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FSC010SAP
FSC010 SAPTreasury
Treasuryand
Processes
Risk Management Processes
FSC010
SAP Treasury and Risk Management Processes
THE BEST-RUN BUSINESSES RUN SAP
© SAP AG©2003
SAP AG 2005
mySAP ERP 2004

2005/Q2
50074195
© SAP AG FSC010 1
Copyright
Copyright 2005 SAP AG. All rights reserved.
No part of this publication may be reproduced or transmitted in

any form or for any purpose without the express written consent
of SAP AG. The information contained herein may be changed
without prior notice.
© SAP AG 2003
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SAP, R/3, mySAP, mySAP.com, xApps, xApp and other SAP products and services named in this
document, and the respective logos are trademarks or registered trademarks of SAP AG in Germany
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The information contained herein may be changed without prior notice. These materials are provided
by SAP AG and its affiliated companies ("SAP Group") for informational purposes only. The SAP
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© SAP AG FSC010 2
Target group
z Participants:
Project leaders
Project team members
Consultants
Users
z Duration: 5 days
© SAP AG 2003
User notes
The training materials are not intended for self-study but rather as a supplement to the information
provided by the trainer. Therefore, you can use the ample space in the material for your own notes.
The exercises are only a supplement to the examples used in this course. There may not be sufficient
time to complete all the exercises during the course. If this is the case, you can use the exercises after
the course to practice what you have learned.
© SAP AG FSC010 3
Course Overview
Contents:
z Course Goals
z Course Objectives
z Contents/
Course Overview Diagram
z Main Business Scenario
© SAP AG 2003
© SAP AG FSC010 1-1

Course Goals
This course will prepare you to:
z Create and manage process-oriented transactions in

Transaction Manager, Market Risk and Credit Risk
z Configure and carry out typical business processes
in these areas.
© SAP AG 2003

Course Objectives
z By the end of this course, you will be able to:
z Use the support tools for back-office processing

z Describe the interrelationships in SAP CFM
Transaction 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
© SAP AG 2003

Course Overview: Units
Unit 1 Course Overview
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
© SAP AG 2003

Main Business Scenario
z You want to get an initial overview of the

components of Transaction Manager, Market Risk
Analyzer and Credit Risk Analyzer.
z You will learn about the business processes within
the components.
z You are currently using or have successfully
implemented the SAP R/3 FI module. You now want
to set up a system to manage short, medium and
long term company liquidity and make use of risk
management facilities.
© SAP AG 2003
You are a member of a project team, which will make both basic and all other settings required for
mapping financial transactions in Corporate Finance Management.

Transaction Manager: Basics


Derivatives
© SAP AG 2003

SAP Treasury overview
Identifying processes in Treasury
Corporate Finance
Management functions
(treasury and risk Management)
Overview of financial instruments
Business partner
Standing instructions
Banks
© SAP AG 2003

Transaction Manager Basics:
Unit Objectives
By the end of this unit, you will be able to:
z Give an overview of SAP Treasury

z Explain the various corporate finance management
processes and the standard functions of SAP CFM
z Process your SAP business partner
z Explain the role categories used in SAP Business Partner
CFM and create business partner relationships
z Set up standing instructions and define authorizations for
business partners
z Differentiate between banks in general,
business partner banks and house banks
© SAP AG 2003

SAP Corporate Finance Management: Overview
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 AG 2003

SAP Treasury: Transaction and Risk Management
Priority Objective Company

Weighting
1 Ensuring liquidity 95
2 Optimizing finance costs 92
3 Optimizing yields on financial assets 74
4 Securing costs (example: against
possible exchange rate fluctuations) 61
5 Securing turnover (example: against
possible exchange rate fluctuations) 52
6 Profit contribution with active
management of open positions 30
Transaction Risk
Manager Management
%
© SAP AG 2003
SAP Treasury tasks and their distribution in both areas of Transaction Manager and Risk
Management can collectively be derived from the company objectives: with Transaction Manager
you can optimize yields and cost structures, and with Risk Management secure against market and
credit risks.
Transaction Manager supports financial transaction and position management.
You can use Market Risk Analyzer to analyze interest rates, currency ands stock risks.
Credit Risk Analyzer helps you assess credit risks and includes an Online Limit Check.

Configuration of SAP Treasury Components
Corporate Headquarters – Treasury

Analyzer
Financial Credit Market nn Information
Markets Risk Risk System
Analyzer Analyzer
Money Foreign
Securities Derivatives
Market Exchange
Business Transaction Manager

Financial
Partner
Accounting
© SAP AG 2003

Transaction Manager
Transaction
Manager
Asset Management
Organization
Money
MoneyMarket
Market
Treasury ...
Organization HGB (German
Commercial Code)
Front US GAAP
Forex
Forex Front
Office
Office
Middle
Middle
Office
Office
Securities
Securities
Back
Back
Office
Office
Derivatives
Derivatives
© SAP AG 2003
Contracting financial transactions is one of the fundamental tasks of many financial departments.
Depending on corporate policy, emphasis may be placed on providing an internal service for sibling
companies or on actively investing liquid funds, financing planned investments, or hedging existing
risks in the financial markets.
Transaction Manager provides you with the necessary tools for all related transactions, from creating
to transferring relevant finance accounting data. This supports both conventional treasury and asset
management departments with a trading-related focus. This gives you the advantage of being able to
execute all types of transactions – from short-term financing to strategic long-term investments – all
on the same platform.

Transaction Manager: Functions
z Comprehensive management of financial transactions and

positions
Trading and back office support
Monitoring, checking, and releasing
Data transfer to financial accounting
(including accruals/deferrals and valuations)
z Flexible configuration of company-specific transaction and
position management processes
z Assignment of financial transactions to portfolios or
management in securities accounts
z Flexible reporting and portfolio analysis
z Data interface
© SAP AG 2003

Transaction Manager: Basic Functions
Financial Transactions Structure

FI
Central Data
Financial example: business partner, banks
accounting
AM
Money Market Derivatives
Investment Forex Securities
accounting
CO
Central Functions
Controlling examples: trader/user, currencies, correspondence,
financial mathematics, posting logic, payment
transactions, workflows, archiving, market data,
information system
© SAP AG 2003
The central functions of Transaction Manager are:

y Structuring financial transactions (example: product categories such as deposits, overnight money
etc.)
y Central data (example: business partner with all authorizations and the bank data for the business
partner's payment details)
y Central functions (see slide).
Transaction Manager also supports standardized interfaces for Financial Accounting, Cash
Management, Market Risk Analyzer, Credit Risk Analyzer, Market Data Binding.

