. (term)

?530 Comm. Paper ?540 Cash f low

Product CategoriesProduct CategoriesFinancial InstrumentsFinancial Instruments Product TypesProduct Types

510 Fixed-term depos it Fixed-term dep. (overnigh t)

520 Deposit at not ice Fixed-term dep. (term)530 Comm. Paper Paper

540 Cash f low trans.

550 Interest rate inst .

560 Facility

600 Foreign Exchange External forex

Internal forex

Money

Market

Foreign

Exchange

Term Deposits



© SAP AG 2003

Fixed-term deposits

Due date arranged from the outset

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

Rollover facility

Overnight money

Term only lasts one day (current practice until further notice)

Deposit at notice

Concluded for an unspecified period

Due date depends on the period of notice

Commercial Paper



© SAP AG 2003

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 di rectlyand 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 termusing 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.

Money Market 2: Trading Functions



© SAP AG 2003

Commercial paper/Master agreement

Deposit at notice

Interest rate instrument

111

222

Fixed-term deposit

333

444

555

666

Cash flow transaction

Facility

Transaction and Position Management Process:Fixed-Term Deposit



© SAP AG 2003

PostingsPayment

transactions

Accrual/Deferral

Valuations

Reversals

Create order/contractRollovers

Reversals

Transaction history

Settlement/ControlNetting


Reversals

Transaction history

Interest rate adjustment

User authorizationLimit management

Release


Trading: Creating a Fixed-Term Deposit



© SAP AG 2003

Financial transactions

are assigned to the related organizational unit

(company code) within your company

Diverse organizational structural options for corporate groups

are concluded with a business partner

Internal and external (banks) business partners

are concluded for a specific product/transaction type

Product and transaction types can be defined according to company

can be created with different processing methods

Trading Support



© SAP AG 2003

Entry and process ing aids- Standing instructions- Copying functions- Abbreviations- Fast entry- Collect ive/Fast processing

Field selection contro l

Market DataPartner

Business partner Business partner managementmanagement

Standing Instructions

Transaction authorizations Payment d etails Correspondence Derived Flow s

Automatic checks- Working day checks- Trader and partner

authorizations Valuation tools

- NPV calculator - Option price calculator etc.

Dealing s lips Change documents

Optional: Offer Optional: Offer ContractContract

MarketMarket

databasedatabaseSimulationSimulation

Creating a Financial Transaction: Initial Screen



© SAP AG 2003

Company Code 1000 IDES AG

Product type

Transaction type

Partner

51A Fixed-term deposit EXTERNAL

100 Investment

Deuba Deutsche Bank

Specifications

Currency

External number assignment

Transaction

Portfolio

instead of cu rrency o f comp. code

MasterAgreement

Creating a Fixed-Term Deposit: Structure

1000C d IDES AG



© SAP AG 2003

Structure Status Adminis-tration

Other flows Payment Detai ls Cash Flo w Memos

1000

51A

100

1100

1M EUR -

08/10/YY

++2

2.6 Act/360

Tabs for

navigation

Business partner

Flow type

Interest structure

Percentage

...

...

Company code IDES AG

Product type Fixed-term deposit External

Transact ion type Investment

Term

StartInvestment/Increase Amount End

Int.calc.method

Investment

Interest Structure



© SAP AG 2003

Interest structure At end of term At end of month

Monthly freq.

Daily freq.

360E/360

Act/360

:360 / 360

Percentage

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

Payment Details



© SAP AG 2003

Currency Payt.

Details ID

Payer/

Payee

Partner

Bank ID

Payt.

Method

Payt.

Process

House

Bank

Ac-

countID

EUR 01 DB GIRUN

USD 02 DB GIRUS

......

......

......

Company code

Product type Transaction type

R Crcy. Eff. Flow HBank Account ID P ayment. Pmnt. req.

+ EUR DB GIRUN

- EUR DB GIRUN

Fixed-Term Depos it: Payment Details

Business Partner Standing Instruc tions : Payment Details

Financial Transaction Conditions



© SAP AG 2003

Nominal int. 4% in teres t / Frequency: 6 mon ths

Final repayment

Example: Fixed-Term Deposit

Payt. date Int. Amount

Nominal int. 10/31/YY 4% 3,333.33Nominal int. 04/30/YY+1 5% 4,166.67

Changing conditions:

Variant Name

Fixed-Term Deposit Cash Flow



© SAP AG 2003

Pmnt. Pmnt. amount Crcy. Flow type

date

10/01/YY 1,000,000.00 - EUR 1100 Principal increase

12/31/YY 225.00 - EUR 1801 Tax 2

12/31/YY 3,000.00 - EUR 1800 Interest income tax12/31/YY 10,000.00 + EUR 1200 Nominal int.

12/31/YY 1.000,000.00 + EUR 1120 Final repayment

ExampleExample: Fixed-term deposit 1M

4% interest

Dir

Select layout

Variant Name

1SAP01 Basic view

1SAP02 Due dat e view

1SAP03 Invo ice v iew

1SAP04 Local cur rency view

1SAP05 Payment view

1SAP06 Posting view

(1SAP07 Int. rate adj. view)

Financial Transactions: Cash Flow



© SAP AG 2003

ACTUAL ACTUAL

Investmt. 4/1/YY 1M EUR invested

Interest 07/01/YY 10T EUR expected

Repmnt. 07/01/YY 1M EUR expected

Cash Flow (example)

Transaction

Amnt invested/

borrowed

Condition

PLANPLAN

Basis for

Updating Cash Management Updating Financial

Accounting using flexible

account determination

Payment triggering

Updating positions

Interest accrual/deferral

Foreign currency valuation

Yield calculations

Addit ional Flows



© SAP AG 2003

1901 Charges

1902 Commission

...

Flow type

Name

Direction

Payment amount

Currency Payment date

Posting status and

description

Collective Processing: Money Market



© SAP AG 2003

Overview of money market transactions whichcorrespond to the relevant selection cr iteria

Conducting relevant transactions

Creation Change Display

Rollover Termination Settlement Reversal History

Branching directly to the specific transaction

Link to the SAP List Viewer

Offers for Fixed-Term Deposits and ForeignExchange



© SAP AG 2003

Offer

No.1

2.4%

Offer

No.2

2.7%

Offer

No.3

2.5%

Offer

No.22.7%Contract

Sorting according to qualit y

Simulation of Fixed-Term Deposits/ForeignExchange Transactions



© SAP AG 2003

Creating simulated financial transactions

A business partner is not required for simulation

Management wi th a separate number range

Create a contract from a simulation

Add a business partner

Money Market: 2 Trading Functions



© SAP AG 2003


Deposit at notice


111

222

Fixed-term deposit

333

444

555

666


Facility

Notice

Giving Notice (Deposit at Notice)



© SAP AG 2003

Flow type

Amoun t

Start

...

...

Notice period

...

Notice

06/07/YY

06/30/YY

3 Days

Notice

Termination

Interest structure

Investment Term




© SAP AG 2003


Deposit at notice


111

222

Fixed-term deposit

333

444

555

666


Facility

Master Agreement



© SAP AG 2003

1/1/YYYY to 12/31/YYYY

1000

IDES AG; Deuba; FUXX

Investment

Eur

1M10M

500M

Commercial Paper p rogram from 12/31/Y-1

Example: Master Agreement Term of contract

Permitted company codes

Permitted business partners

Permitted transaction types

Minimum and maximum

transaction terms

Currencies:

Tranche

Minimum amount

Total volume

Setting agreements and conditions effective for

all transactions under the master agreement


11



© SAP AG 2003


Deposit at notice


111

222

Fixed-term deposit

333

444

555

666


Facility

Interest Rate Instruments



© SAP AG 2003

fixed

with interest rate adj

Interest forms

Installment Final

repmnt.

Repmnt. schedule

Interest rate instruments

Interest rate instruments are used to map money market

transactions , which include different forms of interestpayments and repayments.

non-variable annualrepayment

variable

Example: Interest Structure – Repayment Structure



© SAP AG 2003

Interest Structure

Int. rate instr .

Perc.

Int. calc. method

Freq.

Every

fixed

4.0

360/360

End of month

1 Months

Cond. type 1200

Repayment Structure

Repmnt. formRepmnt. amount

Freq.

Every

Repmnt. installment

10,000.00

On first day of mon th

1 Months

Cond. type 1130EUR


1

11

Fi d t d it



© SAP AG 2003


Deposit at notice


111

222

Fixed-term deposit

333

444

555

666


Facility

Cash Flow Transactions

Fl ibl i f id f i



© SAP AG 2003

Flexible representation of a wide range of transactions

Manual entry of

Term

Cash flow from position changes, expenses,revenues, payments etc.

The application supports: Entering and processing cash flow transactions

and subsequent management in back office and

accounting


1

11

Fixed term deposit



© SAP AG 2003


Deposit at notice


111

222

Fixed-term deposit

333

444

555

666


Facility

Facility: Defini tion and Objective



© SAP AG 2003

Definition

Facili ties 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

Facility

Creating and Settling a Facility



© SAP AG 2003

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

•Cash flow transaction•Fixed-term deposit

•Deposit at notice•Interest rate instrument

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

Transaction process



© SAP AG 2003

Correspondence

Settlement = Checking

Netting

Transaction process

Reference number


Transaction and Position Management: Fixed-TermDeposit

R l



© SAP AG 2003

Create order/contract

Rollovers

Reversals

Transaction history

Settlement/Control

NettingConfirmation Letters

Reversals

Transaction history



Postings

Payment

transactions

Accrual/Deferral

Valuations

Reversals

Release


Settling/Checking Transactions and PositionIndicators



© SAP AG 2003

Assigning position indicators:

Account assignment referenceDB000001 Deutsche Bank

Fixed-term depos it

Payment

detailsID

Payer/

Payee

Partner

?Bank ID

Pmnt.

Method

Pmnt.

Process

House?Bank

Acco unt

ID

01 DBChecking

01 DB USD

Company code 1000Product type 51A Fixed-term deposit Transaction type 100 Investment

R Crcy. Eff. FType HBank Account ID Payment Pmnt. req.

- Eur Deuba GIRUN+ Eur Deuba GIRUN

Transaction: Payment Details

Controlling with Position Indicators



© SAP AG 2003

This indicator specifies the position management and valuation parameters on the level

of the valuation area, and allocates the account assignment reference to a position.

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

Transaction history

History: Activity SequencesHistory: Activity Sequences



©SAP AG 2003

Activ ity Activ ity Type Date ActiveStatus

SettlementSettlement

Management data

CoCd

PTypTType

0001

51a100

SAP AGTransaction

Acti v ity Act. c at Order

4711

1Basic data

CoCd

PTypeTType

0001

51a100

SAP AGTransaction

Activ ity Act. cat . Order

4711

1

Management data

CoCd

PTypeTType

0001

51a100

SAP AGTransaction

Activ ity Act. cat. c ont.

4711

1Basic data

CoCd

PTypeTType

0001

51a100

SAP AGTransaction

Acti v ity Act. Cat. Cont.

4711

1

Management data

CoCd

PTypeTType

0001

51a100

SAP AG Transaction

Acti v ity Act. c at. Roll.

4711

1Basic data

CoCd

PTypeTType

0001

51a100

SAP AG Transaction

Acti v ity Act. Cat. Roll .

4711

1

Management data

CoCd

PTypeTType

0001

51a100

SAP AGTransac tion

Activ ity Act. cat. S ettl.

4711

1Basic data

CoCd

PTypeTType

0001

51a100

SAP AGTransac tion

Activ ity Act. Cat. Settl .

4711

1

10/01/YY

10/02/YY

10/31/YY

1

2

4

3

Order

Contract

Rollover

Settlement 10/02/YY

replaced

replaced

replaced

5 Sett lement activ

e

replaced

11/30/YY5 Sett lement activ

e. . .. . . . . . . . .

Order Order ContractContract Rollover Rollover SettlementSettlement

Management data

CoCd

PTypeTType

0001

51a100

SAP AGTransac tion

Acti v ity Act. c at. Settl.t

4711

1Basic data

CoCd

PTypeTType

0001

51a100

SAP AGTransac tion

Activ ity Act. Cat. Settl .

4711

1

Correspondence



©SAP AG 2003

e.g. confirmations by

fax, e-mail, SWIFT, IDoc

Fax

e.g. dealing sl ips

External Internal

Confir mation Confir mation

Confirmation Management

Difference between outgoing confirmation and



©SAP AG 2003

Difference between outgoing confirmation and

counterconfirmation

View confirmation status for transaction

correspondence in Status

Status management for counterconfirmation can becontrolled according to the business partner – in the

Standing Instructions + Customizing

Monitoring overdue counterconfirmations

Optical archiving of correspondence

Correspondence overview and correspondence monitor

References Between Financial Transactions



©SAP AG 2003

Trans. 1Trans. 1 Trans. 2Trans. 2

BID Offer

CON Swift-con firmation files

EUR Euro transaction currency conversion

KMP Netting

MIR Mirror deal linkOPT Option reference derivatives

PRL Rollover of foreign exchange transact ion

REF General reference

SWP Forex sw ap

Back Office: Interest Rate Adjustment



©SAP AG 2003

Eff. fromInt. RateStatusRef. Int.Int. Fx. Dte.

Manual

Prerequisite:

Ref. int. rate

must be maintained

Automatic

Interest rate adj.

11/30/YY

03/03/YY

EURIBORD03

EURIBORD03

3.00

0.00

11/30/YY

03/01/YY

Automatic/Manual Posting Approval



©SAP AG 2003

Product type

Transact ion type

Posting approval X

Trading Back Off ice Posting

Approv al

Automatic!

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

Transaction process



© SAP AG 2003

Addendum:integration in cash management

Posting logic

Posting overview/Posting journal

Transaction and Position Management: Fixed-TermDeposit

Release



© SAP AG 2003

Create order/contract

RolloversReversals

Transaction history

Settlement/Control

NettingConfirmation Letters

Reversals

Transaction history



Postings

Paymenttransactions

Accrual/Deferral

Valuations

Reversals


Accounting

Fixed-term deposit 1 month 4.5%

Sep 04 1100 - FT deposit 1 000 000



© SAP AG 2003

Financial AccountingFinancial Accounting

FI interface

Selection of the

transactions and flows

to be posted

Sep 04 1100 - FT deposit 1.000.000

Oct 04 1120 + Final repmnt. 1.000.000

Oct 04 1200 + Nom. int. 3.750

Transferring Data to Financial Accounting usingthe Posting Report

Applicat ion

Foreign Exchange



© SAP AG 2003

Money Market

DerivativesSecurities

General selections

Company code

Transaction

Product type

Transact ion typePortfolio

Currency

Flow classification

Up to and incl. due date

Only post f low acc. to currency

Posting contro lPosting date

Document date

Test run

only post operativelypost all valuation areas

...

POSTING LOG

FT deposit 1 month 4.5% Position indicator: Cparty Ref.DB000001

S 01 1100 Fi d t d it 1 000 000

Posting a Transaction: Summary



© SAP AG 2003

Sep 01 1100 - Fixed-ter m depo sit 1,000,000

Oct 01 1120 + Final repayment 1,000,000Oct 01 1200 + Nominal in terest 3,750

FT dep. acct. 113113

Investment

Final

Repmnt.

D

1,000,000

C

1,000,000

Balance sheet accountacc. to account assignment ref.

Interest earned 273100

Nominal

interest

D C

3,750

Bank clearing acct. 113105

FT dep. inv.

Nom. int.

Final

Repmnt.

D C

1,000,000

3,750

1,000,000

Debit pos. Credit bank

Debit bank Cr edit pos.

Debit bank Cred it in t. earned

Assigning

flow typesto

update types

Assigning update types

to posting specif ications

MM1100 -

MM1120 +

MM1120 +

Addendum: Cash Flows in Cash Management

Cash Flow in Transaction Manager

S 04 1000 FT d i 1 000



© SAP AG 2003

Sep 04 1000- FT dep. investment 1,000

Oct 04 1120+ Final repayment 1,000Oct 04 1200+ Nominal interest 200

E2 Dom. cust. + EUR DB GIRUN- EUR DB GIRUN

Subledger accounts Sep 04 Oct 04 Bank accounts

RS Time deposit pers. - 1000 + 1200 TB Time deposit bank

E2 Dom. customers DBGIRUN

Alternative 1

Pmnt. details

unknown

Alternative 1

Pmnt. detai ls

unknown

Alternative 2

Pmnt. details

known

Alternative 2

Pmnt. detai ls

known

Planning groups

Business partner/transaction

Payment details and house banks

Addendum: Transfer to Financial Accounting –Logical Sequence

Ass igning Planning Levels

IDES AG1000



© SAP AG 2003

IDES AG1000

Fixed-term depos it51A

Banks - Time dep.TB

Contract10

10/02 10/03 10/03 later 10/05

Cash Management: Display Levels

Lev.

BanksBanks

Description 10/02 10/03 10/04 Later 10/05

TB Time deposit s 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

Addendum:Transaction Manager and Cash Management



© SAP AG 2003

Fixed-term deposit With activity onfixed-term deposit level

Change toclearing accounts

Change tobank account level

Clearing postings wi thaccount statement

Posting flows toa clearing account

TM

TM

Money Market: 5 Special Functions

Alterations of capital



© SAP AG 2003

Effective interest rate

Archiv ing

Rollover

Reversal

Accrual /Deferral

Workflow

Mirror transactions

BAPIs

Other Alterations of Capital

Alterations of capital



© SAP AG 2003

Advantage:

☺More flexibili ty in representing transactions

(e.g. creating repayment schedules)

Button behind amount field

Automatically incorporated in cash flow

at the start of term during rollovers during the term

Contract Rollover: Fixed-term Deposit

Transaction1100 Investment/



© SAP AG 2003

Interest structure

. . .

. . .

Transaction

created

Roll-

over

Term

Start

Rollover

End

Princ ipal change

Flow type

Amount

Increase

1110 Decrease

. . .

08/10/YYYY

10/10/YYYY

?