Sample of a Range of Financial Instruments
Product Types
Investment/Loan
Instruments Securing instruments
Money Market Securities Forex Derivatives

Fixed-term Stocks Forex spot Cap/Floor
deposits Subscription transactions FRA
Deposits at rights Forex Swaps
notice Investment forward - Interest rates
Commercial certificates transactions - Cross currency
paper Bonds Forex swaps interest rates
Interest rate Convertible OTC options
instrument bonds - Currencies
Cash flow Warrant bonds - Interest rates
transaction Warrants - Securities
Facility - Swaption
Futures
© SAP AG 2003
Within short-term transactions, money market or foreign exchange transactions provide the
option of bridging liquidity deficits or surpluses. For mid- and long-term, investments and
borrowings are represented by securities transactions.
Derivative financial instruments, on the other hand, help you secure against interest rate and
currency risks.

Identifying Processes
Revenue/
Risk Goals Feedback
Revision of Corrective
planning data measures
Analysis Decision
(planning)
Financial
Analysis and
trading process Transactions
Transaction and position

management process
Documentation and control functions

© SAP AG 2003
From a strategic point of view, the analysis and trading process is the starting point for the various
Treasury processes. For example, the risk positions of the risk objectives you have set are identified
and analyzed.
Once you have decided to complete certain financial transactions, you enter the trading processes for
these transactions in Transaction Manager. Transaction Manager also supports the management of
other transactions and the generated financial positions.
A range of documentation and control functions are available for all Treasury activities. You can
perform evaluations for specific instruments or across the whole system to ensure that the various
documentary and control tasks of corporate finance management and financial accounting are
conducted accurately.

Transaction Manager:
Transaction and Position Management Process
Release
Trading Back Office Accounting
Create offer/order/ Settlement/Control Postings

contract Interest rate adjustment Payment
Exercise/expiration Netting transactions
Terminations Referencing Reversals
Rollovers Confirmation Letters Accrual/Deferral
Exercising rights Securities transfer postings Valuations
Corporate actions
User Authorization
Limit Management
© SAP AG 2003
In transaction and position management, the following areas are differentiated:

y In Trading, you create transactions and exercise rights.
y In Back Office, you settle transactions, that is, you check entered transactions and carry out
position management-related processes, such as securities transfers.
y In Accounting, you carry out all bookkeeping for relevant activities in the subledger and transfer
posting information to the Financial Accounting general ledger.

Market Risk Analyzer
Currency
Currencyrisk
risk Interest
Interestrate
rate risk
risk Stock
Stock risk
risk
Market risk procedure Organizational elements

Cash flow analysis Reporting characteristics
Value at risk Structured products
Sensitivities Flexible portfolio hierarchies
Mark-to-market Business areas
Interest/Currency exposure
Decision support and simulation

Fictitious transactions
Market data scenarios
© SAP AG 2003
In addition to conventional financial management tasks, such as cash management, ensuring

liquidity, and liquidity management, controlling market risk plays a crucial role in ensuring a
company's competitiveness. For these activities, Market Risk Analyzer offers comprehensive
position analysis, such as mark-to-market valuation of financial transactions.
Additionally, risk or performance figures, such as exposure, future value, effective interest rate and
effective rate, internal rate of return, sensitivity, and value at risk can be determined. Both contracted
positions and fictitious financial transactions can be included in the reporting functions for these
variables.
Valuations can be based on either real or simulated market prices. As well as a high level of
flexibility for organizing reports, Market Risk Analyzer provides a reliable valuation basis for
market risk controlling.

Credit Risk Analyzer
CFM
CFM Transaction
Transaction Manager
Manager
Limit OK Transaction con-

clusions: updating
Characteristics check
limits
z Integrated online limit check

Credit Risk
z Analysis, measurement and Analyzer
control of credit and settlement
risks
z Company-wide limit attribution
z Determining attributable
amounts with flexible Reporting
formulas Partner Exposure Limit Free Limit Util. in %
Euro Bank 8.5 10.5 2.0 80.9%
z Netting & collateral United Bank 632.3 700.7 68.4 90.3%
Carlton 688.1 716.7 28.6 96.0%
Brightline 12.3 4.8 -7.5 256.3%
© SAP AG 2003
The tightening of regulations on risk control internationally confirms the growing importance of
analyzing and limiting insolvency risk. System support is also necessary for measuring, analyzing,
controlling and limiting counterparty default risk for other business considerations.
Credit Risk Analyzer is designed to meet all of these requirements with the objective of provide you
with comprehensive support for controlling counterparty default risk. The first release covers the
specific risks related to your company's financial transactions. Further releases will concentrate on
integrating the sales/accounts receivable area. This will enable company management to recognize
credit risks when they arise and avoid them.

Reports
100
80
60
Graphical reports
40
20
0
A B C D
Classic drilldown report
A B C
18,234.97 27,276.08 87,751.84
Object list 29,932.07 38,373.42 32,756.44
... ... ...
© SAP AG 2003
Many evaluations offer a selection of different formats for data output.

Business Partner: Standing Instructions
z Before you can conclude financial transactions with

a business partner, you must create the partner
in the system. SAP Business Partner will help you
do this.
z In addition, you want to authorize specific business
partners only for certain transactions.
z How can you automatically get suggestions for
business partner settings when creating transactions?
© SAP AG 2003
mapping financial transactions in corporate finance management.

Business Partner: Definition
z A business partner is a person or legal entity with

whom/which you have a business relationship.
z There are 3 different business partner categories:
Organization
Group
Person
Organization
© SAP AG 2003
A business partner is a person, organization or group of persons/organizations with which your

company can have a variety of relationships.
Business partners are divided into various categories, which each have different attributes. CFM
differentiates between
- persons (examples: private individual, broker)
- organizations (examples: bank, company)
- groups (examples: non-trading partnership, shared apartment)

Overview of Extracted Business Partner Data
Business
Partner
Business
Partner Role
General Company Code Descrip-

Descrip-
Data Data tions
Address overview Legal data Account management

Credit profile Business year info Payment transactions
Identification/Branches Personal data Account interest
Control Employment data Payment data
Bank details Additional data Autom. payment
Payment transactions/ Credit standing transactions
Valuations Fiscal data Dunning data
Role data Reporting data Correspondence data
© SAP AG 2003
In CFM, you conclude financial transactions with a business partner. Typical partners are banks or a
central treasury department. You create a master record for each business partner.
The user interface for business partner data was fully revised as part of the Enjoy project. The screen
layout has been restructured and you can now navigate between several tabs containing individual
business partner views.
The data you can maintain for a business partner is split into two areas:
- General Role Data
is centrally stored for all roles. The amount of accessible data may vary according to role
category, depending on the settings in Customizing.
- Company code-dependent data
is data which only applies for the role category in the respective company code.

Initial screen: Process Business Partner
Characteristics for Processing a New Business Partner:

• Person
• Organization
• Group
• Grouping
• BP Role
© SAP AG 2003
To create a new business partner, you must enter a BP role, the business partner type and the
grouping on the initial screen.
The grouping is defined in Customizing and is used to classify business partners according to any
criteria.

Business partner: Relationships
Outgoing relationship
"subsidiary of"
Relationship
Parent company Subsidiary
Dependent on classification
Relationship type
Rel. Type Example:?
Description Rel. Cat Description
Subsidiary
V. important Subsidiary of
SUB2 subsidiary 0050
Relationship types
© SAP AG 2003
Relationships can exist between different business partners. You can map these relationships on the
Relationships tab page.
The relationship categories you can choose from are predefined in the system and depend on the
business partner classification. Example: "Is subsidiary of" for an organization, or "Is married to" for
a person.
You can refine the relationship categories by defining different relationship types. The specific
relationship type is dependent on the relationship category already chosen.
Where two business partners are related, the relationship will appear in the master data for both
partners.
Outgoing relationships are all the relationships with other business partners which were entered in
that particular business partner.
Incoming relationships are all those relationships which were entered in the other business partner.
In the slide example, the subsidiary has an outgoing relationship “is subsidiary of”, whereas the
parent company has a corresponding incoming relationship.

Company-code Dependent Business Partner Data:
Standing instructions
Transaction Payment
authorizations details
Business partner A
Derived
Correspondence
flows
© SAP AG 2003
Standing Instructions are master agreements concluded with a business partner. Standing instructions
for business partners concerning payment details, correspondence and derived flows are included in
tab pages in the maintenance of business partners. By integrating standing instructions in the
business partner data, they have also been linked to release workflow – business partner. You can
also access the standing instructions with a separate menu path.
Master agreements can be made according to:
y Authorizations
Which types of financial transactions are permitted with a business partner?
y Payment details
For transactions with business partner A => Payment details of BP A as default values for the
transaction
y Correspondence
For transactions with business partner A => predefined: which correspondence is generated for
which transactions?
y Derived flows
For transactions with business partner A => predefined: if in the transaction with BP A,
flow X is generated, tax/commission in the amount of y% is to be calculated

Standing Instructions:
Business Partner Authorizations
Transaction
authorizations
Business partner A
CFM Authorization
Money Market X
Assign
FT deposit
51 A FT deposit
100 Investment
200 Borrowing
Deposit at notice
52 A Call money
100 Investment
200 Borrowing
© SAP AG 2003
In order to make use of a business partner (BP), you must

- create the BP,
- release the BP for use and
- authorize the BP as a partner for specific financial transactions.
y You can only grant transaction authorizations if the business partner – once set up – is released
and is not designated for deletion.
Transaction authorizations control which financial transactions are permitted with a business partner.
You can assign transaction authorizations at the following levels:
- Contract type
- Product category
- Product type
- Transaction type
You have to assign authorization to each business partner and in each company code.

Financial Transaction: Standing Instructions
Business partner A
Payment details Correspondence Derived flows
Assign Assign Assign
- House bank and - Confirmation - Derivation procedure

corresp. bank account - Print
- Fax
- Business partner - SWIFT, IDoc
bank details - E-mail
- Counterconfirmation
© SAP AG 2003
Payment details include all information required to conclude payments, that is, your own (house
bank) account data and, where applicable, business partner bank details.
You can process different payments in different currencies for each business partner.
You can assign any payment details as Standing Instructions for a transaction. You can assign your
instructions on the contract type, product type up to transaction type levels.
When concluding a transaction with BP A, the payment details assigned to the relevant transaction
are drawn automatically from the standing instructions and proposed as default values. This saves
you making the entries manually.
Standing instructions for correspondence control how external correspondence, that is,
correspondence with a (particular) business partner is to be handled.
You can choose – by determining any level from contract type to transaction type – whether
correspondence with the business partner for a particular transaction should be in print, by fax, e-
mail, IDoc or Swift form. These details must be specified if correspondence is to be exchanged with
a business partner.
You can use derived flows in the money market, foreign exchange, derivatives and securities areas to
simplify the calculation of amounts (such as taxes) which depend on other flows. To generate
derived flows, you must assign a derivation procedure to the relevant partner.

Business Partner Standing Instructions: Payment
Details
Business Partner Standing Instructions: Payment Details

Currency Pay. House Account ...... ...... ......
det. ID bank ID
BP A
EUR 01 Deuba 1000 ...... ...... ......
USD 01 Deuba 1050 ......

...... ......
Assign
Payment
CFM details ID
Incoming Outgoing
Money Market
FT deposit
51 A FT deposit
100 Investment x 01 x 01
200 Borrowing
© SAP AG 2003
The system uses the house bank and the account ID defined in the business partner payment details
to determine the bank account to which the posting is being made.
After creating the payment details, you must not forget to assign them.
This allows you to direct the postings for different products or payment directions to separate
accounts.
The system supports multiple payment methods levels. By entering a bank chain, you can process
payments using several banks. Up to three intermediate banks are supported.

Transaction: Correspondence
Confirmation Confirmation
External Internal
Fax
Example: Confirmations
by fax, e-mail, SWIFT Example: dealing slips
© SAP AG 2003
Correspondence serves to document and match concluded financial transactions.

You can define correspondence as internal correspondence types (such as dealing slips) and external
correspondence types (such as confirmations). By performing a correspondence run, you can confirm
all the financial transactions you have concluded with a partner in a given period. You can print the
generated data or have it sent directly from the system by fax. You can also use e-mail and IDoc. To
send e-mails, you must set up the communication interface SAPconnect. For money market and
foreign exchange transactions, you can generate SWIFT files MT320 (fixed-term deposits) and
MT300 (forex). A user exit allows you to use the FX Match function for outgoing confirmations
(MT320 only).
You can control external correspondence types with partner-specific standing instructions for
correspondence. Control of internal correspondence types is not partner-specific.
You can determine when correspondence is carried out with the Customizing settings for product
and transaction types and activities. You can also specify whether correspondence should be
generated automatically when a transaction is created, changed, or reversed (that is, as soon as the
transaction is saved). All correspondence is recorded in the financial transaction data.
The system also keeps a record of the confirmation status in the transaction. This includes
information about when the confirmation was sent/received, the relevant activity, the user, the form
used, and the output type of incoming or outgoing confirmations.