Contract Rollover: Interest Payment

Example: Fixed-Term Deposit Investment

1) Payment



© SAP AG 2003

1) Payment

t1

Interest from

originaltransaction

Interest from rollover

2) Capitalization

t1


3) Deferral

t1


Compound interest fromoriginal transaction

t2

t2

t2

t3

t3

t3

Interest f rom or iginal transaction

Reversing a Contract: Fixed-Term Deposit

Reversal



© SAP AG 2003

Reversal

=

Resetting the last activ ity change made to a transaction

Reason fo r

reversal

Process. error

Custom. error

Capital transfer

Cond. adj

Other reasons

Customizing

Reversing a Contract: Fixed-Term Deposit (1)

Case 1: Posting has not yet been made

Possible reasons for reversal:



© SAP AG 2003

Time

a) Status

contract

b) Status

contract

settlement

Create

contract

Create

contract

Contract

settlement

Reversal

Reversal 1

Contract

reversed

business partner, cur rency, product type, transaction

type was incorrect

Reversal 2

Reversing a Contract: Fixed-Term Deposit (2)

Case 2:

Posting already executed

Possible reasons for reversal:

a) Business partner currency prod type trans type



© SAP AG 2003

Time

a)

b)

Create

contract

Reversal 1

Settle

contract

Post

contract

Createcontract

Settlecontract

Postcontract

Reversal 2

Generate offsetting flow

Reversal 3

Post offsett ing flow

Reversal 1 Reversal 2

Post offsett ing flow

Generate offsetting flow

Changes to data

in in itial screen

Settle contract

Post contract

Changes to data

in in itial screen

Settle contract

Post contract

a) Business partner, currency, prod. type, trans. type

b) Condition data, nominal amount, payment details

Accrual/Deferral Processes and Methods

Accrual/deferral processes Accrual /deferral processes



© SAP AG 2003

pro rata temporis

pro rata temporis withlinear discounting

pro rata temporis

pro rata temporis withlinear discounting

Difference processes

Reset processes

Difference processes

Reset processes

pp

Accrual /deferral methods Accrual/deferral methods

Interest Accrual/Deferral

Accrual/Deferral of Expenses and Revenues



© SAP AG 2003

Due dt. FType D P Flow type ...

Company code 1000 Transaction 9 Product type 51A

06/05/YYYY 1200 + Nominal in terest 4,546.66 UNI

06/05/YYYY 2100 + Accrued interest anticip. 139.03 UNI

Current situation

Mirror Transactions: Current Situation and

Objective



© SAP AG 2003

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 corresponding processing step for themirrored transaction

Objective

Fixed term depos it

Company code head office Partner A

Head off ice view

Mirror Transactions: Functions



© SAP AG 2003

corresponds to corresponds to

Partner head office Company code A

View of subs idiary A

Fixed-term deposit -borrowing

The mirror transaction

is created automatically

Transaction Manager: Forex, Derivatives Overview

Diagram




© SAP AG 2003



Unit 4 Transaction Manager: Foreign Exchange,

Derivatives




Unit 4 Transaction Manager: Foreign Exchange

1

11

Introduction to Foreign Exchange trading



© SAP AG 2003

Accounting functions

222

333

444

555

Addendum: Parallel PositionManagement

Trading functions

Valuation Functions

Transaction Manager: Foreign Exchange – Unit

Objectives

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

z



© SAP AG 2003

z

Minimize currency risks using the example of forwardexchange transactions

z Process spot/forward transactions and currencyswaps

z Use the tools to monitor and speed up back-officeprocessing

z Be able to explain the valuation area.

Foreign exchange product types

Foreign Exchange 1: Introduction to Foreign Exchange

trading



© SAP AG 2003

Transaction and position managementprocess

Foreign Exchange Product Types

Product Types



© SAP AG 2003

DerivativesForexSecuritiesMoney Market

Forex spottransactions Forex

forwardtransactions

Forex sw aps

Securing instrumentsInvestment/Borrowinginstruments

Transaction and Position Management Process:

Example – Foreign Exchange Transaction

Release



© SAP AG 2003

Postings

Payment transactionsReversals

Accrual/DeferralValuations

Create new order/cont ract

Exercise/expirationRolloversReversalsTransact ion history

User authorization

Settlement/Control

NettingConfi rmation LettersReversalsTransact ion history

Trading Back Office Accounting


1

11

Introduction to Foreign Exchange trading



© SAP AG 2003

Accounting Functions

222

333

444

555

Addendum: Parallel PositionManagement

Trading Functions

Valuation Functions

Foreign Exchange: 2 – Trading Functions

Spot Exchange/Forward ExchangeTransaction



© SAP AG 2003

Forex Swap

Rollover/Premature Back-OfficeProcessing

Addendum: Customizing Settings – Foreign Exchange

Transactions

z Product types (60a - Forex External)

z Transaction types (60a - Forex External 101 - Spot Transaction)



© SAP AG 2003

yp ( p )

zNumber ranges

c for transaction

d for underlying transaction

z Flow types (1000 Buy foreign exchange - Principal increase)

z Assign flow types

zUpdate types

z Assign foreign exchange attributes

Product categoryProduct category

600 Forex 100 Spot transaction Contract

Transaction categoryTransaction category

1 Order - Contract

Activ ity category Activ ity category Processing CategoryProcessing Category

Addendum: Customizing – Foreign Exchange

Master Data 1



© SAP AG 2003

- Forex - external:

Product TypeProduct Type

USER LEVELUSER LEVEL

SYSTEM LEVELSYSTEM LEVEL

- Spot transaction- Forward

transaction:

100 Forward trans.: Settlement:

2 Contract3 Contract-settlement

:

Transaction TypeTransaction Type

Product CategoryProduct Category

600 Forex

Transaction CategoryTransaction Category Flow CategoryFlow Category

10 Principal

Calculation CategoryCalculation Category

ET - Inflow100 Spot transaction

Addendum: Customizing – Foreign Exchange

Master Data 2



© SAP AG 2003

Product TypeProduct Type

USER LEVELUSER LEVEL

SYSTEM LEVELSYSTEM LEVEL

increase90 Other flow

- Forex - external:

- Spot transaction- Forward transaction

:

Transact ion TypeTransact ion Type

1000 -Buy foreignexchange

2000 -Sale forex

Flow TypeFlow Type

100 Forward trans.:

Position Monitor 1

z The Position Monitor:

- Enables you to summarize information from Cash



© SAP AG 2003

Management and CFM in one report

- Gives you a clear view of the individual currenciesof the foreign exchange position of your company

Position Monitor 2: Example



© SAP AG 2003

Create Order/Contract: Forex Forward Transaction

Purchase Sale

Currency Currency

1,000,000.00

USD EUR

y Companycode 1000IDES AG

yProduct

...



© SAP AG 2003

Purchase amount Sale amount

Rate/value date

Rate Inverse

Spot

Swap

Liquidity

Value date

Conclusion

Contract date Traders

Contact person External Ref.

++3

09/29/YYYY

Current rate !!

type 60AForexEXTERNAL

yTransactiontype 102

Forwardtransaction

yPartner Deuba...

2.07

0.00975-

Cash settlement

Cash Settlement: Foreign Currency

Cash settlement

Settlement1 Physical exercise



© SAP AG 2003

Cash settlement

Settlement2 Cash settlement

Rate

Date Pmnt Crcy Amount -

Flow is no t relevant for posting

* Not yet defined

Proposal from rates table

Number of w orking days betw eenconclus ion of contract and spot

l d t

L-Währ. F-Währ. Spot-Valutatage

EUR USD

USD CHF

Dom. Cur r. For . Cur r. Spot Value Dates

EUR USD

USD CHF

Value Date Input in Forex Transaction Entry



© SAP AG 2003

value date

Date string fromspot value date

USD CHFUSD FRFUSD CHFUSD FRF

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

1st Transaction 2nd Transaction

60A

101

60AForex EXTERN Forex EXTERN

...

Product typeT ti t

Create Order/Contract: Forex Swap Transaction



© SAP AG 2003

101 102Spot transaction Forward transaction

In.

0.01287-

++4

...

Transaction typeTransactionCurrency pair PurchaseSaleRateSpotSwapLiquidityValue dateExt. reference

Finance project

1.88

1,000,000.00USD

EUR

" Internal Foreign Exchange" Function

z P f t i f i h t ti l ll



© SAP AG 2003

z Process for entering foreign exchange transactions locallyfrom the view of the company code entering the transactions

z Automatic exchange rate

z Automatic creation of mirror transactions

z Course overview for internal foreign exchange transactions

Rollover/premature backRollover/premature back--office processingoffice processing

ForwardForward exchangeexchange transactiontransaction

Rollover/Premature Back-Off ice Processing



© SAP AG 2003

System generates 2 new transact ions

New forward transaction Netting transaction

Sw ap unit

Financeproject

Financeproject

Adjusting the term Offsett ing

Addendum: Foreign Exchange in Cash

Management

Assigning Planning Levels

IDES AG1000

Forex EXTERN60A

Cash Management: Display Levels

Lev.

BanksBanks

Description

TB Time deposit s xxx,xxx xxx,xxx xxx,xxx xxx,xxxxxx,xxx

10/02 10/03 10/04 Later 10/05



© SAP AG 2003

Forex banksDB

Contract20

. . .. . . . . .. . .. . . . . . . . . . . .. . .

OBOB Currency optionsCurrency options xxx,xxx

. . .. . . . . .. . .

DBDB ForexForex

Balance

. . . . . . . . . . . .. . .

xxx,xxx xxx,xxx xxx,xxx

123,456 xxx,xxx xxx,xxx xxx,xxx

xxx,xxx xxx,xxx xxx,xxx xxx,xxx xxx,xxx

e.g. forextransaction

e.g. forextransaction

Inflow in foreign currencyInflow in foreign currency

DBGiroDBGiro - 1.48M UNI- 1.48M UNI

Outflow in local currencyOutflow in local currency

DBUS$DBUS$ +1.00M USD+1.00M USD

Display accountsDisplay accounts

xxx,xxx

xxx,xxx


1

11

2

22

Introduction to foreign exchange trading

Trading functions



© SAP AG 2003


222

333

444

555

Addendum: Parallel positionmanagement

Trading functions

666

Valuation functions

Accounting Functions: Transfer Data to Financial

Accounting by Posting Report

Applicat ion

Forex

Money marketDerivatives

Securities

POSTING LOG



© SAP AG 2003

Securities

General selections

Company codeTransactionProduct typeTransaction type

PortfolioCurrencyFlow class ificationUp to and incl. due date

Only post f low acc. to currency

Posting control

Posting dateDocument date

Test runOnly postoperativelyPost all valuation areas

...


1

11

2

22


Trading functions



© SAP AG 2003


222

333

444

555


Trading functions

Valuation functions

Reasons for Using Parallel Books...

z Legal requirements

z Comparability

Standard accounting principles enable benchmark comparisons between comp anies



© SAP AG 2003

Standard accounting principles enable benchmark comparisons between comp anies

Within c orporate groupsComparison of several subsidiaries from

various countries

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

z Consolidation

z Globalization

Valuation Areas

Transaction

Management

Position Management

GermanHGB



© SAP AG 2003

Position Management

US GAAP

Position Management

IAS

Valuation

Rate gains

.

.

Management

Loans Management

Securities AccountManagement

German HGB

Valuat ion areas

D i s t r i b u t o r

Transaction Entry

Administration



© SAP AG 2003

General valuation class

EXAMPLES:

IFRS/US GAAP: Held for Trading / German HGB: CAIFRS/US GAAP: Held for Trading / German HGB: UVIFRS/US GAAP: Held for Trading / German HGB: AV

IFRS/US GAAP: Availab le for Sale / German HGB:UV IFRS/US GAAP: Available for Sale / GermanHGB: AV IFRS/US GAAP: Held to Maturity / GermanHGB: CAIFRS/US GAAP: Held to Maturity / German HGB: AVIFRS/US GAAP: Loans and Receivables / GermanHGB: CAIFRS/US GAAP: Loans and Receivables / GermanHGB: AV

IFRS/US GAAP: Other Liabilities

Parallel Valuation: Organization

F I !

k



© SAP AG 2003

Company code

T r e a s u

r y &

R i s k

Valuation area

TR accounting code

Valuation class

Define valuation areas

001 Operative valuation area

002 IAS

Valuation Areas and Accounting Codes



© SAP AG 2003

002 IAS

003 US GAAP

Define accounting codes

TRxx TRxx

E x a m

p l e s !

Assigning Accounting Codes and Valuation Areas

CFxx

001 Operative

valuation area

002 IAS



© SAP AG 2003

TRTR accounting codeaccounting code Valuation areasValuation areas

003 US GAAP

Post to

z General Ledger

z Special Ledger

Valuation Class

•General valuation class:

Tasks:

Parallel Valuation: Valuation Classes

IFRS/US GAAP: Held for Trading / German HGB: CAIFRS/US GAAP: Held for Trading / German HGB: UVIFRS/US GAAP: Held for Trading / German HGB: AV

IFRS/US GAAP: Availab le for Sale / German HGB: UVIFRS/US GAAP: Availab le for Sale / German HGB: AV



© SAP AG 2003

•Valuation Class:

Balance sheet

Valuation areaGeneral

valuation c lass

Define and assign valuation classes:

Valuat ion c lass

IFRS/US GAAP: Held to Maturity / German HGB: CAIFRS/US GAAP: Held to Maturity / German HGB: AVIFRS/US GAAP: Loans and Receivables / GermanHGB: CAIFRS/US GAAP: Loans and Receivables / GermanHGB: AVIFRS/US GAAP: Other Liabilit ies

Overview: Position Management Procedure

z Define valuation procedure(such as rate valuation procedure for forwardexchange transactions)



© SAP AG 2003

z Define position management procedure

z Assign position management procedure

Define Valuation Procedure

Example: rate valuation procedure for forward exchange transaction

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



© SAP AG 2003

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

Define Position Management Procedure

Position management procedure

Name

Position management category Foreign exchange transactions

4000

Forward exchange transactions: Spot/spot

6Step 1S R l i f FX i



© SAP AG 2003

6

1000

Step category Rate valuation for FX t ransact ion

procedure Rate valuation spot/spot

( Carry out for key date valuation

Step 2Step category Swap/margin accrual

procedure


Step 3

Step category 8 Swap valuation

procedure


(

7

Position Management: Assignment Procedure

Assignment cr iter ia:

Valuation area Account ing code

Product category Product type

Step 1

Position Management Procedure

4000



© SAP AG 2003

g y yp

Valuation class Transaction type

Valuationarea

TRaccounting

code

60A...

Assign position management procedure:

4000

Step 2

...

Balance sheet

Valuation

class

Update to TR Ledger

Update types



© SAP AG 2003

Derived business transactions

Account determination

Update Types: Terminology

z The identification of the new update types has been taken from the oldflow types:

Example: Update type FX1000+

FX = Foreign Exchange



© SAP AG 2003

DE = DerivativesFX = Foreign Exchange

CML = Loans

MM = Money Market

SE = Securities

V = Valuation

VR = Valuation reset

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

Update types are

managed acrossmodules in a table.

1000 = Flow type Forex purchase

+ = +sign

Define update types

Key Date Valuation: Update Types



© SAP AG 2003

Assign update types to usages

Assign update types for valuations

Position Management Procedure

Derived Business Transactions

Define update types



© SAP AG 2003

Assign update types to usages

Assign update types for derived businesstransactions

Define account assignment references

Account Determination - Account Assignment

Reference



© SAP AG 2003

Define account assignment reference determination

Define account determination

Acct. assig. ref. Name of account assignment reference

... ...IAS_AFS_AKT IAS - Available for Sale - Stocks

IAS_AFS_AKT IAS - Available for Sale - BondsIAS_HTM_AKT IAS - Held to Maturity - Stocks

Account Assignment Reference



© SAP AG 2003

IAS_HTM_AKT IAS - Held to Maturity - BondsIAS_TRA_AKT IAS - Trading - StocksIAS_TRA_AKT IAS - Trading - Bonds... ...

Derivationrule(s)

Assignment: Assignment:

Manual

Account determination

Defin ition of account symbols

Acct symb. Account symbol text Pos t ing category from acct symbol

1 Pos it ion (book value) Pos it ion pos ting (book value)

Defin ition of posting specif ications

0001 Position to bank c learing



© SAP AG 2003

Ass igning update types to posting specifications and/or valuation areas

UType Update type text Postspecs Specs text

MM1100- Investment/Increase 0001 Position to bank clearing

Assignment of G/L Accounts

113113

to account symbols

Account symbol AcAsRef VA G/L acct

1 Posit ion 10001

0001 Position to bank c learing

Debit entry

Account symbol 1

Credit entry

Account symbol 3


1

11

2

22


Trading functions



© SAP AG 2003

Accounting functions333

444

555


Valuation functions

Position Management: Valuations

zKey date valuation: The position is valued on a key date –the realtime datafeed can provide the required valuation rates.

You can carry out the following foreign currency valuations:



© SAP AG 2003

Key date valuation is carried out with transaction TPM1.

z Realized gain/loss: In case where positions are closed, therealized gains or losses are determined according to the Single

valuation of transactions principle. This is calculated by takingthe difference between the forward rate based on the conclusionof the contract and the posted rate on the value date.Realized gains/losses are posted with the derived businesstransactions (TPM18).

Market Risk Analyzer: Saving OTC Net Present

Values

Mark-to-Market

10

EUR USD GBP

Saving Valuation



© SAP AG 2003

2

4

6

8

10

1M

2Y

4Y

6Y

8Y

10Y

MoneyMarketForeign

Exchange

Derivatives

Net presentvalues

Financial Accounting

Key Date Valuation

Posting control for updating to the parallelvaluation areas

to

to

to

TRxx

001

Company code

Valuation areaProduct type

General selections

002



© SAP AG 2003

valuation areas

Key date for valuation

Valuation category

to

to

to

Valuation parameters

Valuation class

Portfolio

Transaction

09/30/YYYY

to

OTC transact ions

Various valuation

categories enable

end-of-quarter closingsand year-end closingsto be created

Closing Operations: Key Date Valuation



© SAP AG 2003

Closing Operations: Valuation Log



© SAP AG 2003

Position Management Procedure: Valuation Rules I

Rate valuation procedure for Define forward exchange transaction, for example:

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



© SAP AG 2003

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 value

or - Write-up to purchase value

In the position management procedures, you define the basic

rules for how positions are managed, that is, how positions areto be valued.

Position Management Procedure:

Valuation Rules II

Define position management procedure



© SAP AG 2003

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

Define valuation step, for example:Rate valuat ion for fo rward exchange transact ion

- Accounting code

Position Management Procedure: Valuation Rules III

Position management procedures are assigned to certaininfluencing factors:



© SAP AG 2003

g- Valuation area- Valuation class- Product category- Product type

- Transaction type- Portfolio- Sec. account group

Position management procedure, for example:FX spot rate on the market against spo t rate in the

transaction

Payment Transaction Processing

... via clearing accounts

FT dep. bal. sheet acct(Deuba)

House bank account(Deuba)



© SAP AG 2003

House bankDEUBA

IDESIDES

c FT dep. inv.

c 100M d100M

d Statement from bank

FT dep. inv .FT dep. inv.

Bank clearing acct

d 100M c100M

...using a clearing account for payment requests

Fixed-term deposi t –Balance sheet account

(broker)House bank –

Current account (Deuba)Payment

FT dep. inv .

IDESIDES Broker Broker

Payment Transaction Processing Using thePayment Program



© SAP AG 2003

c First fixed-term deposit – investment

d Second fixed-term deposit – investment

c 100M f150M

yOrder

Clearing account for payment requests Bank clearing account

e 150M e150M

e Payment(Trigger PR run)

d 50M

c100M

d50Mf 150M

f Bank statement

Payment

House bankDEUBA

Payment Transaction Processing: Overview

Four Alternatives:

1) G/L account posting - -

FI pmnt prog ram Pmnt program for PR



© SAP AG 2003

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

3) Posting to customer accounts x -

4) Posting to customer accounts with paymentrequests - x

1) Post ing to G/L Accounts

BusinessPartner

Bank House bank

Standing



© SAP AG 2003

StandingInstructions

CurrencyD PaymentProcess

HouseBank

AccountID

EUR+ DB GIRUN

EUR- DB GIRUN

...

...

...

TransactionTransaction – – Payment DetailsPayment Details

PaymentRequest

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

BusinessPartner

Bank House Bank

Standing



© SAP AG 2003

CurrencyD Payer/ee Partn. bankHouseBank

AccountID

Instructions

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

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

Currentparameters

Proposal data set

Proposal run

Edit

Paymentcontrol

Docu-ments

PaymentRequestMaster



© SAP AG 2003

Paymentadvice

Bank transfer

Eurocheck

Check

Print data set

Paymentsummary

IDoc

Payment run

Editproposal

Print program

Payment Program for Payment Requests

Prerequisites

- The payment program for payment requests also uses parts of Customizing for the Standard Payment Program

additional settings

.

Yo m st make for the pa ment program for



© SAP AG 2003

additional settings- You must make for the payment program for payment requests.

Use

- The payment program settles payment requests (PR)

- It can be used in conjunction with postings to:- Customer accounts

- Vendor accounts

- G/L accounts

Netting

z Especially in the case of transactions with businesspartners that are not house banks (that is, they require anexchange of payments), situations can arise where severaltransactions are to be settled at once.

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



© SAP AG 2003

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

Advantage: Savings on transaction costs or bank charges

z For this purpose, transactions can be summarized in"Netting transactions" .

z Types of netting:

Within a transaction

Cross-transaction

Business Partner: Payment Details

St di I t tiSt d i I t ti

Business Partner Business Partner



© SAP AG 2003

Standing InstructionsStanding Instructions

Currency ...... Paymentrequest

Individualpayment

Samedirection

Paymentmethods

Determ.group.

Determinegrouping (text)

EUR ...... X X X EU

XUSD ...... EU

All transactions canbe grouped

All transactions canbe grouped

Netting: Process

z When netting is used

All net ting transactions are explicit arrangementsbetween the business partners in order to simplifythe handling of payments.



© SAP AG 2003

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

z Results once netting transaction has been created Changes to the relevant transaction fields are blocked

(particularly due date, amounts, house bank data and payment

data).

The transactions and corresponding payment requests are

assigned a common grouping reference.

Netting and Payment Requests

ContractContract

Management data

CoCdPType

TType

000151a

100

SAP AG Transaction Activ ity

Act.cat. Contract

47111

Basic data

CoCd 0001 SAP AG Transaction 4711

SettlementSettlement

Management data

CoCd

PTypeTType

0001

51a100

SAP AG Transaction

Activ ity Act.cat. Settlmt

4711

1Basic data

CoCd 0001 SAP AG Transaction 4711

NettingNetting

Create Netting Transac tion: Data

Type

No.Partn

KMP

001DB

Netting

Deutsche BankValue date

01.01.97

PostingPosting

CFM: Pos t Flows

Test cl ient

Walldorf

CFM: Postings

Log



© SAP AG 2003

PType

TType

51a

100

Activ ity

Act.cat. Contract

1CoCd

PTypeTType

0001

51a100

SAP AG Transaction

Activ ity Act.cat. Settlmt

4711

1


CFMCFM CFMCFM

NettingNetting Accounts Accounts

FIFI PmntPmnt

requestrequestFIFI

Unit 4 Transaction Manager: Derivatives

1

11

2

22

Introduction to derivative financialinstruments

Control of exchange rate risks via OTCcurrency options- OTC currency opt ions

Currency barrier options



© SAP AG 2003

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

333

444 Information system

- Currency barrier options- Compound options

Derivatives: Unit Objectives

By the end of this unit, you will:

z

Know various instruments for hedging against interestrate and exchange rate risks

z Be able to map these instruments in Transaction



© SAP AG 2003

z Be able to map these instruments in TransactionManager

Selection of Relevant Product Types

Product Types

Hedging

instruments

Investment/Borrowing

instruments



© SAP AG 2003

Cap/Floor FRA Swaps

- Interest rate- (Int. rate) Currency


Futures

- Interest, Bond, Index Repo

DerivativesForeign ExchangeSecuritiesMoney market

Further extract of OTC options :

Such as for FX standard options:-Barrier

-Double-barrier -Compound- Average rate-Basket

-Correlation-Forward volatility agreement

Exchange rate riskExchange rate risk Interest rate riskInterest rate risk

•Forward exchange•Forward exchange •FRA•FRA

Important Hedging Instruments

Product Matrix – Derivative Financial Instruments



© SAP AG 2003

Forward exchangetransactions

•Cross-currency swaps

•OTC currency options

gtransactions

•Cross-currency swaps

•OTC currency options

•Forward rate agreements•Interest futures

•Interest rate swap

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

•Forward rate agreements•Interest futures•Interest rate swap

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


1

11

2

22

Introduction to derivative financial instruments

Control of exchange rate risks via OTCcurrency options- OTC currency opt ions- Currency barrier options



© SAP AG 2003


333

Currency barrier options- Compound options


Derivatives: 2 – Control of Exchange Rate Risks viaOTC Currency Options

Typical Transaction and Position Management Processes:Transaction entry and back-office processing

OTC Currency Options



© SAP AG 2003

Currency Barrier Options

Compound Options

OTC Currency Options

t0 t0+2 ti t i+2

n At t 0 the transaction is concluded(creation and settlement)



© SAP AG 2003

o At t 0+2 (Value date) the premium is paid(posting o f the premium flow)

p At t i: - Physical exercise and exercise sett lement(transfer posting of the premium flow)

- The spot transaction (underlying transaction) is generated at thesame time.This must be settled according t o the back-off ice processingcategory.

q At t i+2 (Value date) the posting of the spot transaction occurs.

Creating an OTC Currency Option

Cross-rate calculator Option price calculator Company code IDES AG Financial transactionProduct type OTC currency options Activ ity ContractTransaction type Purchase

...

OptionExercise period Exercise Settlmnt.Currency pair Underlying curr Call Put

++2

USD EURUSD 5 000 000 00

European Physical exercise

1000

76A

100

1



© SAP AG 2003

Underlying curr . Call PutStrikeValue date

PremiumPoint quot. Perc.quot.

PointsPayment date Curr. Amnt

Contract date ......

USD 5,000,000.00

EUR 300,000.00

09/29/YYYY

1.82 Inverse

Contract date

OTC Currency OptionOTC Currency Option

Underlying



© SAP AG 2003

Underlying

Product type

Trans. type

Transaction

60a

101

1800002

Forex - external

Spot transaction

USD-CALL

Strike 1.82

Pmnt. amount 3,640,000 EUR

USD 2,000,000

Curr. pair ...

Premium Calculation for Standard OptionsPremium Calculation for Standard Options

Market data Swap/forward Sensitivities

Market data

Spot

Swap

Forward

1.70900 / 1.71100

0.11212- / 0.10644-

1.59688 / 1.60456

Int. 1st currency

Int. 2nd currency

Volatility

6.4152 / 6.4574

3.8005 / 3.8997

10.0000 / 10.0000

ListPremiums Impliedvolatility

Currency Option: Option Price Calculator



© SAP AG 2003

Premiums

Put 1Put 2

Put 3

1.700000/

0.06347 / 0.06527

/

Basis European

/0.06366 / 0.06545

/

Amer ican

Call 1

Call 2

Call 3

1.700000

/

0.04502 / 0.04650

/

/

0.04878 / 0.05020

/

z Define product types

z (Assign cash management levels)

z Transaction types

Define number ranges for transaction

Configuration of the Master Data



© SAP AG 2003

Define number ranges for underlying transactions

Define transaction types

z Define transaction flow types and update types

z Assign transaction flow type to an update type

z Position management procedures, account assignmentreference, posting logic, derived business transactions

OTC Currency OptionOTC Currency Option

Exercise

Exercise



© SAP AG 2003

Cash settlement

Physical exercise

z Barrier options are represented as product types with a specificoption category.

z The transactions are processed using special processing categories

that take into account activ ities such as knock-in/knock-out.

z As wi th op tions, the underlying transaction is assigned.

z The barrier must also be specified

Currency Barrier Options



© SAP AG 2003

z The barrier must also be specified.

Barrier Opt ion pr ice calculator Company code IDES AG TransactionProduct type Currency barrier option Up. Activ ity ContractTransact ion type Purchase

Partner ...

Currency Barrier Option

Structure ...Underlying ... ... ... ...

100076F100

1

Deuba



© SAP AG 2003

Partner ...

Exercise

Underlying

Premium

Deuba

Currency barrier 2.10 USD/EUR

Continue Cancel

Curr. barr ier option Up&InCurr. barr ier option Up&In

Conclusion

Currency barrier optionCurrency barrier option

Barrier exceeded/fallen short of

Barrier exceeded/fallen short of Barr ier exceeded/fallen short of

Knock-In/Knock-Out Activit ies



© SAP AG 2003

Knock-inKnock-out

Exercise Expiration

Compound Options

z With the purchase of a Compound Option, the buyer acquires theright to buy or sell a specified option (the underlying option) at acertain premium, at a certain time or within a certain time period.

Compound forex option = Option on a currency option

C



© SAP AG 2003

Underlying: Currency options

z Advantages compared to a currency option :

Reduction in the cost o f the option premium

Exercise decision is postponed

Company code IDES AG TransactionProduct type Comp.FX Opt.Long Call Activ ity ContractTransact ion type Purchase

...

Compound Options: Initial Screen

Structure ...Underlying ... ... ... ...

100076L100

1



© SAP AG 2003

Exercise

Underlying

Premium

Contract data

...

...

...

UnderlyingProduc t type Currency opt ion (OTC) Activ ityTrans.type Purchase Act.cat. underlying

Option

...

76A

100

1


1

11

2

22


Control of exchange rate risks via OTC

currency options- OTC currency opt ions- Currency barrier options- Compound options



© SAP AG 2003


333

Compound options


Derivatives: 3 – Control of Interest Rate Risks viaDerivatives

Typical Transaction and Position Management Processes:Transaction entry and back-office processing

FRA

I R S



© SAP AG 2003

Interest Rate Swap

CAP/FLOOR

Forward Rate Agreement

z Agreement between two contract parties (buyer and seller)

- On a certain interest rate (FRA rate)

- For a deposit or a loan

- For a period in the future

z Objective: Fixing of an interest rate today to apply to a period

in the future



© SAP AG 2003

in the future

z Term: 3-24 months

z Notation: 3x9; 6x12; 12x24; (lead time: total term)

z Reference interest rate, for example, LIBOR 3 months, LIBOR 6 months

z Interest rate comparison (fixed rate against reference interest rate) after lead time and

z Calculation of settlement amount to be paid

z Interest netting in the form of cash settlement, no exchange of nominalamounts.

FRA - Forward Rate Agreement

n At t0 the transact ion is concluded(Input and settlement)

t0

t8 - 2

t8

t11

1 2 3 4



© SAP AG 2003

o On fixing day = Start of hedging period -2 days (from the definit ion of the reference interest rate)(Carry out the interest rate adjustment)

p Start of hedging period and payment of the discounted settlementamount(Posting of the flows generated under 3)

q End of hedging period

Company code IDES AG Financial transactionProduct type FRA Activ ity ContractTransaction type Sale

...TermStart of lead time

Creating an FRA

Structure ...... ... ... ... ...

10/07/YYYY

63A200

11000



© SAP AG 2003

Start of hedge periodEnd of hedge per iod Inc lus ive No. int. days

Interest structu reBase amountInterest rateReference interest rateInterest calc. methodFixing

Business calendar ...ConclusionContract date ...

++8

++11

10,000,000.00 EUR5.0LIB_3_EUR Act/3602-

10/05/YYYY

z A swap is an exchange of cash fl ows over a fixed period of ti me.

z You define the cash flows when you conclude the swap,

z but their absolute value may depend on events in the future

z (e.g. interest payments at variable interest rates which

z depend on future reference interest rates).

Swaps



© SAP AG 2003

z Depending on the type of cash flows to be exchanged, we differentiatebetween:

- Interest rate swaps and

- Cross-currency interest rate swaps

Possible variations for exchange of interest payments :PAYER: Outgoing interest payments are fixed, incoming interest

payments are variableRECIPIENT: Incoming interest payments fixed, outgoing variableBASIS: Variable vs variable interest paymentsFIX TO FIX: fixed vs fixed interest payments

1) Conclusion of the SWAPs and 1st interest rate f ix ing

(Entry and settlement of the transaction as w ell as the first interestrate adjustment)

2) Interest rate f ix ing for the second period of the var iable interest rate(6 months)

1 2 3 4 5 6 7

Interest Rate Swap – Example Interest Rte Fixing –Interest Payment



© SAP AG 2003

(6 months)(Adjust interest rate -> Generate interest flow)

3) Interest payment for variable side/start of the second period(Posting of interest flow from )

4) Interest rate f ixing for the third period

5) Interest payment for variable and fixed side/start of the third period

6) Interest rate f ixing for the fourth period

7) Interest payment for variable side/start of the fourth period

1

...

...

62A300

11000

10/15/YYYY10/15/YY+5

Company code IDES AG Transact ionProduct type Interest rate swap (IRS) Activ ity ContractTransaction type Payer

Creating Interest Rate Swap

Term Business calendar Start Calendar 1End Inclusive Calendar 2

O t i i t t I i i t t



© SAP AG 2003

10M

10/15/YYYY++124.6

360/360

EUR

12

10M10/15/YYYY++6

Lib_6_EUR Act/360

6

10/13/YYYY

Int. Interest Rate Adjustment Int. Interest rate adjustment

Outgoing interest Incoming interestNominal amount Nominal amountEff. from Eff. from1st due date Freq.month 1st due date Freq.monthFix.rate Fix.rateVar. interest Var.interestInt.calc.method Int.calc.method

ConclusionContract date

Conditions in Detail: Interest rate

Update

Rule Standard Special

Frequency

Days +/-

Unadjusted12 Months

1-

Example Conditions in Detail: Interest rate



© SAP AG 2003

Due date

Due date Month-end

Working day Next w orking day

DD.MM.YY

Calendar

Calendar

Calendar

Calendar

01

GB

Back Office: Planned Record Update

Range of Planned Record Update Methods

Corporate Finance ManagementTransaction Manager

General Sett ingsOrganization

Define Company Code Additional DataChart Title



© SAP AG 2003

Define Company Code Additional Data

Conversion program:Transact ion: OTC_CONV

Update with automaticallyor manually maintained

Interest rates

Update withcurrent interest rates

Update with manuallymaintained interest rates

Update with automaticallymaintained interest rates

Updatewith zero amounts

Cap/Floor

z CAPs/Floors are a series of interest options that you can fit to theperiods/term of the transaction that you want to hedge.

z CAP: Agreement between the seller and buyer of the Cap. The seller agrees, in the case of a rise in the reference interest rate above theagreed fixed interest rate (Strike), to pay the difference in the interestrates to the holder of the Cap. If the agreed interest rate is fal len short of,



© SAP AG 2003

p g ,a settlement payment is not made.

z FLOOR: The purchaser only receives a settlement payment if the agreedinterest rate lower limit is fallen short of.

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)

CAP



© SAP AG 2003

4) Start of first hedging period

5) Fixing day forsecond hedging period

6) End of 1st/start of 2nd hedging period – possibly first compensation payment

7) Fixing dayfor third hedging period

8) End of 2nd/start of 3rd hedging period; possibly 2nd settlement payment

9) End of last hedging period; possible settlement payment

Company code IDES AG Financial transactionProduct type CAP Activ ity ContractTransact ion type Purchase

Term Business calendar ...StartEnd Inclusive

StrikeUpper limit

Creating a Cap/Floor

61A100

11000

10/15/YYYY

++62

4

...



© SAP AG 2003

Upper limit

Interest Premium

Base amount AmountEffective from PercentageFirst due date Freq. monReference interest rate Pmnt dateInterest calc. Method Eff. from

Interest Interest rate adj Option premium

ConclusionContract date

4

++2++6LIB_6_EUR

Act/360

15M EUR

6

200,000.00 EUR

10/15/YYYY10/15/YYYY

10/13/YYYY

Int.