Business Partner Standing Instructions:
Correspondence
BP A
Correspondence
Correspondence
type:
External
CFM Counterconf. Print Fax SWIFT IDoc E-mail
Money market
Assign
Fixed-term deposit
51 A Fixed-term deposit
100 Investment
200 Borrowing
Deposit at notice
51 B Call money
100 Investment
200 Borrowing
© SAP AG 2003
You control the (external) correspondence with a business partner by defining standing instructions
for correspondence.
In the standing instructions for correspondence, you assign correspondence media and parameters to
the external correspondence types for a business partner. You can make this assignment at several
levels: contract type, product category to transaction type.
You can choose between different correspondence media. You can also print, send by fax or SWIFT
external correspondence directly from the R/3 system.
Correspondence parameters:
Correspondence is automatically sent to the business partner's standard address. If you want to use a
different address for a business partner, save it in the 'Alternative address' field.
If you require counterconfirmation from your business partner, flag the Counterconf. field.
(Prerequisite: Customizing is set up to allow automatic correspondence).
Correspondence that has been generated is stored in the financial transaction data.

Transaction: Derived Flows
z Depending on certain flows, you can generate new flows

by defining derivation rules
z Flow 1200 Interest rate EUR 1,000
Flow 1800 Tax 1 EUR 300
Derivation rule Flow 1801 Tax 2 EUR 16.50

Interest income
tax
© SAP AG 2003
You use derivation procedures to generate certain flows automatically. These flows are calculated on
the basis of other financial flows in the system.
When you process the original flow, the system generates the dependent (or derived) flows
automatically.
Example: Interest income tax of 30% (tax 1) is deducted from the nominal interest (flow type 1200),
and a local tax of 5.5% (tax 2) is deducted from tax 1 (that is, 1.65% of the nominal interest amount).
The interest condition of the transaction generates an interest flow of type 1200. At the same time,
the system adds other derived flows to the cash flow:
- Interest income tax (flow type 1800)
- Tax 2 (flow type 1801)
You can then process all flow types (original and derived). For example, you could offset the
appropriate amounts when you make the interest posting.

Business Partner Standing Instructions:
Derived Flows
BP A
CFM Derivation procedure
Money market
Assign
Fixed-term deposit
51 A Fixed-term deposit
100 Investment TAX1
200 Borrowing
Deposit at notice
52 A Call money
100 Investment
200 Borrowing
© SAP AG 2003
In the application, you specify when a particular derivation procedure should apply for a certain
business partner. You can assign the derivation procedure at different levels (from contract type to
transaction type).
If you create a transaction with a business partner, to which you have assigned a derivation
procedure (at the corresponding level), the system generates additional flows on the basis of the
derivation rules you have defined.

Banks: Payment Details
BP Bank Details
bank Bank
account data
House bank
H bank account
Conclusion
transaction with
entered
business partner A
manually
in transaction
+ payment details
Posting/Payment
© SAP AG 2003

Banks: Master Data
Bank country DE
Bank key: 200 500 00
Address
Deutsche Bank
Region
Street
City
Bank Branch
Bank Control data
SWIFT code
data Bank group
Postbank Acct
Bank number
Banks: General Information ... Function
Bank country DE
Partner bank (Account 889613262)
Bank key 200 500 00
Address
Financial institute House bank (Account 12345678)
Bank C
Region
Street
City
......
© SAP AG 2003
Bank details, which are required for your own and the business partner bank, are maintained
centrally in a bank data pool.
Entered bank data is maintained in the Financial Accounting bank directory, that is, automatically or
manually stored and accessible throughout the system.
The bank directory contains the bank master data. This includes bank address data and control data,
such as swift codes and bank groups.
The bank directory must contain the master data of all banks required for processing payments.
These include your own house banks and the business partner banks.
You can use entered bank data (name, address, bank code)
- as "Partner bank" to maintain business partner bank details
and
- as "House bank" to maintain your own bank details with the appropriate link to Financial
Accounting.

Business Partner
Central Data: Bank Details
Business partner A
Central data
Bank details
Coun-
Bank key Bank Partn. bank
try account
Bank DE 600 501 01 5214561 A1
data Bank A
DE 100 500 00 18889 B1

Bank B
DE 200 500 00 889613262 C1

Deutsche Bank
© SAP AG 2003
The bank details of each business partner are maintained by entering the country, appropriate bank
key and account, a.o.
Each individual bank detail is identified with the partner bank key (Partn. bank).
Example: Entering "B1" encodes that: business partner A has account number 18889 with bank B
with bank key 100 500 00.
When maintaining business partner bank details, you can enter the bank country and key to draw the
bank description from the bank data pool, if this data has already been created.
If in bank details, a bank (country and bank key), which has not yet been created in the bank data
pool, is entered, a pop-up enabling the creation of general bank data appears automatically, so that
the new bank can be added to the pool.

House Banks: Master Data
Bank data
Bank
Bank
data Bank country DE
data Bank key 200 500 00
Address
Company code 1000 Deutsche Financial
Region institute
Street Dt. Bank
House banks City
Branch
Control data
SWIFT
Bank group
Corresponding bank
accounts:
12345678
...
© SAP AG 2003
Banks, with which you have current accounts, should be entered as house banks.
When maintaining business partner bank details, you can enter the bank country and key to draw the
bank description from the bank data pool, if this data has already been created.
If data (country and bank key) is entered for a bank, which is not in the bank data pool,. a pop-up
enabling the creation of general bank data appears automatically to add the bank to the bank data
pool.
House bank accounts are to be assigned accordingly.

House Banks: Creating Master Data
Company code 1000
Chart of
House bank DEUBA accounts
Bank country DE
Bank key 200 500 00
Corresponding bank accounts
Bank account data
Account GIRUN
ID 12345678 G/L account: 113100
Currency EUR
© SAP AG 2003
House banks identified with a specific house bank ID are maintained in the company code.
Each account held at a house bank must be created. Each bank account is identified by a unique key
of the account ID to be assigned. This account identification is unique to each each company code,
house bank and account.
These short names help to simplify use of your own bank details in transactions.
As a rule, an internal general ledger is kept in Financial Accounting for each house bank account.
The link between the (external) house bank account and the (internal) general ledger is created by the
appropriate assignment.