7.06.5

6.0

5 5

Interest rate upper limit

Interest Rate Scenario: LIBOR with CAP



© SAP AG 2003

5.5

5.0

4.5

CAP

61A

610 CAP/FLOOR

Product type

TextProduct category

Interest rate instruments

Master Data: CAP/FLOOR



© SAP AG 2003

CAP/FLOORCAP/FLOOR

1 Upper limit2 Lower limi t

1CAP/FLOOR

Interest Rate Adjustment

In t. fx d te Weekday Ref .in t.rate Sta tus In teres t Rate Star t

CREATE INTEREST RATE ADJUSTMENT

Interest Rate Adjustment Overv iew



© SAP AG 2003

Interest Rate Adjustment Detail View

Int. fx dte

Ref.int.rate

Int. rate

Eff. from

Status

Trigger Manual adjustment

Automatic adjustment


1

11

2

22


Control of exchange rate risks via OTC

currency options- OTC currency opt ions- Currency barrier options- Compound options



© SAP AG 2003


Information systems

333

444

Special Topics 1: Information System (Extract)

Structure of information system

Journal: Money Market

Journal: Money Market, Foreign Exchange,Derivatives, Secur ities

Payment schedule



© SAP AG 2003

Position lis t

Interest rate adjustment schedule

Facilities: Reporting

Alert Monitor

Information System: Overview

Reports deliveredby SAP

User-definedReports



© SAP AG 2003

Cumulative values Non-cumulative values

Structure of the Information System: Example –Journal

... Accounting

Corporate Finance Management

Transaction Manager

Money Market

Information System

Transaction

Area-specific journal



© SAP AG 2003

Transaction

Information System Transaction Overview Reports

Strategic Operative

Transaction

Transaction Overview

Journal: Money Market, Forex, Derivatives, Securities


Cross-area journal


Overview list of money market transactions

Information on

Company code 1000 IDES AG Entered/changed on 09/06/YYYY

Product type 51A Fixed-term deposit EXTERNAL Transaction type 100 Investment



© SAP AG 2006

Company codeProducttype

100052A

IDES AGCall option EXTERN Transaction type 100 Investment

Entered/changedon 09/06/YYYY

TransactionCategory

Counter partyStatus Currency Amount Start of term Rollover start Interest rate Valid since Currency

Portfolio Financeproject Trader End. Invent. Begin. Invent. Contractdate Ent./changed

3contract

1000active

Bank of AmericaUNI 100.000,00 09/06/YYYY

1 12.6 09/06/YYYY

09/06/YYYY 09/06/YYYY

BAUERT

TransactionCategory

Counter partyStatus Currency Amount Start of term Rollover start Interest rate Valid since Currency

Portfolio Financeproject Trader End. Invent. Begin. Invent. Contractdate Ent./changed

1contract

1000active

Bank of AmericaUNI 100.000,00 09/06/YYYY

1 12.5 09/06/YYYY

09/06/YYYY 09/06/YYYY

BAUERT11/06/YYYY

End of term.

Payment Schedule

Area Area--specific payment schedulespecific payment schedule CrossCross--area payment schedulearea payment schedule

Payment schedule: Money Market Payment schedule: Money Market,Forex, Derivatives, Securities



© SAP AG 2003

Company code

Payment date, payment amount, payment currency

Transaction, name

Product type, transaction type

Posting status, posting release

Bank key of house bank, bank account of house bank

Bank key of business partner bank, business partner bankaccount

...

Money Market: Position List

CoCd Trans. PCat TCat PTypeTtype Partner Tcrcy Amount Int. RateTermStart TermEnd

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.JJ JJ

1000 4 510 100 51A 100 Deuba UNI 100.000,00 2.7 07.09.JJJJ 07.11.JJJJ



© SAP AG 2003

Link to the SAP List Viewer

Facility: Reporting

Current utilization profile of a faci lity

Integration of the faci lities in Money Market CollectiveProcessing

Key date overview of facili ty util ization



© SAP AG 2003

Key date overview of facili ty util ization

Overview of facil ity charges

Derivatives: Maturity Schedule OTC options

Type Start Term

Put DD.MM.YY

Call DD.MM.YY

Maturi ty Schedule OTC OptionsMaturi ty Schedule OTC Options



© SAP AG 2003

Alert Monitor

The alert monitor collects error messagesfrom the various CFM areas to be assignedto processing.

Content areas:

Settlement

Release



© SAP AG 2003

Release

Payment + Posting

Correspondence

Interest rateadjustment

Principles of Drilldown Reporting

P o r t f o l i o

BOND

MM

Term

From To

Basic

business

MMkt/Sec./

Loans Manag.

Forex/

Derivatives

open

Partlyzas a list (lis t v iew er)

z as a drilldown report

zas a graphic

DataData

outputoutput



© SAP AG 2003

P

FX

Currency

Product type

FLOORCAP

FRA

JPY

USD

EUR

Architecture of Drilldown Reporting

( Create

( Change

( ExecuteSave

Form

Report

Key figures Characteristics



© SAP AG 2003

( ExecuteReport

index

Save

ListsListsGraphicsGraphicsNavigation/Navigation/DrilldownDrilldown

Save

Batchlist

...MailWinword Excel

Functions of Dril ldown Reporting

z Navigation to all levels (characteristics)

z Exception reporting provides a visual warning when criticalvalues deviate from expectations

z Hierarchy processing shows external hierarchies(such as flow type hierarchy)



© SAP AG 2003

z Graphics improve visualization of the figures

z Analysis functions allow you to classi fy your data

z Data mining allows you to identify conspicuous values inthe dataset

z Currency translation determines currency influences

Form Report

zz Form ReportForm Report

For reports prepared individually withFor reports prepared individually with



© SAP AG 2003

formform--oriented layoutoriented layout specific formatting (colors, etc.)specific formatting (colors, etc.)

integration of variablesintegration of variables

complex selectioncomplex selection

Overview of Drilldown Reporting

Treasury Management;

Transaction Management:Customizing; Application

Treasury Management: Appl ication ; Customizingz Create form

Create reports

Include report in

z

z



© SAP AG 2003

Transaction Management; Appl ication

Treasury Management;Customizing

Include report in

report tree

Execute reportz

Transaction Manager: Securities ManagementOverview Diagram


Unit 3 Transaction Manager: Money market

Unit 4 Transaction Manager: Forex, Derivatives




© SAP AG 2003




Unit 5 Transaction Manager: Securities

Master Data

1

11

2

22

Overview of Securities Management

3

33 Trading and Back Office

4

44 Accounting and Closing Operations



© SAP AG 2003

555 Position Management

Standard Reports in the Information System

Master DataMaster Data

z Business Partner

z Class Master Data

TransactionTransactionManagementManagement

y Purchases/sales

Position ManagementPosition Management

z Valuation




© SAP AG 2003

Integrating SAP Financial Accounting

Master DataMaster Data

z Class Master Data

z Secur ities AccountMaster Data

z Position Indicator

z Exchange rates

z Secur ities p rices

z Other

Purchases/sales

z Exercising rightsz ...

z Valuation

z Corporate act ionsz Transfers

z ...

Securities account

z Stocksz Bondsz Warrants

Company code

ID number

Trans. type

Partner Securi ties purchase Securities sale

Evaluations using

- Standard Reports

Drilldo n reporting

?

Overview of Transaction and Position Management

?

?

?



© SAP AG 2003

Accounts in Financial Accounting (FI)

Posit ion Bank Revenue Expenses . . .

. . .

Position Management

Valuations

- Drilldown reporting

tool

Postings

Pmnt. transactions

Reversals

Create new order/contract

Exercise/expiration

E i i i ht

Approval

Settlement/Control


N tti

Trading

Trading Back Office

Back Office Accounting

Accounting

Transaction and Position Management Process



© SAP AG 2003

Reversals

Acc rual/Deferral Valuations

Exercising rights

User authorization

Limit management

Netting

Referencing Conf irmation Letters

Secur ities transfer post ings

Corporate act ions

Securities

Management – General ledger –

Securities Management – Financial Accounting

SAP – Financial Accounting

(FI)



© SAP AG 2003

InterfaceInterface

3rd-party

financialaccountingsystem

Securities Management

z Securities Management enables you to manage your securities

transactions and positions.

z The various stages of the transaction and position

management process are included in the trading,

back office, and accounting areas.

z You must maintain the relevant master data before you can

use Securities Management.

z Dividends, interest, repayments, corporate actions, etc. are



© SAP AG 2003

processed through the position management.


Master Data

1

11

2

22


3


4




© SAP AG 2003


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

Securities: Master Data

z Create the business partner in different roles

z Maintain class master data, including basic data,

conditions, and other data

z Set up securities accounts and portfolios, if required,

to manage your positions

z Understand and create position indicators



© SAP AG 2003

Partner Master Data

Master Data

Class Master Data

Basic data Conditions Other Data

Secur ities Account Master Data



© SAP AG 2003

Position ManagementPosition Management

Secur ities Account Master Data

Position indicator per ID number and per securities account

Transaction ManagementTransaction Management

113495 7.5% Government

bond 94/04

270144 Federal

Bond R44

519000 BMW

555750 Telekom

716460 SAP

Securities Account 1 Securities Account 2

Classes



© SAP AG 2003

113501 6.25% Government

bond 96/06

- Fully paid stock- Partly paid stock- Floating ratebond

- Fixed-interestsecur ity . . .

Product typeProduct typeID number ID number

716 460

...

113500

SAP St

. . .

Governmentb d

ClassClass

Class Master Data and Product Types



© SAP AG 2003

USER LEVEL

bond

ID number

Newclass

ID number

Product type 01A

731400

731400

Search crit. Basic data Condit ions Exchanges User data

Create a class

Status

active

inactive

Create Class: Init ial Screen



© SAP AG 2003

Name

Short

Long

HEIDELDRUCK

Heidelberger Druckmaschinen AG

Create

w ith reference w ithout reference

ID number

Issue

Issuer Heidelberger Druckmaschinen AG

Issue start

12/08/1997

731400 Heideldruck

HEIDRUCK

Basic data

Create Class: Basic Data



© SAP AG 2003

Nominal valueIssue currency Issue price

Structure

Security type Quotation

Stock category Stock form

EUR

Bearer security

Common stock

Unit-quoted

Old stock

ID number 731400 Heideldruck

Conditions

Condition items

Create Class: Condit ions



© SAP AG 2003

Cond ition Type Amoun t Crcy Due Date Freq.Dividends 1,15 EUR 09/14/YY

Bonus

Exchange

Exchanges

Exchange Crcy Home Exch ...

FFM EUR

731 400731 400 HeideldruckHeideldruckID number

Assignment of Exchanges



© SAP AG 2003

ID number 731400 Heideldruck

Stock Sw ap

Stock Swap

Create Class: Stock swap



© SAP AG 2003

O l d ID Ne w ID N u m er a to r D e n o mi n at o r S e tt l m n t . Am o u n t C r cy

ID number

Issue

Issuer Deutsche Bank

EUR 67

222222

Deuba

Basic data

Create Class Master Data: Subscription right



© SAP AG 2003

Issue currency Issue priceEUR 67

Sub. Right ID Under. ID SubRat Num SubRatDenom Sub Price Crcy Start End

222222 333333 5,0000 1,0000 100,00 EUR 01/25/YYYY 02/08/YYY

Subscription periods

ID number

Issue

Issuer Federal Republic of Germany

Issue currency

Nominal value Nominal per TU

Issue start Term end

EUR

10/21/YYYY 10/21/YY+10

113500 Fixed-interest bonds

BUND

Basic data

0.01

Create Class: Bonds – Basic Data



© SAP AG 2003

Issue rate

Structure

Quotation

Security type

Percentage-quoted

Bearer security

99.5000

ID number 113500 Fixed-interest bonds

ConditionsInterest calculation

Repayment

Int.calc.meth.

Ac t/ActP

Repayment type Maturit y

Create Class: Condit ions



© SAP AG 2003

Condition itemsCondition Type Eff. as of Crcy Percent Calc.Date Due Date ClFreq.

Interest 10/21/YYYY EUR 6,00 10/20/YY+1 10/21/YY+1 1 12

Final Repmnt 10/21/YYYY EUR 0,00 10/20/YY+10 10/21/YY+10 1 0

Calendar

Calendar 2

Dates

01

Per condition type

100 Interest 263 Final repayment

Details v iew

and so on

Create Class: Bonds – Condition Details View



© SAP AG 2003

Calculation date

1. Date Inclusive

Due date

1. Date

10/20/YY+1

10/21/YY+1

No shif t

Next w orking day

(

ID number

Product type 04I

113500 Fixed-interest bonds

Paymnt Date Description AmountNomCrc Ftype

10/21/YY+1 Purchase 99.500,00EUR 1000

21/10/YY+2 Nominal int. 6.000,00EUR 5000

Calculation Date10/20/YY+110/20/YY+2 C

Class Master Data – Create Bond: Cash Flow



© SAP AG 2003

10/23/ YY+3 Nominal int. 6.000,00EUR 500010/22/ YY+4 Nominal int. 6.000,00EUR 5000



10/20/YY+310/20/YY+410/20/YY+510/20/YY+6

ID number 113500 Fixed-interest bonds

Notice

Bond ID Notice Per from Notice Per to Notice Rate Description

113500 10/1/YY+9 12/01/YY+9 99,2000

Notice Periods of Issuer

Create Class: Notice



© SAP AG 2003

Bond ID Notice Per from Notice Per to Notice Rate Decription

Notice Periods of Bondholder

214600 Bond step-up

Conditions

Cond. Type Desc. Eff. as of Crcy Percent Calc Date C Due Date C Freq

Interest 01/12/YYYY EUR 4,0000 07/11/YYYY 07/12/YYYY 1 6Interest 07/12/YYYY EUR 4,5000 01/11/YY+1 01/12/YY+1 1 6

Interest 01/12/YY+1 EUR 5,0000 01/11/YY+2 01/12/YY+2 1 12

Final Repmnt 01/12/YYY EUR 0 01/11/YY+10 01/12/YY+1 1 0

Condition Items

Class Master Data – Bond: Step-up



© SAP AG 2003

Calculation Date01/11/YYYY07/11/YYYY01/11/YY+101/11/YY+2

01/11/YY+301/11/YY+4

Utype Utype Amount Crcy Days

SE1000 Purchase 100,000.00EUR 0

SAM5000 Nominal int. 2,000.00EUR 180



SAM5000 Nominal int. 5,000.00EUR 360SAM5000 Nominal int. 5,000.00EUR 360

Cash Flow

214600 Variable Bond

Conditions

Cond. Type Desc. Eff. as of Crcy Ref. Int. V Percent Calc Date C Due Date C Freq

Var. 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 6

Final Repmnt 01/15/YYY EUR 01/14/YY+7 01/15/YY+ 1

Condition Items

D

et

a

Class Master Data – Bond: Variable Interest



© SAP AG 2003

Eff. as of Int. Fx. Dte PerDueDt Percent

01/15/YYYY 01/13/YYYY 01/01/YYY3,8523

07/15/YYYY 07/13/YYYY 06/14/YYY4,1964

01/15/YY+1 01/13/YY+1 10/23/YYY 3,4239

07/15/YY+1 07/11/YY+1 10/23/YYY 3,4239

InterestRate Adj.

At st art of period

Interest rate fixing date

Relative

Interest rate adjustment date - 2Working days

Calendar 1

Calendar 2

01

EUDates

il

Company code

Sec. acct

Sec. acct name

TR##

Acc A##

Bank information

Depos.bankClearing account

Sec.acct number

House Bank

House Bank

H b k t

22224446

445556##DEUBA

DEUBA

EUR

Bank data

Securit ies Account Master Data



© SAP AG 2003

House bank acct

Disposition block

Blocking type

Blck flag until

Assignments

Business area

Sec. acct group

EUR

Portfo lio 1

Others

Company codeCompany code

positionposition

Portfolio 1Portfolio 1

Sec. acct Sec. acct

Portfolio 2Portfolio 2

Securities Account and Securities Account Group



© SAP AG 2003

position 1 position 2

Individualitems Individualitems

Securities Account Position Indicators



© SAP AG 2003

Subledger Position Indicator



© SAP AG 2003

Maintain Exchange by Company Code and ID Number



© SAP AG 2003


Master Data

1

11

2

22


3


4


5




© SAP AG 2003


Postings

Accrual/Deferral

Valuations

Reversals

Enter order

Enter cont ract

Reversals

Transaction history

Settlement/Control


Netting

Secur ities accountt f

Approval

Trading

Trading Back Office

Back Office Accounting

Accounting

Transaction and Position Management Process (1)



© SAP AG 2003

Transaction history Secur ities accounttransfers

Corporate actions

Reversals

Transaction history


OrderOrder C t tC t t

Transaction Management: Init ial Variants



© SAP AG 2003

Order Order ContractContract

Company code TR00

ID number

Transact ion type

113500

100 PurchaseDeuba Deutsche Bank

Bond 96/06

Partner

Activity

Order O Contract

Create Order: Initial Screen



© SAP AG 2003

Transaction

External number assignment

Company code TR00ID number 113500Transact ion type 100 Ac tiv ity Order

Basic Data Limit

Partner Deuba

Secur ities acct.

Order date

Nominal amount

Deuba Acc1

01/20/YY

200T

Limit Type

Limit date

Limit price

Dmax,Pmax

01/31/YY

105

Structure

Creating an Order



© SAP AG 2003

Trading

Traders Maier

Close

Contact person Mr. Bauer

Company code TR00ID number 113500Transaction t ype 100 Ac tiv ity Contract

Position Date details

Amounts

Partner Deuba

Deuba Acc1

Short-terminv.

Quantity position

Position value date

Calculation date

Payment date

01/22/J J

-1

0

Structure

Secur ities acct.

General valuation class

Executing an Order



© SAP AG 2003

AmountsNominal amount

Rate

Payment amount

200,000.00

100

EUR

%

CouponRound. rule

Accrued interest calculation

EUR

Company code TR00ID number 113500Transact ion type 100 Ac tiv ity Contract

Additional Flows

Main flow

Net payment amount 208,200.00-

Ftype Description Paymnt Amount Crcy Directio

O100 Purchase 200.000,00 EUR

EUR

Execute Order: Additional Flows



© SAP AG 2003

Net payment amount

Flow Description Direction Paymnt Amt CrcyO870 Interest accrued 7,200.00 EUR

O312 Comm. not cap. 1,000.00 EUR

208,200.00

Additional Flows

EUR

F4

Other select ion opt ions

Company code TR00ID number 113500Secur ities Acct. Deuba Acc2

Cash Flow

Paymnt Da Ftype Description Paymnt Amt Direct. Crcy

01/22/YY O100 Purchase 200.000,00 EUR

01/22/YY O870 Acc. Int. 7.200,00 EUR

01/22/YY O312 Comm. not cap. 1.000,00 EUR

Transaction Cash flow

Execute Order: Transaction cash flow



© SAP AG 2003

/ / p ,

Suggested Order Data

:

Number of Sec. price

:

Nominal amnt

Order

created

Execute

200,000100

or: Enter data

Overview: Execution/Contract



© SAP AG 2003

Company code

ID number

Create Contract:

TR00

113500

ContractActivity

Securities Account Class Cash Flow



© SAP AG 2003

Flow List



© SAP AG 2003

Transaction category

Purchase Sale

Current activity category

Order SettlementContract Expired Order

General selections

Company code

TransactionID number

( (

(

(

(

(

TR00

Collective Processing in Securities: Initial Screen



© SAP AG 2003

ID numberSecurities acct:.

Output Control

Display variant

CoCdTransact ion Actv.cat. Trans.type Name ID Number Short name Sec. Acct Nominal Price rate

TR00 353 Contract 100 Purchase 113500 Bond 96/06 Deuba Sec Acc2 200,000.00 100

TR00 352 Order 100 Purchase 113500 Bond 96/06 Deuba Sec Acc2 300,000.00 90

Settle ReverseOrder expiration) Cash Flow History

Collective Processing: List



© SAP AG 2003


Master Data

1

11

2

22


3


4


- Post Transact ions

- Manual Posting



© SAP AG 2003

- Automatic Debit Posit ion

- Position Management

- Closing operations


Applicat ion

Forex

Money market

Derivatives

Securities

General selections

Company code to

Transaction to

Product type to

...

Posting Transactions: Transfer Data to Financial Accounting by Posting Report



© SAP AG 2003

Posting contro l

Posting date

Test run

TransactionTransaction

Post

PostPost

Posting LogPosting Log

4040 4501045010 EUR 200,000.00EUR 200,000.00 SS4040 273100273100 EUR 7,200.00EUR 7,200.00 SS50 11310550 113105 EUR 207,200.00EUR 207,200.00 CC

Post Transaction



© SAP AG 2003

113105207,200

Accounting document generated in FI Accounting document generated in FI

4501045010200,000200,000

2731002731007,2007,200

Example: Securities purchasePosting record (= "Posting specif ications" ) :

(40) Balance sheet account to (50) Bank c learing account ... EUR

to 113105 ... EUR

Deutsche Bank—other post ings

from

Balance

from

Here: by 45000

Securities

Fixed assets

Bank c learing account

Posting a Transaction: Overview



© SAP AG 2003

via

from

Transaction

Account Determination

- Changeable -

from

Position indicator

Account Assignment Reference

- Fixed -

fromfrom fromfrom

Account

assignment

reference

fixed

Transaction:

Standing Instructions

Posting a Transaction: Accounts Control

Posting transactions:

Balance sheet account to

fromfrom

Bank clearing account



© SAP AG 2003

Sec. Acct

g

or

can be changed v ia account

determination

Company code TR00ID number 113500Secur ities Account Deuba Acc2

Update type SE3012Update type SE3012

(Commission, not capitalized)(Commission, not capitalized)

Amount Amount EUR 100EUR 100

Post

Manual Post ing



© SAP AG 2003

Posting Log

4040 479100479100 EUR 100.00EUR 100.005050 113105113105 EUR 100.00EUR 100.00

G/L account ing

Manual Post ing: For all Security ID Numbers

Posting invo lving several secu rity ID numbersPosting invo lving several secu rity ID numbers

For example: Secur ities acctFor example: Secur ities acct

chargescharges



© SAP AG 2003

G/L account pos ting

General ledger on ly

Alternative I:

Div idends Nominal interest P

Bank clearing account F

Automatic debit posi tions

Bank statement

Bank clearing to revenue

Bank to bank c learing

FI

Automatic Debit Posit ions I



© SAP AG 2003

Bank account

Company code TR00ID Number 514000Securities acct Deuba Acc2

UType Description Status Nominal amount CrcySttlmt amnt Settlmt crcy

SE1000 Purchase fixed 120,000.00 EUR 120,000.00 EUR

SAM5013 Dividend planned 1,600.00 EUR 1,600.00 EUR

... ... ... ... ... ... ...

Automatic Debit Posit ions I: Planned Record



© SAP AG 2003

Company code

Product type

ID number

Securities acct

P ti d t

General selections

to

to

to

to

Posting control

TR00

514000

...

...

...

...

Up To and Including Due Date

Automatic posting parameters

Automatic Debit Posit ions I: In it ial Screen



© SAP AG 2003

Posting date

Document date

Test run

Instead of due date

Instead of current date

(

Pos.val.dte Flow type Doc.type FI doc. no. Post. date Post.year

PKey For.curr. amount Loc.curr.amount G/L acct

05/17/YY 5013 Div idend SA 0000648 05/17/YY YYYY

40 EUR 1,600.00 EUR 1,600.00 113105 Dt. Bank inter im postings

50 EUR 1,600.00 EUR 1,600.00 272100 Secur ities revenue

ID number 514000 Dt. Bank Registered Stock

Secur ities Account (Class) Cash Flow

Posting Log

Automatic Debit Posit ions I: Posting Log



© SAP AG 2003

Secur ities Account (Class) Cash Flow

Pos.vl.dte UpdateType Description Status Nominalamount Crcy Sttlmt amnt Settlmt curr.

02/03/YYYY SE1000 Purchase fixed 100,000.00 EUR 200,000.00 EUR

05/17/YYYY SAM5013 Dividend fixed 1,600.00 EUR 1,600.00 EUR

... ... ... ... ... ... ... ...

1

1

Alternative II:

IP

F I

Dividend/Nominal in terest P

P

Automatic debit posi tions Receivables to revenue

Receivables account F

Bank Statement By bank-to-bank clearing

Automatic Debit Posit ion II: with Manual DebitPosition



© SAP AG 2003

IP

Bank account

Manual debit position By bank clearing

on receivables

Bank clearing account F

Company code TR00ID Number 113500Secur ities Acc ount Deuba Acc2

Pos.vl.dte UType Description Status Nominal amount Crcy Sttlmt amnt Settlmt curr.01/21/YYYY SE1000 Purchase fixed 200,000.00 EUR 200,000.00 EUR

01/21/YYYY SE8702 Accrued interest fixed 7,200.00 EUR 7,200.00 EUR

01/21/YYYY SE3012 Comm.not.cap. fixed 1,000.00 EUR 1,000.00 EUR

02/16/YYYY SAM5000 Nom. interest planned 12,000.00 EUR 12,000.00 EUR

02/16/YYYY SAM6000 Nom. interest IP planned 12,000.00 EUR 12,000.00 EUR

Automatic Debit Posit ion II: Planned Record



© SAP AG 2003

Posting log (operative):

02/16/YY 5000 Nominal Interest SA 0000693 02/16/YY YYYY

40 EUR 12,000.00 EUR 12,000.00 152050 Interest receivables

50 EUR 12,000.00 EUR 12,000.00 273100 Interest income

Pos.val.dte Flow type Doc.type FI doc. no. Post. date Post.year

PKey For.curr. amount Loc.curr.amount G/L acct

ID number 113500 Bond 96/06

Automatic Debit Posit ion II: with IP Records



© SAP AG 2003

Company code TR00ID Number 113500Securities acct Deuba Acc2

Pos.vl.dte UpdateType Description Status Nominal amount Crcy Sttlmt amnt Settlmt.curr.01/21/YYYY SE1000 Purchase fixed 200,000.00 EUR 200,000.00 EUR

01/21/YYYY SE8702 Accrued interest fixed 7,200.00 EUR 7,200.00 EUR

01/21/YYYY SE3012 Comm.not.cap. fixed 1,000.00 EUR 1,000.00 EUR

02/16/YYYY SAM5000 Nom. interest fixed 12,000.00 EUR 12,000.00 EUR

02/16/YYYY SAM6000 Nom. interest (IP) planned 12,000.00 EUR 12,000.00 EUR

02/16/YY+1 SAM5000 Nom. interest planned 12,000.00 EUR 12,000.00 EUR

... ... ... ... ... ... ... ...

Automatic Debit Posit ion II: Planned Record IP



© SAP AG 2003

Company Code Position

at portfolio level

at securi ty account

group level

at securi tyaccount level

Position Management Options

at single position level



© SAP AG 2003

g p

Portfolio 1

Transaction 3+4

113500

716460

Transaction 5+6

113500

716460

Transaction 7

113500

Transaction 1+2

113500

716460

Position Management: Portfolio-related



© SAP AG 2003

Portfolio 2

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 GroupLevel



© SAP AG 2003

Sec. Acct 2

113500

716460

Sec. Acct 3

113500

716460

Sec. Acct 4

113500

Sec. Acct 1

113500

716460

Position Management: at Securities Account Level



© SAP AG 2003

Interest accrual/deferral:Interest accrual/deferral:

11 Difference procedure*Difference procedure*

22 Reset proceduresReset procedures

A i dA ti d t

Reset accrual/deferralReset accrual/deferral

Reverse accrual/deferralReverse accrual/deferral

Closing Operations: Accrual/Deferral



© SAP AG 2003

Amortized cost Amortized cost

*currently no t suppor ted for secur ities

Maintain security pr ice

z Posting Log

z Valuation Log

Position Valuation

Closing Operations: Valuation: Position Valuation



© SAP AG 2003

Closing Operations: Posit ion Valuation



© SAP AG 2003

Closing Operations: Valuation - Posting



© SAP AG 2003

Sec. write-up/write-down (LC):

Sec. write-up/write-down (PC) *book exchange rate, old

Foreign currency write-up/write-down:Compares old book value (PC) *exchange rate (depending on valu-ation rule: acqui-sition 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 keydate, and so on)

Sec. write-up/write-down (PC):Compares unit * sec. price(depending on valuation rule:acquisition rate, rate on key date,

and so on)

Sec. write-up/write-down (LC):Sec. write-up/write-down (PC) *Book exchange rate,

A. Two -step: Securities f irst,

then forex

Sec. write-up/write-down (PC):

old

Compares unit * sec. prices(depending on valuation rule:

acquisition price, price on key

date, and so on)

Foreign currency write-up/write-down:

New book value (PC) * exchangerates (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, new

Total write-up/write-down (LC):

Old book value (LC) -New book value (LC)

B. Two-step: Forex first,

then securitiesC. One-step

11

22

33

Closing Operations: Foreign Currency Valuation



© SAP AG 2003

and so on)

Foreign currency write-up/write-

down: Total write-up/write-down (LC) -

Sec. write-up/write-down (LC)

44

Foreign currency rateForeign currency rate

1.801.80

1.701.70

1.501.50

Security profit/lossSecurity profit/loss

Foreign currencyForeign currency

profit/lossprofit/loss

Example: TwoExample: Two--step method (fir st security, then foreign currency)step method (first security, then foreign currency)

Foreign Currency Valuation: Example



© SAP AG 2003

Security priceSecurity price

32 36 3932 36 39

Securities: Recording an Impairment



© SAP AG 2003




© SAP AG 2003




© SAP AG 2003

Securit ies: Reversing an Impairment



© SAP AG 2003


Master Data

1

11

2

22

Overview of Securi ties Management

3


4


5




© SAP AG 2003

or PI for security to be posted

Prerequisites

Post corporate actionper company code

Create corporate actionacross all company codes

Save

Activate

Corporate Actions: Overview



© SAP AG 2003

o o secu ty to be posted

StockStock

EUR 50EUR 50

Convertible

Subscription

right

Convertib le bondConvertib le bond

Equity

warrants

Warrant bondWarrant bond

Warrant bond

cum

new

S u b s c r i p

t i o n

r i g h t

C o n v e r t i b l

e

b o n d

E q u i t y

W a r r a n t b n

W ar r an

t b on d

o d

Position Management: References Overview



© SAP AG 2003

Convertiblebond

EUR 100,000.00

Warrant bond

EUR 100,000.00 ex

( Warrant: stocks

( Warrant: interest

( Warrant: index

( Warrant: currency

( Subscription right

( Convertible bond

( Warrant bonds

( Callable bond

Position Management: References



© SAP AG 2003

( Putable bond

Prerequisites

(Old) stocks in posit ion

Post subscription rights (CorpAct)

Purchase/sell subscr iption r ights,

if required

Exercise subscription rights

New stocks in position

(Regular) Capital Increase: Overview

Subscription right class

PI subscription right

New stock class

PI new stock



© SAP AG 2003

p

Transfer new stocks (CorpAct)

New stock position

NewNew

StockStock

StockStock

UNI 50UNI 50 Old stockSubscr.

Right

StockStock


Right

StockStock


Right

StockStock


Right

Capital Increase



© SAP AG 2003

StockStock


Right

Subscr. right ratio 1:1

Subscription ratio 5:1

Book value

Old position

Value + acctg.

Value

Old stocks Subscr.

rights

Subscr.

rightspost

Capital Increase: Posting Subscript ion Rights



© SAP AG 2003

- Sub. rts

markdown

You determine the theoretical value of the subscr iption right automatically usingthe following formula:

The old stocks in the posi tion are marked down by the value of the subscr iption righ tused for accounting purposes:

Subscr.Subscr.rightright

valuevalue

mm

nn+ 1+ 1

==

Here:Here: 55

11+ 1+ 1

= EUR 41.67= EUR 41.67350350 -- 100100

+ Dividend disadvantage+ Dividend d isadvantage

KKaa -- KKnn-- Dividend advantageDividend advantage

Capital Increase: (Theoretical) Value of Subscription Rights



© SAP AG 2003

Markdown = Subscription right value xMarkdown = Subscription right value x Old stock book valueOld stock book value

Old stock market priceOld stock market price

Here:Here: 41.67 x41.67 x 300300

350350 = EUR 35.71= EUR 35.71

= value of sub.right for = value of sub.righ t for

accounting purposesaccounting purposes

PostingsPostings

40 194200 7,142.86 EUR D

50 133020 7,142.86 EUR C

40 133000 7,142.86 EUR D

50 194200 7,142.86 EUR C

Posting subscription rights

111 111

222 222

PK Account

Capital Increase: Posting Subscript ion Rights



© SAP AG 2003

PostingsPostings

222 222:222 222: 194200 to 133000194200 to 133000 5,357.155,357.15

333 333:333 333: 133020133020 8,357.158,357.15

: 150 units at EUR 35.72 at a

subscr iption pr ice of EUR 100 per new stock

SubR – sales: 50 units

SubR – purchases

Subscription rights pos ted

Exercise subscription rights

Capital Increase: Exercising Subscription Rights



© SAP AG 2003

to 194200to 194200 5,357.155,357.15

to 113105to 113105 3,000.003,000.00

PostingsPostings

111 111111 111 4040 133020133020 EUR 8,357.15EUR 8,357.15

DD

5050 194200194200 EUR 8,357.15 CEUR 8,357.15 C

A

xx

B

xx

PostPostNewNew

StockStock

ID no.ID no.

333 333333 333

OldOld

StockStock

ID no.ID no.

111 111111 111

PKPK Account Amount Account Amount

Capital Increase: Transferring New Stocks



© SAP AG 2003

,

333 333333 333 4040 194200 EUR 8,357.15 D194200 EUR 8,357.15 D

5050 133020 EUR 8,357.15 C133020 EUR 8,357.15 C

Company code

ID number

Product type

TR00

444444

01A

Calculation date

Deuba Acc2

Securities Account Transfer

Source sec. account

Number of units

Target sec. accoun t

Deuba Acc1

1000

XX/XX/XXXX

Values

Securities Account Transfer: Process



© SAP AG 2003

No. of units t o be

transferred

XX/XX/XXXX

700

Securities Account Transfer: Post



© SAP AG 2003

Account Assignment Reference Transfer: Execute



© SAP AG 2003

Account Assignment Reference Transfer: Post



© SAP AG 2003

Valuation Class Transfer: Execute



© SAP AG 2003

Valuation Class Transfer: Post



© SAP AG 2003

Market Risk Analyzer: Course Overview Diagram


Unit 3 Transaction Manager: Money MarketUnit 4 Transaction Manager: Forex, Derivatives







© SAP AG 2003


Price parameters

1

11

2

22

Course Overview

3

33 Analysis structure and basic settings

4

44 NPV/Sensit ivi ty analysis

5

55 Value-at-risk evaluations



© SAP AG 2003

z Price parameters

z Basic configuration of market risk analysis

z Use of functions and tools of component riskanalysis

z NPV Analysis

z Value-at-risk evaluations

This unit provides knowledge on the

following topics:

Unit Objectives



© SAP AG 2003

What is Market Risk?

Risks

Risks

Area of Operat ions

Area of Operat ions Value/Finance Area

Value/Finance Area

Revenue risks

Revenue risksLiquidity risks

Liquidity risks

Technical...

Technical...

Personnel...

Personnel...

Market risks

Market risks Credit risks

Credit risks

Interest rate

Interest rate

C i

Default risks

Default risks

C t i k

Refinancing

Refinancing

Date...

Date...



© SAP AG 2003

Stock prices...Stock prices...

CurrenciesCurrencies Country risksCountry risks

Settlement...Settlement...

Risk

Controlling

III. Risk Management

IV. Controlling in thenarrower sense of

inspecting management

I. Identifying risks¾ Risk factors

II. Quantifying r isks¾ Key risk figures

Risk Controlling Process



© SAP AG 2003

¾ Hedging

¾ Diversification¾

Cumulation¾ Limiting


Price parameters

1

11

2

22

Course Overview

3


4

44 NPV/Sensit ivi ty analysis

5




© SAP AG 2003

z To evaluate transactions in r isk analysis,

you must fi ll out market data tables in theSAP system.

z You can do this in the following ways:

Manually

Excel interface

File interface

Datafeedz FTP access (Internet)

z Datafeed server

Price Parameters: Business Scenario



© SAP AG 2003

z Yield type

z Intraday indicator

z Interest calculation method

(360/360, actual/360, ...)

z Quotation type (bid, ask, middle)

z Currency

z (Interest) term (days, months, years)

z Calendar ID

z Exchange

z Type of curve for forward

calculation

Reference interest rates(EUR, USD, GBP, etc)

Reference interest rates(EUR, USD, GBP, etc)

GBP

USD

3 m onths 6 m onths 1 year

11/29/04

11/30/04

12/01/04

12/02/04

EUR

Reference Interest Rates



© SAP AG 2003

z Fixing period

z Working day rule

Yield Types

3

4

5

6

7

1 2 3 4 5 6 7 8 9 10

Years

Interest (%)

Yields of Coupon BondsZero Bond Yields

Yields of coupon bonds vs. Zero bond yields



© SAP AG 2003

t

Interest Rate

Support points (reference interest rates)

interpolated values

Yield Curve Maintenance



© SAP AG 2003

Reference interest rates are transferred

Remaining values are interpolated by the system

Yield Curve Type

Yield Curve TypeDefining Yield Curve Types

z Yield type

z Quotation Type

z Intraday indicator

z Read procedure

z Interpolation procedure

z Basis of interpolation

z Currencies

z Interest calculation method by

currency

EUR

%

Years

USD

GBP

valid for the

yield curve

type

identified

yield curve

Yield Curve Type



© SAP AG 2003

currency

z Reference interest rates by currency

Today's y ield curve

(9/14)

1 Month 1 year 2 years 3 years

4.3% 5% 5.7% 7%

Example: "Read back"read procedure

Searching for Interest Rates Through ReadProcedures

maintained reference

interest rates

9/14 4.3% 5.7%

9/13

9/12 4.2% 5%



© SAP AG 2003

9/11 4.2% 5% 5.6% 7%

9/10 5.5%

Volatilities (reference int. rates,

(Currencies, secur it ies, ...)