House Banks: G/L Accounts
FI-
FI- General Ledger
Company code 1000

G/L acct 113100
Chart of accounts EUR
Description Dt. Bank
:
Account currency EUR
:
:
Bank/Financial data
House bank Deuba
Account ID GIRUN
Cash management
level F0
© SAP AG 2003
Create the master data of the house bank general ledger in FI to maintain it. Here, you can set
definitions, such as account currency and the cash management level on which the amounts posted to
this account are displayed in Cash Management.

Cash Management Account Name: Definition
IMG: Cash management
CoCd CM acc. name G/L acc. no. Bank account Description

1000 DB Dollars 113150 110113150 Deuba
. Dollar account
.
.
Cash position/Group
Account CoCd 04/03/YY 04/04/YY

DB Dollars 1000 1,000.- 1,011.-
.
.
.
© SAP AG 2003
In Cash Management, the amounts posted to general ledger accounts are displayed on the cash
management levels assigned in the FI Accounts master data.
The relevant account is indicated in CM either by the (general ledger) account number or – when
maintaining a cash management account name for this account – with the cash management account
name.
In cash management, the cash management account name replaces the account number with a proper
name. It is used here in all transactions and reports, such as cash positions, instead of the account
number.
Example: Amounts in G/L account 113150 are displayed in Cash Management:
a.) without maintaining the cash management account name:

Account Amount
113150 1.000
b.) with maintaining the cash management account name

Account Amount
DB Dollars 1,000

Transaction: Payment Details Data
Conclusion
Financial trans. with
business partner A
+ Payment details
Example: fixed term deposit
Transaction: Payment details
Company Code 1000

Payment
Product type 51A
Regu- Fixed-termPayment
Partner depositPayment House?Account?
Transaction
details type 100 Investmentmethodprocess bank ID
lar ?
bank ID
ID
R 01
Crcy Eff. FType HBank Account ID DB Part.
Pmnt Regular Checking
Bank
- EUR Deuba GIRUN
+ 01
EUR Deuba GIRUN DB USD
Posting
© SAP AG 2003
In addition to business data entries, Transaction and Position Management also processes payment
details, that is, data required for processing payments:
y R: Payment flow direction ("+": incoming payments; "–": outgoing
payments)
y H bank: Enter house bank, with which the payments for this transaction are to be
processed, in the form of the defined house bank ID
y Account ID Enter account of house bank, with which the payments for this transaction are to
be
processed, in the form of the defined account ID
y Partner bank: Enter bank account (bank key and account) of the business partner, with which
the payments for this transaction are to be processed, in the form of the defined
partner bank ID
The system supports multiple payment methods levels. By entering a bank chain, you can process
payments using several banks. Up to three intermediate banks are supported.

Transaction Manager: Money Market Overview

Unit 3 Transaction Manager: Money market

Derivatives

© SAP AG 2003

1 Introduction to Money Market
2 Trading functions
• Fixed-term deposit
• Deposit at notice
• Commercial Paper/Master agreement
• Interest rate instrument
• Cash flow transaction
• Facility
3 Back office functions

(example: fixed-term deposit
Accounting functions
4 (example: fixed-term deposit)
5 Special functions
© SAP AG 2003

Money Market: Unit Objectives
Carry out Money Market trading and back office

activities
Use the support tools for back office processing
Understand integration with Accounting
© SAP AG 2003

Money Market: Business Scenario
After having familiarized yourself with the general

information and created business partners in the
system, you want to get an overview of the functions
in Money Market.
What do you need to enter the trading area to create a
financial transaction?
How can you map your back office department in the
SAP R/3 system?
What additional functions are there?
How can you ensure integration of the transactions in
Financial Accounting and Cash Management?
© SAP AG 2003
mapping financial transactions in Corporate Finance Management.

Money Market 1: Introduction
Product types in Money Market
Definition/Characteristics
© SAP AG 2003

Money Market: Product Types
Product Types
Investment/Borrowing Hedging
instruments instruments
Money Market Securities Foreign Exchange Derivatives

Fixed-term
deposits
Deposits at
notice
Commercial
paper
Interest rate
instrument
Cash flow
transaction
Facility
© SAP AG 2003
Money market transactions are for short- to medium-term investments or borrowing capital. On
the basis of surpluses or deficits determined in Cash Management, you can implement the planning
decisions in Money Market. In Cash Management, you can see the immediate impact your
transactions have on your company's liquidity (by value date at the time of the investment/borrowing
and on the due date).
Interest rate instruments are used to map money market transactions, which include different forms
of interest payments and repayments.
Cash flow transactions in Money Market enable you to represent a wide range of transactions. You
enter the term manually and also the cash flow that results from the particular structure of the
transaction. This includes position changes, expenses, revenues, and payments.
Facilities enable you to map master credit lines between a lender and a fixed business partner for a
series of withdrawals against credit.

Production Categories and Types: Examples
Financial Instruments Product Categories Product Types

510 Fixed-term deposit Fixed-term
Fixed-termdep.
dep. (overnight)
(overnight)?
Money
520 Deposit
Depositatatnotice
notice Fixed-term
Fixed-termdep.
dep.(term)?
(term)
Market 530 Comm.
Comm.Paper?
Paper Paper
540 Cash flow trans.
550 Interest rate inst.
560 Facility
Foreign 600 Foreign Exchange External forex

Exchange Internal forex
© SAP AG 2003
Product categories are predefined by the system. The user can define product types for each of the
product categories.

Term Deposits
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
© SAP AG 2003
Fixed-term deposit trading (including overnight money and Euro money) incorporates the transaction
types, fixed-term deposit investment and fixed-term deposit borrowing. If the authorized business
partners and corresponding payment details are already defined in the system, the only necessary
entries are structure characteristics and conditions.
When trading with deposits at notice, you make investments and borrow without defined due dates.
The amounts, conditions, periods of notice, payment dates, and interest payment patterns are entered.