Volatilities (reference int. rates,

(Currencies, secur it ies, ...)

EUR

Volty

Option

term30 60 360

For evaluating optional

financial transactions

Interest rate volatilities

Exchange rate volatilities

Security price volatilities

Stock index volatilities

Volatilities



© SAP AG 2003

Statistics-

calculator

VolatilitiesVolatilities

CorrelationsCorrelations

Volatility type

Correlation type

Holding period

Risk hierarchy

Time series

Calendar

Statistics Calculator



© SAP AG 2003

99.5Market Data ShiftMarket Data Shift

Interest + 1%Interest + 1%

5,0

Bond

EUR 99.5 million

Loss of EUR 5 million

due to rise in interest

100,000Market Data ShiftMarket Data Shift

Rise in Price + 1%Rise in Pr ice + 1%

1,000100

shares of X Profit of

EUR 1,000 due to

rise in stock price

100

Market Data Shif tsMarket Data Shifts

USDUSD 1 cent1 cent

US dol lars

Deadline item

Loss from

rise in USD interest23

1 f a c t o

r s h i f t

c t o r s h i f t s

94.5

100,000

Market Data Shifts



© SAP AG 2003

100 USDUSD – – 1 cent1 cent

USDUSD – – interst + 3%interst + 3%and reduction in USD

E x . :

2 f a c

77

Individual

Scenario, for example:

•Turn in the yield curve•Reduction of volatility

•Reduction of the USD/EUR

exchange rate

Bond option

Long Call

in USD

Int. Vola-

tilityUSD

8.5 million

1.5 million

USD

10 million

Loss frominterest, vo latility,

and dollar exch. rt.

changes

Scenarios



© SAP AG 2003

z 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.

z You can enter the following rate and priceinformation into the SAP system: Exchange rates,

securi ty prices, reference interest rates, indexes,

forward rates, as well as volatil ities for currencies,securi ties, reference interest rates, and indexes.

z Quality of the market data is the decisive factor for

the analysis

Price parameters: Summary



© SAP AG 2003

the analysis.


Price Parameters

1

11

2

22

Course Overview

3


4

44

5


NPV/Sensit ivi ty analysis



© SAP AG 2003

z To evaluate transactions in the risk analysis

you have to provide financial objects with

characteristics that allow for reporting along

openly defined portfol io hierarchies.

z 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



© SAP AG 2003

z The analysis structure contains all attributes that can be used ascharacteristics of a transaction for analysis purposes.

z These attributes include default characteristics such as company codes,product types, portfolios, and others, as well as characteristics defined by the

customers themselves.z The analysis structure is defined across all clients.

z The analysis structure is enabled client-to-client.

z The portfolio hierarchy is defined based on the analysis structure.

Analysis Structure



© SAP AG 2003

Create and maintain

characteristics

Create and maintainCreate and maintain

characteristicscharacteristics

Create and maintainanalysis structure

Create and maintainanalysis structure

Definevalues of characteristics

DefineDefinevalues of characteristicsvalues of characteristics

Derive characteristics

Derive characteristicsDerive characteristics

2

31

Creating an Analysis Structure



© SAP AG 2003

Characteristics

Characteristics

Business area

Company code

Product type

Balance sheet item

Trader

Portfolio

...

Business area

Company code

Product type

Balance sheet item

Trader

Portfolio

...

Analysis Structure

Analysis Structure

Analysis Structure 1






Any

assignment

Any

assignment

Characteristics and Analysis Structure



© SAP AG 2003

g

possiblepossible

C h a r a c t e r i s t i c s



Product type

Product type Bal. sheet i tem

Bal. sheet i tem Profit Center

Profit Center Traders

Traders Trade group

Trade group

Analys is Structure 1

Analys is Structure 1 Analys is

Structure 2

Analys is

Structure 2 Analys is Structure 3

Analys is Structure 3

A n a l y s i s s t r c .



Characteristics, Analysis Structure and Views



© SAP AG 2003

on the balance sheet

Total

off balance sheet

Money Market

Zero bond

Derivatives

Floating rate bond

Liabilities

Assets

Receivables

in banks

Securities

Bond

Example of a Balance Sheet Reporting View



© SAP AG 2003

Loans

Payables

to banks

Derivations of Characteristics

Derivation rules

Allocati onsEnhancements

Access to tables

Deriving Characteristics



© SAP AG 2003

Evaluation Types

• Evaluation types collect and con tain 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 also can be defined specifically for indiv idual financial products

(specific to valuation rules).

Generally applicable evalulation type



© SAP AG 2003

Evaluation Types – Specific to a Valuation Rule

Default evaluation type (generally applicable)

Specific evaluation types (product specific)



© SAP AG 2003

Maturity Bands

z You can predefine maturity bands to generate certain cashflow views or due date view as part of reporting.



© SAP AG 2003

1/15 2/15 3/15 ... ... 9/15 9/15...

relative, from the valuation key date

abso lute, from the evaluation key date

Applicable in NPV and

gap analysis

Maturity Bands

Evaluation

key date

key date

Evaluation



© SAP AG 2003

1/15 1/31 ... 8/31 ... 8/31 8/31...2/28


Price parameters

1

11

2

22

Course Overview

3


4

44

5





© SAP AG 2003

Fixed Cash Flows

Fixed Cash FlowsFixed Cash Flows Variable Cash Flows

Variable Cash FlowsVariable Cash Flows Uncertain Cash Flows

Uncertain Cash FlowsUncertain Cash Flows

Mark-to-Market Valuation

Deterministic instruments Optional instruments

Discounting with zerobond discountingfactors for therelevant yield curves

1. Determining the forwardrates from the relevantyield curve

2. Calculat ion of the

future cash flows3. Discounting

Option price formu las- Black & Scholes- Binomial- Garman/Kolhagen

Standard bonds

Fixed-rate loans

Money Market

Standard bonds

Fixed-rate loans

Money Market

Floating rate notes

Variable-rate loans

Floating rate notes

Variable-rate loansCaps/Floors

FX options

Swaptions

Caps/Floors

FX options

SwaptionsSwap/FRA

Swap/FRA

NPV Calculation



© SAP AG 2003

Structured products

zCalculating the yield

curve valid at thehorizon as the forward

curve from the current

market data

zDiscounting o f the

cashf lows after the

zSelection of the current

transactions/positions

zDetermining the

current market data

Date Terminology Used

Date of analysis

= todayHorizon

Outgoing c ashflows

Cashflows before

the horizon are not

evaluated Discounting



© SAP AG 2003

cashf lows after the

horizon

NPV=EUR 618.1 million

NPV=EUR 618.1 million

Total Cash Flow (mill ions of EUR)

Total Cash Flow (millions of EUR)

-2500

-2000

-1500

-1000-500

0

500

1 2 /

9 3

0 6 /

9 4

1 2 /

9 4

0 6 /

9 6

1 2 /

9 8

Current interest rate structure in %

Current interest rate structure in %

2.0

4.0

6.0

8.0

10.0

1 M 2 Y 4 Y 6 Y 8 Y 10 Y

NPV Analysis Example (1)



© SAP AG 2003

NPV risk

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

Parallel Shift

1 M 2 Y 4 Y 6 Y 8 Y 10 Y

IntSc 1 (+1%) Curr. IntSc. IntSc 2 (–1%)

2.03.0

4.0

5.0

6.0

7.0

8.09.0

10.0

NPV Analysis Example (2)



© SAP AG 2003

Key Sensitivity Figures

Macaulay Duration: The Macaulay Duration describes theterm 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 is therefore immune to changes in interest.

Modified Duration: The modified duration indicates how much

of a percentage change in the value of an interest instrumentoccurs when the interest level changes by one percentagepoint. 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 thanmodified duration.

Basis Point Value: Basis Point Value provides the change inmarket value in all term areas when the market interest rates

increase by one basis point (0.01%). Absolute changes are

d ib d h

DurationExhibit 2

-2% 0%-1% 1% 2%

0%

-5%

-10%

10%

5%

Y

P / P

ConvexityExhibit 3

-2% 0%-1% 1% 2%

0%

-5%

-10%

10%

5%

P / P



© SAP AG 2003

described here. Y

Key sensitivity figures

• The sensitiv ity analysis returns key figures such as Modified Duration,

Macauly Duration, Conv exity, Base Point Value based on pre-definedportfolio 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 sensitiv ity 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.



© SAP AG 2003

z Combination of two risk factors or r isk

types

z Specifying the range and gr id spacing

z Generating grid po ints and simulating

changes in net present value

z Determining the least favorable factor

combinations

Matrix Analysis

Evaluation Matrix

–10% –5% +/–0% +5% +10%

Risk factors: Change in interest rate and volatili ty

0 BP

+5 BP

+10 BP

–5 BP P a r a

l l e l s h i f t i n i n t e r e s t r a t e s

Change in Volatility

worst

case



© SAP AG 2003


Price parameters

1

11

2

22

Course Overview

3


4

44

5





© SAP AG 2003

Yield curve

Yield curve

Interest rate

volatility

Interest rate

volatility

Currencyexchange rate

Currencyexchange rate

Stock index

Stock index

Security

volatility

Security

volatility

Stock indexvolatility

Stock index

volatility

Exchange

rate volatility

Exchange

rate volatility

Security

price

Security

price

Risk

factors

RiskRisk

factorsfactors

Abstract

risk factors

Abstract

risk factors

Risk Factors



© SAP AG 2003

ConsolidationLEVEL 1

ConsolidationLEVEL Risk Factors

ConsolidationLEVEL 2

. . .

3 mo.3 mo. EURIBOREURIBOR EUREUR



2 yrs. EURIBOR EUREUR

3 yrs. EURIBOR EUREUR

3 mo. LIBOR GBP

6 mo. LIBOR GBP

1 yr. Swap USD

2 yr. Swap USD

Money market EUREUR

Capital market EUREUR

Interest GBP

Swap USD

InterestInterest

Definition of the risk hierarchy and analysis scheme

SAP Stock

ITL SPOT

Stocks StocksStocks

Total riskTotal risk

Risk Hierarchy



© SAP AG 2003

ITL SPOT

GBP SPOTCurrency CurrencyCurrency

Total riskTotal risk

Variance/covariance matrixof risk factors

Portofolio calculation

∆ BW

Time series

Time seriesTime series

Derivation of volatilities and

covariances of r isk factors

Historical simulation Calculation of Varianceand Covariance

Monte Carlo simulation

VaR – Theoretical Calculations



© SAP AG 2003

Derivation of VaRDerivation o f VaR

CHANGE IN MARKET PRICE1 2 3 4 5 6 7 8 9 10 11 12 13

∆MP1

} } } } }∆MP2 ∆MP3

} }... ... ...

}... ∆MPn

∆P1

∆P2

∆P3

... ... ... ... ∆Pn

Calculation of portfolio c hanges

due to historical

changes in

market prices

Calculation of

portfolio c hanges

due to historical

changes in

market prices

Historical Simulation (1)



© SAP AG 2003

CHANGE IN PORTFOLIO

Value at Risk – Overall portfol io

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

V a l u

e a t R i s k i n m i l l i o n s o f E U R

5% 15% 25% 35% 45% 55% 65% 75% 85% 95%

Sorting of portfolio

changes and "counting"

the Value at Risk

Sorting of portfoliochanges and "counting"

the Value at Risk

Value at Risk

1.5M EUR

f or 95% confidence

Value at Risk

1.5M EUR

f or 95% conf idence

Historical Simulation (2)



© SAP AG 2003

5% 15% 25% 35% 45% 55% 65% 75% 85% 95%

Confidence interval

P r

e c i s i o n

T e r m

Complete

evaluation

Completeevaluation

Delta-GammaProcedure

Delta-GammaProcedure

DeltaProcedure

DeltaProcedure

Calculation

of gains and losses

Calculation

of gains and losses

Historical

Simulationbased on

gains andlosses

Historical

Simulation

based on

gains andlosses

Portfolio

Portfolio

Bonds

Floating rate

Option

Exotic

Option

VaR Methods for Product-Dependent Evaluation



© SAP AG 2003

NPV function

NPV function

Approximation

Approximation

NPV

NPV

Market price

Market price

Market price

MarketMarket priceprice

NPVopprty∆ value

NPVNPVopprtyopprty∆ valuevalue

Market price

MarketMarket priceprice

Error

Error Error

NPV risk

NPVNPV riskrisk

Error

Error Error N P V r i s k

c a l c

N

P V

N

P V r i s k

r i s k

c a l c

c a l c

N P V

o p p r t y

N P V

N P V

o p p r

t y

o p p r

t y

Current

market price

Current

market price

Deviation Between Overall and Delta Values in theVaR (Value at Risk)



© SAP AG 2003

Market price

decreasedecreasedecrease

Market price

increaseincreaseincrease

Confidencefactor

Confidencelevel

99.90% 3.09

99.00% 2.33

95.00% 1.65

90.00% 1.28

84.13% 1.00

69.15% 0.50

50.00% 0.00

Frequency

Frequency

Change in value

[millions of DEM]

Change in value

[millions of DEM]

0

0

» 95%

» 95%

» 5%

» 5%

–0.235

–0.235

It is 95% probable that the loss is not greater than DEM 0.235 million.

It is 95% probable that the loss is not greater than DEM 0.235 mill ion.

2 x 1.65 x std deviation

2 x 1.65 x std deviat ion

VaR

Normal Distribution

Normal Distribution

Calculation of Variance and Covariance



© SAP AG 2003

It is 95% probable that the loss is not greater than DEM 0.235 million.

And it is 5% probab le that the loss is greater than DEM 0.235 mil lion. And it is 5% probab le that the loss is greater than DEM 0.235 mil lion.

Creating a

time series of standard,

normally

distributed,

independent

randomnumbers fo r

each risk

factor

Covariance

matrix

VaRcalculation

based on

a disc rete

distributionsimilar to the

Historical

Simulation

Simulatedchanges in

market price for

each r isk factor

Cholesky

breakdown

Monte Carlo Simulation



© SAP AG 2003

By the end of this unit, you should be

fami liar with the following functions:

zGrouping all relevant risk factors in the

risk hierarchy

zValue-at-risk analysis based on

a historical simulation

the variance/covariance calculations

a Monte Carlo simulation

z There is no "one true" VaR

Value-at-Risk Evaluations: Summary



© SAP AG 2003

t1 t2

P1 P2Market data

Difference

Difference

Portfolio in t1

Portfolio in t1

Value-at-Risk

Value-at-Risk

Comparison

Comparison

Unchanged

Portfolio f rom t1

Unchanged

Portfolio f rom t1

OriginalNPV for market

data in t1

OriginalNPV for market

data in t1

NPV from

changedmarket data in t2

NPV from

changedmarket data in t2

Backtesting



© SAP AG 2003

p

Backtesting: Reporting

Graphical RepresentationDetermining the differences

Drill-Down through

the portfolio

hierarchies



© SAP AG 2003

z Separation of Analysis and Reporting

z Evaluation results are permanently available

z It is possible to make additions to the results later

z Flexible Reporting on various key figures

z multiple key dates (maximum of 12)

Results Database: Highlights



© SAP AG 2003

Architecture of the Results Database

Data poo l

Market data

Filter

&

Key figures

Procedure for single records

Procedure for final resultsReporting

Archive



© SAP AG 2003

Reporting in the Results Database

Aggregatedisplay

Display of singleitems

Default Key Figures in the Resu lts Database



© SAP AG 2003

Reporting in the Results Database

VaR key figures in the Resu lts Database

Aggregatedisplay

Display of the riskhierarchy



© SAP AG 2003

Results Database: Procedure for Single Records

z Filter

z Set of values for characteristics

z Selection cri terion in the data pool

z Run mode

z Basic run

z Correction run for transactions that are created after the

single records are changed or placed in the system

z Reversal run allows the single records for thesetransactions to be re-created



© SAP AG 2003

z Basis:

Procedure for single records

Portfolio hierarchy

z 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)

z You can recalculate final results from the single records at

any time

Results Database: Procedure for Final Results



© SAP AG 2003

Credit Risk Analyzer: Course Overview Diagram



Unit 4 Transaction Manager: Foreign Exchange,

Derivatives







© SAP AG 2003

Unit 7 Credit Risk Analyzer (CRA)

Limit Management

CRA process (Limit Process)

1

11

2

22

CRA functional approach

3

33

4

44

5

55 Additional functions of Limit Management

CRA basic terms



© SAP AG 2003

CRA 1: CRA Functional Approach

Concept of SAP Credit Risk Analyzer

Basic configuration knowledge

– Determination p rocedure

– Default risk rules

– Formula s tructure



© SAP AG 2003

Who Needs to Use a Limit System?

O p er a t i v e c on t r ol

O p er a t i v e c on t r ol

G

l o b al C on t r ol

G

l o b al C on t r ol

z Traders or credit analysts are suppor ted in theassessment of existing limit speci fications.

z Customer advisers can create, release, or block limit

specifications, if necessary, for their customers.

Customer advisers can call up a current status of t he

limits, util ization, and col lateral at any time.

z Credit risk controllers can use a range of flexible

methods to measure and report on credit risk in aportfolio.

z Credit portfolio managers can assign and monitor limits

for indiv idual portfolio segments or for entire portfolios

and analyze port folios according to various cri teria.



© SAP AG 2003

Credit risk subdivided into

Sett lement r isk subdivided into

z Classic credit risk (Counterparty risk/issuer risk)

z Counterparty risk f rom the trading bookfrom t rading transactions plus a term-related and risk-related addonfor covering potential posit ive changes in market value

z Direct sett lement r isk

exists for the duration of the period between an advance payment/delivery being made and a return payment/delivery being made

z Return payment risk

What are the Subdivisions of Types of Risk?

Counterparty/Issuer Risk



© SAP AG 2003

Risk Types

Time

Exposure

End of transact ion

Settlement period

Credit Risk Settlement

risk

t1 t2

Without clearing

house

With clearinghouse

t3



© SAP AG 2003

Settlement period

SAP Solution: The Default Risk and Limit System

Si

n

g

l

e

T

r a

n

s

a

c

t

io

n

C

h

e

c

k

Si

n

g

l

e

T

r a

n

s

a

c

t

io

n

C

h

e

c

k

Transaction

closing

Limit

Check:

O.K.

End-of-Day Processing

Exposure

8.5

632.3

688.1

12.3

Limit

10.5

700.7

716.7

4.8

Partner

Euro Bank

United Bank

Carlton

Brightline

ReportingUtil. in %

80.9%

90.3%

96.0%

256.3%

Av ail . Lim it

2.0

68.4

28.6

–7.5

Limit

Att r ibut able

Amount

T

r

a

n

s

a

ct

i

o

n

M

an

a

g

e

r

T

r

a

n

s

a

ct

i

o

n

M

an

a

g

e

r

Query

mySAP

BankingCFM



© SAP AG 2003

kk

What requirements are p laced on limi t management?

• Multiple views definitely could exist in credit risk analysis. Possible views might be, for example, internal/external views or d ifferent exposure views into which one transaction canflow with different attributable amounts. That would make it possible to determineattributable amounts for the same transaction in the different risk views via differentformulas.

Summary: Flexibili ty in relation to the defini tion of viewing options

• For similar transaction types (such as fixed-term deposits and deposits at notice), it mustbe possib le to make a flexible decis ion on whether completed transactions can be includedin a credit risk analysis flow together with sim ilarly generated attributable amounts or differentially.

Summary: Flexibili ty in relation to determining attributable amounts related to produ cts

• In one view, the analyses, specifically, the comparison of an attributable amount from atransaction and the defined limit specification should occur flexibly at different levels andin various dimensions. The dimensions are determined by characteristics such as company

code, bus iness partner, traders, and others.Summary: Flexibili ty in relation to the depth of evaluations

Requirements for Limit Management



© SAP AG 2003

What requ irements 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 canflow with different attributable amounts. That would make it possible to determineattributable amounts for the same transaction in the different risk views via differentformulas.


Solu tion approach o f the SAP Credi t Risk Analyzer

=> Determi nation procedure

• For similar transaction types (such as fixed-term deposits and deposits at notice), it must bepossible to make a flexible decision on whether completed transactions can be included in acredit risk analysis flow together with similarly generated attributable amounts or differentially.

Summary: Flexibili ty in relation to determining attributable amounts related to products

• In one view, the analyses, specifically, the comparison of an attributable amount from atransaction and the defined limit specification should occur flexibly at dif ferent levels and invarious dimensions. The dimensions are determined by characteristics such as companycode, bus iness partner, traders , and others.

Summary: Flexibili ty in relation to the depth of evaluations

Addendum: Requirements for Limit Management



© SAP AG 2003

Determination Procedure

• Determination procedures describe the perspectives on risk that a risk controller,may have as part of Reporting.

• Such perspectives can, for example, be internal, or external, or Internal Exposure

with attribution of nominal value for all transactions/Internal Exposure with NPV

attribution o f 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 corresponding DRR. This results in each perspective on risk and each

transaction hav ing one s ingle attributable amount.

• Of course the same default risk ru le can be assigned to multiple determination

procedures. The assignment log ic is always 1:n . That means that a transaction canreturn various (n) attributable amounts .



© SAP AG 2003

Attributable Amount Determination



© SAP AG 2003


What requirements are p laced on limi t 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 canflow with different attributable amounts. That would make it possible to determine attributableamounts for the same transaction in the different risk views via different formulas.


Soluti on approach of the SAP Credit Risk Analyzer

=> Determi nation procedure• For similar transaction types (such as fixed-term deposits and deposits at notice), it must

be poss ible to make a flexible decision on whether completed transactions can be includedin a credit risk analysis flow together with similarly generated attributable amounts or differentially.

Summary: Flexibili ty in relation to determining attributable amounts related to produ cts

Soluti on approach of the SAP Credit Risk Analyzer

=> Default ri sk r ules• In one view, the analyses, specifically, the comparison of an attribu table amoun t from a

transaction and the defined limit specification should occur flexibly at d ifferent levels and invarious dimensions. The dimensions are determined by characteristics such as companycode, bus iness partner, traders, and others.

Summary: Flexibili ty in relation to the depth of evaluations



© SAP AG 2003

Default Risk Rules

• You define default risk rules in Customizing.

• Default risk rules automatically are ass igned to sing le transactions using a

derivation tool.

• Each transaction then receives just ONE single default risk rule.

• This sing le default risk rule serves as an ID for r isk attribut ion

• Default risk ru les can be used in general for a group of financial products(such as general money markets) or be assigned explic itly to sing le

transactions (such as f ixed-term deposit, borrow ing = DRR 1 / fixed-term

deposit, investment = DRR 2).



© SAP AG 2003

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 automat ically w hen a transact ion is determined



© SAP AG 2003


Att ributable amount

1

Financial transaction


Default risk rule

Default risk rule

Determination pr ocedure 3

(counterparty limit)



Determination procedure 2

(trader limit)


(trader limit)


(exposure)


(exposure)

Formula 3

Formula 3Formula 2

Formula 2Formula 1

Formula 1

Att r ibut able amount2

Att r ibut able amount 1

1 : :n

Assigning

det. proc. to

limit type

Probabilit ies of default


Recovery Rates

Recovery Rates

Addon factors

Addon factors

Limit speci fications



© SAP AG 2003

Formulas for determining attributable amounts

Possible formulas for determining attributable amounts

= Nominal value

= NPV

= NPV+(Nominal value*AddOn)

= NPV+(NPV*AddOn)

= Nominal value*Probabi lity o f default

= NPV*Probability of default

= NPV+(Nominal value*AddOn)*Probability of default

= Nominal value*Recovery Rate= NPV*Recovery Rate

= NPV*Recovery Rate*Probability of default

= (NPV*AddOn)*Recovery Rate*Probability of default

= (Nominal value*AddOn)*Recovery Rate*Probability of default

= NPV+(Nominal value*AddOn)*Recovery Rate*Probability of default

= 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 addons 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



© SAP AG 2003

External Basic Key Figures

SAP

External formulas

User Exit

Attributable

Amount

y Addon factor

y Probability of default

y Recovery Rate

Basic key figures

Externalbasic key figures

Externalbasic key f igures



© SAP AG 2003


Limit Management


1

11

2

22

CRA Functional Approach

3

33

4

44

5


CRA basic terms



© SAP AG 2003

Fixed-termdeposits

Deposits atnotice

Commercial

paper Interest rate

instrument Cash flow

transaction Facility

Product Types

DerivativesForeign ExchangeSecuritiesMoney Market

Stocks Subscription

rights Investment

certificates Bonds Convertible

bonds Warrant

bonds Warrants

Forex spottransactions

Forexforwardtransactions

Forexswaps

Cap/Floor FRA Swaps

- Interest rates- Currency


Futures

Hedging instrumentsInvestment/Borrowing

instruments

Selection of Financial Instruments



© SAP AG 2003

Creating financial t ransactionsCreating f inanc ial transactions

Creating business partnersCreating business partners

Customizing

Controldata

Roles Relation-ships

Generalinformation

Prerequisitesfor

Prerequisites

for

Business Partners



© SAP AG 2003


Limit Management


1

11

2

22


3

33

4

44

5


CRA basic terms



© SAP AG 2003


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 v iews into w hich one transaction can flow with differentattributable amounts. That would make it possible to determine attributable amounts for the sametransaction in the different risk views via different formulas.

Summary: Flexibility in relatio n to the definit ion of viewing options

Solution approach of the SAP Credit Risk Analyzer

=> Determination procedure

• For simi lar transaction types (such as fixed-term deposits and deposits at notice), it must be poss ibleto make a flexible decision on whether completed transactions can be included in a credit ri skanalysis flow together with similarly generated attributable amounts or differentially.

Summary: Flexibility in relation to determining attributable amounts related to products


=> Default risk rules

• In one view, the analyses, specifically, the comparison o f an attributable amount from a transactionand the defined limit specification should occur flex ibly at different levels and in v arious dimensions.

The dimensions are determined by characteristics such as company code, business partner, traders,and others.

Summary: Flexibility in relation to the depth of evaluations


=> Limit types



© SAP AG 2003

©

Limit Types

• Limit types define the depth of a risk view (or of a

determination procedure.)

• One limit type always is assigned to a determination

procedure.

• That limit type always is valid fo r a particular risk v iew

where the attribu table amounts are compared against a

limit specification.

• You can define multiple limi t 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 (Ex. 1: A TRADER cannot

trade more than n Euros in COMPANY CODE X with

BUSINESS PARTNER Y in the MONEY MARKET AREA. /

Ex. 2: The trading volume in COMPANY CODE X cannot

be greater than N Euros).

• Combining characteristics is flexible and expandable.



© SAP AG 2003

© SAP AG 2003

Limit Types with N Dimensions

Money Market

EUR 8 mi llion

Euro Bank

EUR 22 mi llion

Connor

EUR 3 mill ion

Euro Bank/money market/Connor

EUR 300,000

Germany

EUR 200 mil lion

USA

EUR 200 mil lionLT1: Country

Banks

EUR 500 mil lion

Industry

EUR 400 mil lionLT2: Industry

ForeignExchange

EUR 8 mi llion

United Bank

EUR 20 mi llion

Bauer

EUR 3 mi llion

LT5: Traders LT45: (Lim.

prod. grp./

Trader)

Bauer/Foreign Exchange

EUR 1 million

LT33: Partners/

lim. prod. grp./

traders

Germany/Banks EUR 100 mil lion

LT12:

Land/Industry

Combination of

limit charac-teristics values



© SAP AG 2003

© SAP AG 2003

Limit Types: Characteristics

The following characterist ics are available by default in the SAP system:

Company code Product type Limit product group Business Partner

Industry Traders Security ID number Country

Portfolio Currency Monitoring unit Contract type

Contract type

There are also 15 characteristics that can be defined indiv idually for evaluation purposes.

Those characteristics do not have to exist already in o ther parts of the system.

Client Characteristic 1 Client Characteristic 5 Client Characteristic 9 Client Characteristic 13

Client Characteristic 2 Client Characteristic 6 Client Characteristic 10 Client Characteristic 14

Client Characteristic 3 Client Characteristic 7 Client Characteristic 11 Client Characteristic 15Client Characteristic 4 Client Characteristic 8 Client Characteristic 12

Up to 50 characterist ics also can be taken directly from tables or from the Market Risk

Analyzer and be made availab le in the Credit Risk Analyzer.



© SAP AG 2003

© SAP AG 2003

Att r ibut able amount

3




Default risk rule

Default risk rule






(trader limit)

Determinati on procedure 2

(trader limit)


(exposure)


(exposure)

Formula 3

Formula 3Formula 2

Formula 2Formula 1

Formula 1

Att ributable amount

2



Recovery Rates

Recovery Rates

Addon factors

Addon factors

Limit t ype 3 – DP3 Counterparty

(Co. Code/BP)

Limit type 2 –DP2 Trader limit

(Co. Code/Trader)

Limit speci fication 3



Limit t ype 1 – DP1 Exposure

(Co. Code/BP)

Att ribut able amount 11: :n Assigning det.

proc. to limit type

You can assign a

determinationprocedure tomultiple limit t ypes

with various

evaluation

hierarchies.



© SAP AG 2003

© SAP AG 2003


Limit Management


1

11

2

22


3

33

4

44

5


CRA basic terms



© SAP AG 2003

© SAP AG 2003

Online Limit Check

Limit specificationsz Limit characteristic values

z Combinations of limit characteristic values

Limit exposure evaluation

CRA 4: CRA Process (Limit Process)

End-of-day processing



© SAP AG 2003

© SAP AG 2003

Limit Types and Limit Specifications

Combination of characteristics

values that determines the

depth of evaluation.

You can use the Validi ty Periodto scale and archive limits over

time.

Critical limit utilizations createwarning messages when the

corresponding utilization isreached.

Max. risk commitment periodsallow you to restrict limit

values related to term.

• Example: No more transactions may be concluded with counterparty DST Bank

(KONT_DST) in company code CFM1 that exceed a volume of EUR 10 million



© SAP AG 2003

© SAP AG 2003

Example of Determining Exposure

Transaction

Transaction

Default risk ru le

Default risk ru le

DP04 – Expected Loss

DP04 – Expected LossDP03 – External

Gross Exposure

DP03 – External

Gross ExposureDP02 – Internal

Gross Exposure

DP02 – Internal

Gross ExposureDP 01 – internal

Net Exposure

DP 01 – internal

Net Exposure

LT04/DP01 –Company code/

Trader/BP/Product t ype

LT04/DP01 –Company code/

Trader/BP/Product t ype

LT03/DP01 –Company code/ BP/

Product type

LT03/DP01 –Company code/ BP/

Product type

LT02/DP01 –Company code/BP

LT02/DP01 –Company code/BP

LT01/DP01 –company code

LT01/DP01 –company code

EUR 100,000,000

EUR 100,000,000EUR 10,000,000

EUR 10,000,000EUR 2,000,000

EUR 2,000,000EUR 1,000,000

EUR 1,000,000

Fixed term depositBP = Deutsche Bank

Trader = Müller

Deposit EUR 2,000,000

Fixed term depositBP = Deutsche Bank

Trader = Müller

Depos it EUR 2,000,000

Att ibut able amount = EUR 2,000,000 = Nominal v alue

Limit not exceeded

Avail . limit : 98 mi ll ion

Limit not exceeded

Avail . limit : 8 mi ll io n

At t he l imit

Avail . Limit : 0

=> Warning message

Limit exceeded

Avail . limit : –1 mill ion

⇒Warning message

⇒Message sent to pers onsresponsible



© SAP AG 2003

Limit Utilizations: Online Check when CreatingTransactions



© SAP AG 2003

End-of-Day Processing

z 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 relevantlimit characteristic value combinations accordingly.

z Any errors are written to a processing log.

z The attribution of default risks reduces the available limit

(the difference between the limit and the limit utilization).



© SAP AG 2006

Limit Exposures

Breakdown of the total limit utili zation at the level of single transactions

Limit exposure at the counterparty level



© SAP AG 2003


Limit Management


1

11

2

22


3

33

4

44

5


CRA basic terms



© SAP AG 2003

Consideration of corporate relationships

Interim Limits

CRA 5: Additional Functions of Limit Management

Release procedure

Reservations



© SAP AG 2003

Interim Limits

Limit

amount

Time

Interim limit 1

Specified Limi t

Interim lim it 2

• Interim limits are used for t he organizational approval process

• Interim limits are temporary limit adjustments (such as in the Trading area)

• You can create multiple interim lim its that overlap chronologically.

• Interim limits can eventually become permanent limits



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 limi ts 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.



z Limit release according to the dual control principle

Two di fferent users

Changes move the release back one step

not released (Status 0)

flagged (Status 1)

released (Status 2)

Release Procedure



Appendix 1



z User guide

z Options for help

z User-specific settings

Contents:

Addendum: SAP Navigation



Logging On to the System

For logon problems,

please contact your user administrator, Tel.:. 1972

You can define your own text

to be displayed on the initial screen:

See SAP note 205487



Menu Edit Favorites Extras System Help

Other menu Create role Assign users Documentation

DEV (1) (100) TWDF0670 OVR

URL - SAP Service Marketplace

Favorites

SAP Easy Access

SM50 -Work Process Overview

SM04 - User List

Role SAP_BC_BASIS_ADMIN

System: Running Operation

System Configuration

Performance Analysis

Problem Analysis

Overview

RZ20 - CCMS Monitoring

Details

Role-Based User Menu

A user menu contains the activities that

the user is al lowed to perform according

to his or her role in the system

User-defined favorites

shorten navigation time



Maintaining Your Own User Profiles

User Edit Goto System Help

Maintain User Profi le

User

Last changed by

ESCH

MENZEL 08.12.2002 21 : 46 : 37 Status Saved

Address Defaults Parameter

StartMenu

Logon language

Output Controller

OutputDevice

Output immediately

Delete 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 zone

CET

CATT

Test status

Input fieldsCheckboxesRadio buttons

Title bar

Standard toolbar

Menu bar

Application toolbarCommandfield

DEV (1) (100) TWDF0670 OVR

Status bar

Tab page



© SAP AG 2003

Calling System Functions

Menu Edit Favorites Extras

SAP Easy Access

Other menu

Favorites

URL - SAP Service MarketplaceSM50 - Process Overview

SM04 - User List

Role SAP_BC_BASIS_ADMIN

System: Running Operation

System Configuration

Performance Analysis

Problem AnalysisOverview

RZ20 - CCMS Monitoring

Details

Create session

End session

User profile

Services

Utilities

List

Services for object

Object history

Ownspool requests

Own jobs

Short message

Status...

Log off

System

Command field

SAP Easy Access and favorites list

Menu



© SAP AG 2003

Field Help: F1, F4

F4 HelpF1 Help

Meaning of

fields and

technical

Information

Display of

possible

entries

Language (1)38 Entries found

Restrictions

Lang... Language

AF

AR

BG

CS

DA

DEELENES

ET

FI

FR

HE

HR

HU

ID

Afrikaans

Arabic

Bulgarian

Czech

Danish

GermanGreekEnglish

Spanish

Estonian

Finish

French

Hebrew

Croatian

Hungarian

Indonesian

Address Defaults

StartMenu

Logon language

Output Controller

OutputDevice

Print parameter 2

Indicates whether spool requests are printed immediately.

Select this field to print your spool requests immediately.

Leavthe field blank to retain spool requests in the spoolsystem until they are released. To release these spoolrequests for printing, you can use System ->Services ->

Output controller .