Commercial Paper
Short-term, discounted bearer bond

No interest payments during the term
Term: 1 week to 1 year (on average 2 months)
Issuer and investor enter into a business relationship directly
and agree on a repayment amount, which the debtor pays to
the creditor at the end of the term.
This repayment amount is discounted to the start of the term
using the required yield. The investor pays the amount
calculated to the debtor at the start of the term.
Banks act as 'DEALERS' without assuming the placing risk.
© SAP AG 2003
Commercial Paper trading includes the purchase and sale of individual Commercial Paper tranches.
A characteristic of commercial papers is that no interest payments arise during the term. By entering
a nominal amount and the target yield, the payment amount that the investor has to pay to the debtor
at the start of the term is determined by means of deducting accrued interest. Interest can also be
determined on the basis of a given rate.
At the start of the term, the cash flow shows the principal increase as the nominal amount together
with the discounting amount. At the end of the term, the repayment of the nominal amount is
displayed. As a second variant, you can show the discounted principal increase at the start of the
term, and the repayment of the cash value and the interest rate flow at the end of the term.

Money Market 2: Trading Functions
1 Fixed-term deposit
2 Deposit at notice
3 Commercial paper/Master agreement
4 Interest rate instrument
5 Cash flow transaction
6 Facility
© SAP AG 2003

Transaction and Position Management Process:
Fixed-Term Deposit
Release
Create order/contract Settlement/Control Postings

Rollovers Netting Payment
Reversals Confirmation Letters transactions
Transaction history Reversals Accrual/Deferral
Transaction history Valuations
Interest rate adjustment Reversals
User authorization
Limit management
© SAP AG 2003
The organizational processes of transaction management can be split up into several steps:

Trading: Creating a Fixed-Term Deposit
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
© SAP AG 2003
In the Trading area, the main functions for entering and changing financial transaction data are
consolidated. To map financial transactions efficiently, you first have to make basic settings:
In which organizational unit (company code) is the financial transaction concluded?
This assignment enables you to distinguish between different corporate areas, particularly in more
complex organizational structures, such as treasury headquarters.
Which financial transaction is being carried out?
Here, you specify the product and transaction types along with the relevant processing rules.
With whom are you concluding a certain financial transaction?
Each financial transaction is linked to a business partner. The data stored for the business partner
offers considerable scope for rationalization. For example, if the same business partner bank and
payment details are always used, these details can be automatically linked to the financial
transactions. You can also choose other options for a business partner, such as restricting the type of
products which can be traded.

Trading Support
Partner Standing Instructions Market Data
Transaction authorizations
Payment details
Correspondence
Business partner Derived Flows
management Market
database
Simulation
Simulation
Optional: Offer
Optional: Offer Contract
Contract
Entry and processing aids Automatic checks

- Standing instructions - Working day checks
- Copying functions - Trader and partner
- Abbreviations authorizations
- Fast entry Valuation tools
- Collective/Fast processing - NPV calculator
- Option price calculator etc.
Field selection control Dealing slips
Change documents
© SAP AG 2003
Transaction Management offers various support tools.

Using the Field selection control you can control many of the visible fields. You can adapt the
"look" of Corporate Finance Management Transaction Management to suit your business
You group the visible fields into field groups according to different business criteria. Each of the
field groups available can be assigned an attribute, which determines the appearance of the screen.
This means that you can specify whether you want field groups to be suppressed, displayed, or to be
defined as required entries.

Creating a Financial Transaction: Initial Screen
Company Code 1000 IDES AG

Product type 51A Fixed-term deposit EXTERNAL
Transaction type 100 Investment
Partner Deuba Deutsche Bank
Specifications
Currency instead of currency of comp. code
MasterAgreement
Portfolio
External number assignment

Transaction
© SAP AG 2003
To get to the Money Market start menu choose Accounting –> Corporate Finance Management –>
Transaction Manager –> Money Market in the menu.
When you create a Money Market transaction, you represent a contract for the investment/borrowing
of short term funds. You enter which trading object (product type) should be invested or borrowed
with which partner in which currency.

Creating a Fixed-Term Deposit: Structure
Company code 1000 IDES AG

Tabs for
Product type 51A Fixed-term deposit External navigation
Transaction type 100 Investment
Structure Adminis- Payment Details

tration Other flows Cash Flow Memos Status
Business partner
Investment Term
Flow type 1100 Start 08/10/YY

Investment/Increase
Amount 1M EUR - End ++2
Interest structure
Percentage 2.6
Int.calc.method Act/360
...
...
© SAP AG 2003
Flows are automatically generated when a financial transaction is created. For example, principal
increase, nominal interest, and final repayment are generated following the creation of a fixed-term
deposit.
The structure contains only product type-specific information, such as the amount, term and interest
structure. Here, you can use various key codes for entering amounts and dates (for example, M =
million, T = thousand, 0 = today, ++2 = 2 months).
From here. you can branch to the entry screens of general transaction management. Tabstrips help
you navigate between the screens
Administration:
Information on portfolio assignment, account assignment references for position bookings, general
valuation classes
Other Flows:
You can add add other flows to the automatically generated flows manually (charges, commission
etc.).
Status:
Information on correspondence, process, release status
...
Under Payment Details, you enter the relevant payment details for this transaction. If the payment
methods are maintained as standing instructions for a specific business partner, they appear as
default values and can be modified manually.
You can also use the date check to establish whether a particular due date falls on a working day or
not.

Interest Structure
360E/360
Act/360
At end of term
Interest structure :
At end of month
360 / 360
Percentage 2.6000 Monthly freq.
Daily freq.
Int. calc. method Act/360
Frequency Monthly Every Day/Month
Shift due date to end of term Capitalize interest
Trans. due date Calc. trans. due date
Calc. period Rounding

With rollover
Customizing
© SAP AG 2003
The SAP system includes the most widely used international interest rate calculation methods for
trading.
When defining the product type, you can make a corresponding Customizing entry for the interest
rate calculation method.
The frequency specifies the time of the interest payment.
When you choose "Daily" or "Monthly" frequencies, you must also specify the frequency in days or
months (example: monthly frequency = every three months).
You can capitalize interest by checking the appropriate field. However, this checkbox is only
displayed if a condition of the type "interest capitalization" has been assigned to the relevant
transaction type.
Optional suppression and displaying of detailed information as necessary.
(Suppress/display interest structure)
You can also calculate interest amounts exponentially.
The payment rate describes a percentage rate that is applied to the calculated condition amount. The
cash flow, therefore, does not show the calculated condition amount, but rather the condition amount
multiplied by the payment rate and shown as a percentage.

Payment Details
Business Partner Standing Instructions: Payment Details

Currency Payt. House Ac- Payt. Payer/ Partner Payt. ......
Details ID Bank count Process Payee Bank ID Method
ID
EUR 01 DB GIRUN ......
USD 02 DB GIRUS ......
Fixed-Term Deposit: Payment Details

Company code
Product type
Transaction type
R Crcy. Eff. Flow HBank Account ID Payment. Pmnt. req.

+ EUR DB GIRUN
- EUR DB GIRUN
© SAP AG 2003
The bank or bank clearing account which are to be posted are determined using the house bank and
the account ID stored in the business partner's payment details.
The system supports multiple payment method levels. By creating a bank chain, you can process
payments using several banks.
There is a Repetitive Code column in the transaction payment details and the Standing Instructions.
This is used (primarily in the USA) for simplification of recurring payments.

Financial Transaction Conditions
Example: Fixed-Term Deposit
Nominal int. 4% interest / Frequency: 6 months
Final repayment
Changing conditions:
Payt. date Int. Amount
Nominal int. 10/31/YY 4% 3,333.33

Nominal int. 04/30/YY+1 5% 4,166.67
© SAP AG 2003
Financial transactions in SAP Corporate Finance Management are mapped on the basis of the flow
and condition concepts. Conditions are contractually agreed components of a financial transaction.
Condition types include different interest, dividend or repayment terms, which ensure that each
product type is assigned its appropriate structure characteristics. Condition types thus control which
structure characteristics are displayed when you create transactions of a specific product type.
Depending on its type, a condition position is characterized by amounts or percentages and
calculation bases, as well as calendar data and date updates.
The principal task of conditions is the automated generation of flows. Therefore, the flow types that
you assign to condition types should show changes in the payment flows and should be elements of
the cash flow.

Fixed-Term Deposit Cash Flow
Variant Name
1SAP01 Basic view
1SAP02 Due date view
1SAP03 Invoice view
Select layout
1SAP04 Local currency view
1SAP05 Payment view
1SAP06 Posting view
(1SAP07 Int. rate adj. view)
Example:
Example Fixed-term deposit 1M
4% interest
Pmnt. Pmnt. amount Dir 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 tax
12/31/YY 10,000.00 + EUR 1200 Nominal int.
12/31/YY 1.000,000.00 + EUR 1120 Final repayment
© SAP AG 2003
The cash flow provides the basis for

- Postings
- Effective interest rate calculations
- Accrual/deferral of expenses and revenues.
Displaying the cash flow:
Flow direction
Sorting flows according to preferred criteria
Search and selection functions
Totaling
Export functions
Direct selection of the preferred view
Facility to save layouts
Direct editing of flows in the cash flows

Financial Transactions: Cash Flow
Basis for
Amnt invested/
Transaction Updating Cash Management
borrowed ACTUAL
Updating Financial
Accounting using flexible
account determination
Condition Payment triggering
PLAN Updating positions
Interest accrual/deferral
Foreign currency valuation
Cash Flow (example)
Yield calculations
Investmt. 4/1/YY 1M EUR invested
Interest 07/01/YY 10T EUR expected
Repmnt. 07/01/YY 1M EUR expected
© SAP AG 2003
The cash flow of financial transactions forms the basis for all trading, transaction and position
management processes as well as evaluation activities within CFM.
CFM uses financial mathematics to determine cash flows.
The system provides a set of formulas, which put into practice the "building block principle" of the
free and flexible CFM structure.
In Transaction Manager, application-specific control programs call up financial mathematics
building blocks, which are stored centrally, to calculate interest and repayment schedules etc.
These FiMa building blocks generate or calculate a series of activities known as cash flows (payment
flows) for a financial transaction in the application (such as a stock purchase or swap). Flows are
generated for a specified calculation period on the basis of the conditions assigned to the financial
transaction.

Additional Flows
Flow type
1901 Charges
Name 1902 Commission
Direction ...
Payment amount
Currency
Payment date
Posting status and
description
© SAP AG 2003
Flow types allow you to define additional flows, such as charges and commissions (as absolutes or
percentages) for individual product types. These are then recorded for the individual transactions.

Collective Processing: Money Market
Overview of money market transactions which

correspond to the relevant selection criteria
Conducting relevant transactions
Creation
Change
Display
Rollover
Termination
Settlement
Reversal
History
Branching directly to the specific transaction

Link to the SAP List Viewer
© SAP AG 2003
Collective Processing enables systematic transaction management. This facility displays all the
business activities you select on the basis of shared criteria in a list with brief descriptions of each
transaction and provides the necessary processing functions.
From the processing list, you can branch directly to an individual transaction at any time.
The connection to the SAP List Viewer provides you with a range of display options. You can
determine the columns or rows to be displayed, sorted and consolidated and save these layouts for
later use.

Offers for Fixed-Term Deposits and Foreign
Exchange
Offer Offer Offer

No.1 No.2 No.3
2.4% 2.7% 2.5%
Sorting according to quality
Offer
Contract No.2
2.7%
© SAP AG 2003
Using the "Offer" activity category, you can group and store quotations from different banks with a
reference.
This sorts offers according to quality. You can create a contract directly from an offer entry.
You have to create a separate number range for transactions in the "Offer" activity category. The
number range for the corresponding transaction type is allocated in the number range for offers field
in Customizing for transaction types.
You can use this function in the Money Market area for fixed-term deposits and in the Foreign
Exchange area for forex spot transactions and forward exchange transactions.
A special Evaluation Report for Offers, which you can configure individually, tells you how many
offers were submitted, and how many resulted in a contract.
You can display simulations using the Journal.

Simulation of Fixed-Term Deposits/Foreign
Exchange Transactions
Creating simulated financial transactions
A business partner is not required for simulation
Management with a separate number range
Create a contract from a simulation
Add a business partner
© SAP AG 2003
You can simulate foreign exchange transactions and fixed-term deposits with the Simulation activity
category.
You can create a contract from a simulated transaction using the change function. Before you can do
this, you must add a business partner, as you are simulating a transaction without a business partner.
You manage simulations using a separate number range. You assign the number range to the relevant
transaction type in the simulations number range field in Customizing for the transaction types.
You can display simulations using the Journal.