Performance Assistant

Output Controller

OutputDevice

Output immediately

Delete after output

Personal time zoneCET

CATT

Test status



© SAP AG 2003

Tools

U S ifi P li ti



© SAP AG 2003

User-Specific Personalization

Office

Information Systems

Tools

SAP menu

Favorites

Other menu

SAP Easy Access

Menu Edit Favorites

Create role Assign users DocumentationSet start transactionSettings

Technical details

Display documentation Shift+F6

Ctrl+Shift+F10

Shift+F9Shift+F7

Extras System Help

Settings

This is used to specify settings

Display favorites at end of list

Do not display menu, only display favorites

Do not display picture

Display 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

SapguiHelp

About ...

A range of sett ings simpl ifiesworking wi th the system



© SAP AG 2003

SAP Library

SAP Library

SAP Web Application Server, Release 6.10, June 2001

©Copyright2001 SAP AG. All rights reserved.

SAP Library

Getting Started

SAP Web Application Server

SAP Knowledge Management

Help on Help

Help on the Web

Copyright

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

A di 2



© SAP AG 2003

Appendix 2

B i P t F ti d R l



© SAP AG 2003

Business Partner: Functions and Roles

Person

Organization

Issuer Issuer Depository bankDepository bank

Trust companyTrust company

Payer/payeePayer/payee

Assigning inst itution Assigning inst itution

Guarantor Guarantor

Borrower Borrower

Agent/counterparty Agent/counterpartyNotaryNotary

Surveyor Surveyor Interested party

Counterparty

Beneficiary

Forex Spot Transactions/Forward Exchange



© SAP AG 2003

Forex Spot Transactions/Forward ExchangeTransactions

z Spot Transactions

Due immediately, that is, on the second bank workday afterconclusion of the contract

Purpose: mainly for processing international payment transactions

z Forward Transactions

Settlement 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 calculationbasis, especially in international trade

Reporting



© SAP AG 2003

Reporting

; Parallel Position Management

; Reporting Positions

– SAP list v iewer disp lay

– Branch to the position flows

– Branch to the posting journal– Determine the pos itions per valuat ion area at the key date

Flows

– Branch to the posting journal

– Branch to the or iginal business transaction

– Al l business transaction flow s f rom the TR ledger

Posting journal

Valuation



© SAP AG 2003

Example: Forward Exchange TransactionExample: Forward Exchange Transaction

Forex transaction: USD/EUR

Contract date: 03/01/YY

Value date: 05/31/YY

USD purchase amount: USD 1,000,000 (Forward rate)

EUR sale amount: EUR 1,700,000

Spot rate: 1.65

Forward rate: 1.70

Valuations on 03/31/YY and 04/30/YY

Final valuation on 05/31/YY

Local currency = EUR

Valuation

Valuation



© SAP AG 2003

First valuation: 03/31/YY

Second valuation: 04/30/YY

End valuation: 05/31/YY

Forward rate: 1.70 Local currency = EUR

Date Forward rate EUR Unrealized Realized

03/01/YY 1.70 1,700,00003/31/YY 1.65 1,650,000 – 50,00004/30/YY 1.72 1,720,000 + 20,000

05/31/YY 1.69 1,690,000 – 10,000

Example: Forward Exchange Transaction

Valuation

Valuation: G/L Accounting



© SAP AG 2003

Provision LiabilitiesProvision Assets

EUR bank account

Balance sheet

P&L

First valuation: 03/31/YY

Unrealized loss

50 T1

Clearing account

USD bank account

Realized loss Realized prof it

Unrealized prof it

Forward rateon conclusion: 1.70

Forward rate

on market: 1.65

50 T 1

Creation of passive prov ision and

disp lay of unrealized loss





© SAP AG 2003


EUR bank account

Balance sheet

P&L

Unrealized loss

50 T

Clearing account

USD bank account


Unrealized prof it

1

20T

20 T

2 50 T 150 T2

50 T 2 2


Forward rate

on market: 1.72

Writing-off of pass ive provisions,

creation of active prov isions, disp lay

of unrealized prof it

Second valuation: 04/30/YY





© SAP AG 2003



20 T

EUR bank account

Balance sheet

P&L

Realization: 05/31/YY (after posting the transaction, the system creates a

derived business transaction)

Unrealized loss

50 T

Clearing account

USD bank account


Unrealized prof it

3

1

50 T20 T

20 T

2

2

2

1.70M EUR

1M USD

1.70M EUR 1M USD

10 T3

10 T3

50 T 1

50 T 2 20 T3


Spot rate

on market: 1.69

Currency Options



© SAP AG 2003

z The purchaser acquires the right (the seller accepts the obligation) to buy

(seller: supply) or sell (seller: accept)- at a certain time (European opt ion) or

w ithin a certain time period (American option).

z - a certain foreign currency amount (underlier).

z - at a certain price (strike price).

z For th is r ight, the buyer pays the vendor an opt ion premium.

z The vendor of the option then has the obligation to deliver (or take delivery of)

the currency amount.

z Calls: Purchaser acquires the right to buy (seller must deliver).

z Puts: Purchaser acquires the right to sell (seller must buy).

z Cash sett lement or physical settlement (delivery / take delivery)

Currency Options

Derivatives: Exercise OTC Currency Options 1 and 2



© SAP AG 2003

Derivatives: Exercise OTC Currency Options 1 and 2

OTC Currency Options1 and 2

Derivatives: 4 – Futures



© SAP AG 2003

Master Data

Futures account

Transaction entry

Margin Management

Derivatives: 4 Futures

Futures



© SAP AG 2003

z Master data

Maintain class data/assign exchanges

Futures account

Futures account – class position

z Enter security prices

z Transaction entry

OPEN transaction

CLOSE transaction

z MARGIN Management

z Determination of exchange rategains with Close transactions

Master Data



© SAP AG 2003

SecuritiesSecurities

FuturesFutures Interest RateInterest Rate

Index warrantsIndex warrants

Futures Account



© SAP AG 2003

Company code

Futures account

Name

TRXX

POS_01_DB

Futures account _01_DB

Bank information

Depository bank

Clearing account

Futures account no.

House bank

House bank

House bank acct.

2222444644555666

DEUBA

DB

GIRUN

Bank data

Management un it

Position Management

Futures account – class pos ition Information for

margin calculation

Transaction Entry: Open and Close



© SAP AG 2003

Open purchase

Open sale

Close sale

Close purchase

FUTUREFUTURE

Setting w ithSetting w ith

consumption followconsumption follow --up actionup action

(LIFO or FIFO etc. or manually)(LIFO or FIFO etc. or manually)

Offset by:

Margin Management



© SAP AG 2003

OPENtransaction

– Purchase – Sale

OPENtransaction


Variation marg in

– Accounting – Daily

Variation marg in

– Accou nting – Daily

CLOSEtransaction


CLOSEtransaction


100

101

98.5

t1 t2 t3 t4

Price rate

Days

+VM

–VM

Appendix 3



© SAP AG 2003

Create Class: Create Convertible Bond



© SAP AG 2003

ID number

Issue

Issuer

Nominal value

Conversion

Reference securi ty

118900 Convertib le bond 99/03

Basic Data

Premium Conversion period Conversion ratio

Amount

Currency EUR

from

to

Numerator

Denominator

2

1

100

Create Class: Create Warrant Bond



© SAP AG 2003

ID number

Nominal value

...

Option

Cum / Ex Number of warrants

Bond ex

Equity

119805 Warrant bond 00/05

Basic Data

cum

213200

548432

5

1000

Class Master Data: Create Warrant



© SAP AG 2003

ID number

Underlying

ID Number

Exercise price Currency

242385 Warrant ...

Basic Data

Structure

Option category

Settlement

Call

Delivery

Exercise

Exercise type

Exercise min imum

Option ratio

Numerator

Denominator

from

toEuropean

Note: Restraint on Disposal



© SAP AG 2003

NewNew

sec. acctsec. acct

ExistingExisting

sec. acctsec. acct

Create andCreate and

locklockLockLock

sec. acctsec. acctPartlyPartly

locklock

positionposition

or or

In Customizing: Define blocking flagsIn Customizing: Define blocking flags

Closing Operations: Manual Valuation



© SAP AG 2003

Capital Increase from Retained Earnings



© SAP AG 2003

800 stocks ID no. 444 444

Capital increase from retained earnings

RatioRatio

RatioRatio

Numerator 4Numerator 4

Denominator 1Denominator 1

Select posi tion

No.units old No.units newSec. acct ID

10001000800800Deuba Acc1Deuba Acc1

Execute

Capital increase for ID no. 444 444 executedCapital increase for ID no. 444 444 executed

Result : 1000 stocks ID no. 444 444

Stock Split



© SAP AG 2003

1000 stocks ID no. 444 444Nominal value EUR 50Rate EUR 560

Sec. acct ID No. units old No. units new

Stock Spli t

Split ratioSplit ratio Numerator Numerator 11

Split ratioSplit ratio Denominator Denominator 1010

Select position

Deuba Acc1Deuba Acc1 10001000 10,00010,000

Execute

Stock split for ID no. 444 444 executedStock spl it for ID no. 444 444 executed

Result: 10,000 stocks ID no. 444 444

Capital Reduction



© SAP AG 2003

10,000 stocks ID no. 444 444

Capital Reduct ion

RatioRatio Numerator Numerator 1010

RatioRatio Denominator Denominator 11

Select posi tion

Sec. acct ID No. units old No. units new

Deuba Acc1Deuba Acc1 10,00010,000 1,0001,000

Execute

Capital reduction for ID no. 444 444 executedCapital reduction for ID no. 444 444 executed

Result: 1000 stocks ID no. 444 444

Stock Swap



© SAP AG 2003

1,000 stocks ID no. 444 444

Stock Swap

Swap ratioSwap ratio Numerator Numerator 1010 Denominator 1Denominator 1

Old ID number: 444444 new ID number 111111Old ID number: 444444 new ID number 111111

Select posi tion

Sec.acct ID 444444 111111

Deuba Acc1Deuba Acc1 1,0001,000 100100

Execute

Stock sw ap for ID no. 444444 / 111111 executedStoc k sw ap for ID no. 444444 / 111111 executed

Result: 100 (more) stocks ID no. 111111

Exercise Rights



© SAP AG 2003

•Exercise convertible bond

•Exercise warrant

•Detach warrant bond

•Exercise subscription right

•Give notice on bonds

• ID Number

•Specific data depending

on r ight to be exercised(such as term, exercise

price for warrant)

Header data

Rights

For example,

•Exercisewarrant

•Expiration

Position

•Nominal amount

•Number of units

•Units to be exercised

and so on

Convertible Bond: Overview



© SAP AG 2003

Prerequisites

Convertible bond in position

(Partly) exercise convertible bond

Stocks in position

Stock classPI stock

Equity Warrants: Overview



© SAP AG 2003

Prerequisites

2

Warrant in position

(Partly) exercise warrant

Cash settlement

Delivery

1

Class underlying

PI underlying

Warrant Bonds: Overview



© SAP AG 2003

Warrant bond cum in position

Class bond ex

PI bond ex

Class w arrant

PI warrant

Stock class

PI stock

(Partly) detach warrant bond

(Partly) exercise warrant

Warrant bond ex in positionStocks in position

(Warrant bond cum in position – if required)

Prerequisites

Calculation of Forward Interest Rates



© SAP AG 2003

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

– 102.05100.49

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.

Depicting Volatilities



© SAP AG 2003

Volatility typesVolatility types

Customizing:

Define Volatili ty Type

z Bid/middle/ask c lassification

z Characterization as individual or

average volatility for caps/floors

Volatility nameVolatili ty name

Customizing:

Master Data for Volatil ities

z You can indiv idually assign

volatilities to options

z Assignment v ia evaluation-

type/valuation rule

Moneyness



© SAP AG 2003

Moneyness =Moneyness = Strike – Current rateCurrent rate

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

Graphical Yield Curve Maintenance in the Scenario



© SAP AG 2003

SAP Statistics Graphic

Scenario High InterestPercent

EUR

0990

Individual Shift

Rotation

Total Shift

Mirror Image

InterpolationEUR 09906.5.

2.

4.3.

1.0.

SAP Presentation Graphic

DEM 09 90

Graphical Yield Curve Maintenance: Examples



© SAP AG 2003

Interest

RateInterest

Rate

TermTermGrid point Grid point Grid point

Mirror Image Rotation(with shi ft)

Fixing for mirro r

axis

Fixing of center of

rotation

Shift for

rotation

M k t d t t th SAP t i th f l l i

Market Data Maintenance



© SAP AG 2003

z Manual entry

z File interface

z Datafeed

z The following price information can be, among other things, imported into the SAP

system with a datafeed:

z Exchange rates

z Securities prices

z Reference interest ratesz Index values

z Volatilities

z 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.z 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.

z 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 fol lowing ways:

Portfolio Hierarchy



© SAP AG 2003

Corporate groupCorporate group

Accounts AccountsMoney

market

Money

market

BondBond

Zero bondZero bond

Floater Floater

Accounts AccountsMoney

market

Money

market

BondBond

Zero bondZero bond

Floater Floater

New York branchNew York branchCologne branchCologne branch

Forex Exposure



© SAP AG 2003

z Payment f lows from the operating business activity

contain currency and interest rate r isks.z The forex exposure displays the amount that a

currency risk is subject to.

z In CFM, operative cash flows are carried out in the

SAP system with Cash Management.

z Cash flows fromCash Management

are integrated by the

creation of r isk objects.

Absolute, Relative or Logarithmic Changes inthe VaR



© SAP AG 2003

t1 t2

8.0

For example:10 annual

record8.5

Logarithmic change:

– –11 ==6.25%6.25%8.0%8.0%

8.5%8.5%

Relative change:

lnln

Absolute change:

8.5% – 8% = 0.5%

That raises theThat raises the

question, for example:question, for example:Is an interest rate change with aIs an interest rate change with a

low 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%

Financial Objects as Technical Requirements



© SAP AG 2003

• Financial objects are created 1:1 for each transaction. They are

AUTOMATICALLY created w hen sav ing the transaction.

• Financial objects carry the information that is necessary for evaluations in theMarket 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 info rmation consists o f characteristics (such as company code, portfo lio,business partner ........), that characterize an individual transaction and allow

you to perform evaluations w ith characterist ic hierarch ies.

• The characteristics are automatically derived from transactions, related

business partners, or with your own set of rules to fulfill the individual

reporting requ irements of a company.

• The user does not need to play an act ive roll in generating f inancial objects.

Parts of a Financial Object



© SAP AG 2003

Financial object for transaction 3



General part

•Company code

•Object number

•Status

•Product type

•Source system

•Management data

Single transaction

costing part

• Transaction start/end

•Bank product

•Commission

RM par t

•RM area

•Summarization rule

•Valuation rule

External key figures Addit ional data

Limit part

•Counterparty Risk Active

indicator•Country Risk Activeindicator*

•Default risk rule

•Limit product group

•Monitoring unit

•Country risk information*

Additionally for positions:

• Trader

•Portfolio

Collateral Provisions



© SAP AG 2003

z Collateral agreements

At tr ibuti on in l imit management

(displayed in the single records of the limit utilization)

You can define col lateral value as an amount, percentage

or securities (stocks, bonds)

z Single-transaction-related collateral

Possible limit characteristics :

Company code, business partner, limit product group

No attribution from the single transaction check

At tr ibuti on in l imit management(displayed in the single and totals records of the limit util ization)

z Global col lateral provision

Limit Maintenance Locking Concept



© SAP AG 2003

z There are two options for lock ing limits.

You can lock ind ividual limits for a limit type.

Mass locking by all limit characterist ics is possible, that is, all limitsw ill be locked that are assigned to these limit character istics.

z With the single transaction check / integrated default risk limit check, acorresponding message will be displayed for locked limits.

z Locked limits are indicated by a lock in reporting.

z Documentation in change documents.

Selecting t he limit

Valid from Valid to Internal limit External limit Limit currency ProvDate Prov Rec Note(t)

400 CoCd, BP 0001 Eub a Euro Bank

01/01/01 12/31/9999 500,000.00 400,000.00 EUR Freiberger re leased

Lock/Unlock

Limi t type Descri pt. Lock CoCd Partner Name Note

Result: Lock set!

2

1

Reservations



© SAP AG 2003

z With the reservation function you can lock a free limit without

closing an actual transaction A reservation increases the limit utilization for all specified l imit

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 beable to differentiate them from transactions

Appendix 4



© SAP AG 2003

Special Topics



© SAP AG 2003

Release workflow

Links between market places and BAPIs

Links to external confir mation systems

Release Workflow: Overview Graphic

S f



© SAP AG 2003

1. Approval

or rejection

1. Approval

or rejection

1. Approvalor rejection

Start Workflow

Release

One-step

Approval

Two-step Three-step

Approval Approval

2. Approval

or rejection

2. Approval

or rejection

3. Approvalor rejection

A AR R

A

R

A

A

A

R

R

R

Inbox

Inbox

Inbox

If a transaction is rejected, it can be changed/reversed

Release Workflow: Customizing I



© SAP AG 2003

.... Release procedures

:....... Release conditions

Company code 1000 IDES AG

Release procedurePType TType Rel.Proc.51A 100 ; 51B 100 ; 60A 101 ;

.... Release procedures:........Release conditions Company code 1000 IDES AG

PType 51B FT Depositntern TType 100 Deposit

Release ConditionsACat Act. Release

crtd..

Release level Trans. processing

10 01 ; 1 1

Release Workflow: Customizing II



© SAP AG 2003

Display standard role 20000034 (TRTMTR_DEAL)

Creating responsibi lit ies Example:

Employee assignment

Treasury Workflow 1st of two steps

Activating event linkage

Description from to

Product Type 51B

Transaction Type 100

Current approval level 1Release steps 2

Company Code 1000

BAPIs: Standardized Interfaces for Business Objects



© SAP AG 2003

SAP Business Objects (BO) arecentral to the SAP system. They hold data

and are a component of business processes

due to their methods:


Appl ication X

BAPIsBusiness Application

Programming Interface

BAPI

BAPI

BAPIs for Financial Transactions



© SAP AG 2003

FinancialFinancial


BAPI

BAPI

BAPI

Products:•Spotexchange andForward Transactions

•Fixed-term deposits anddeposits at notice

•Commercial Paper•Securityorder

Products:•Spotexchange andForward Transactions

•Fixed-term deposits and

deposits atnotice

•Commercial Paper•Securityorder

Processes:•Support for the principal steps in the processing of financialtransactions

•Forexample: creating, changing, displaying and reversing

Documents

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