Money Market: 2 Trading Functions
2 Deposit at notice
6 Facility
© SAP AG 2003

Giving Notice (Deposit at Notice)
Notice
Investment Term
Flow type Start 06/07/YY

Amount Notice 06/30/YY
Interest structure
...
Termination
...
...
Notice period 3 Days
© SAP AG 2003
For deposits at notice, there are functions for giving notice or rolling over deposited funds. Rolling
over means an increase or decrease in the amount of the original deposit at notice with, where
applicable, different conditions under the same transaction number.
With deposits at notice, the cash flow can only be generated for a set period, since the end of term is
only fixed when notice is given. For deposits at notice for which no notice has been given, it is
therefore necessary to update the cash flow periodically.

2 Deposit at notice
6 Facility
© SAP AG 2003

Master Agreement
Setting agreements and conditions effective for

all transactions under the master agreement
Term of contract Example: Master Agreement
Permitted company codes 1/1/YYYY to 12/31/YYYY
Permitted business partners 1000
Permitted transaction types IDES AG; Deuba; FUXX
Minimum and maximum Investment

transaction terms
Eur
Currencies:
1M
Tranche
10M
Minimum amount 500M
Total volume
Commercial Paper program from 12/31/Y-1
© SAP AG 2003
You can store master agreements in the system and use these to define company standards for
concluding Money Market transactions. These contain specific information on company codes,
business partners, terms, as well as minimum and maximum volumes by currency.
You either specify the master agreement when you create a transaction, or you can subsequently
assign a transaction to a master agreement. The system checks the following master agreement
restrictions:
• Is the transaction amount a complete multiple of the tranche?
• Checking the minimum amount
Determination and evaluation of the degree of usage of the master agreement limits by the assigned
transactions.
For each specific master agreement, you can determine to what degree transactions are utilized in
terms of assets and liabilities.
You can use the relevant tabstrips to navigate between the different displays of master agreement
data.
While processing, you can directly call up an overview of the degree of usage of the master
agreement limits.

2 Deposit at notice
6 Facility
© SAP AG 2003

Interest Rate Instruments
Interest rate instruments are used to map money market

transactions, which include different forms of interest
payments and repayments.
Interest rate instruments
Interest forms Repmnt. schedule
fixed variable Installment Final

repmnt.
non-variable annual
with interest rate adj repayment
© SAP AG 2003
The interest rate instrument supports the entry and calculations of forms of fixed and variable interest
as well as installment-based and 'full payment on maturity' repayment schedules.
The instrument supports the entry and processing of these transactions in the Front Office, Back
Office and Accounting.

Example: Interest Structure – Repayment Structure
Interest Structure
Int. rate instr. fixed Cond. type 1200
Perc. 4.0
Int. calc. method 360/360
Freq. End of month
Every 1 Months
Repayment Structure
Repmnt. form Repmnt. installment Cond. type 1130
Repmnt. amount 10,000.00 EUR
Freq. On first day of month
Every 1 Months
© SAP AG 2003
To enable the different interest and repayment calculation procedures, you must describe the
financial mathematical structure of the interest rate instrument. Descriptions of interest rate
instruments must include the following:
- Transaction amount, currency, and flow type
- Term
- Interest rate structure:
Interest form, interest calculation method, frequency, interest period update etc.
In interest structure, some of the described attributes are dependent on the
selected interest form. For example, you can enter an interest reference for variable interest
or a percentage rate for a fixed interest form.
- Repayment structure:
In Repayment structure, some entires are dependent on the selected repayment form. No additional
details are required for final repayments.
To process an interest transaction, particularly details of the interest and repayment structures, which
constitute the basis of the financial mathematical calculation of the cash flow, must be specified.

2 Deposit at notice
6 Facility
© SAP AG 2003

Cash Flow Transactions
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
© SAP AG 2003
Note that flow types must be assigned to the appropriate product type/transaction type.

2 Deposit at notice
6 Facility
© SAP AG 2003

Facility: Definition and Objective
Definition
Facilities enable you to map master credit lines between

a lender and a fixed business partner for a series of
withdrawals against credit (drawings).
Objective
Facilities management and processing
Facility
Confirmed facility Unconfirmed facility
© SAP AG 2003
A facility is used by a lender and a borrower to agree general terms (= credit line) for a series of
drawings against credit. The lender can name more than one borrowing party entitled to draw on the
credit line. These borrowers may have variable drawing rights as far as time limits and amounts are
concerned, right up to the agreed credit limit.
Any utilization of this credit facility is called a drawing.

Facility
Creating and Settling a Facility
Assigning Financial Transactions

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

• Fixed-term deposit • Cash flow transaction
• Deposit at notice
• Interest rate instrument
© SAP AG 2003
If you use a certain portion of a facility's credit line, this is represented by a financial transaction in
Transaction Management.
The financial transaction is assigned to the facility as it is entered or processed.
During the assignment process, the system checks that the transaction characteristics correspond with
the master agreement stored for the facility.

Money Market 3: Back Office Functions
(Fixed-Term Deposit)
Transaction process
Settlement = Checking
Correspondence
Netting
Reference number
Interest rate adjustment
© SAP AG 2003

Transaction and Position Management: Fixed-Term
Deposit
Release

User authorization
Limit management
© SAP AG 2003
Depending on the way in which your company is organized, financial transactions can be forwarded
to the Back Office area once they have been created in Trading. Back-office processing contains
control and change functions, so that any entries made can be checked here and changed as
necessary. Post-processing includes the following functions:
• Augmenting transaction data, for example, adding information that is relevant for the Back
Office.
• Preparing postings and payments, for example, checking the accounts to be used later in the
automated processes. If you have not already done so, you must now assign an account
assignment reference and payment details to the financial transaction. Without this information,
the CFM flow cannot be posted in Financial Accounting (see account assignment reference).
• Generating correspondence in the form of dealing slips, letters of confirmation, or confirmation
files.
By saving the settlement activity, the system changes the activity category of the transaction in order
to document that it has been checked and processed in Back Office-processing.
If a transaction has activity category "WITH settlement activities", the contract can only be posted
after the settlement.

Settling/Checking Transactions and Position
Indicators
Assigning position indicators:

Account assignment reference
DB000001 Deutsche Bank
Fixed-term deposit
Transaction: Payment Details
Company code 1000

Payment
Product type 51A
Pmnt. Pmnt.
Fixed-term deposit
House?
Account
details type Payer/ Partner MethodProcess BankID
Transaction 100 Investment
ID Payee ?
Bank ID
R 01
Crcy. Eff. FType HBank Account ID Payment Pmnt. Checking
DBreq.
- Eur Deuba GIRUN
+ 01
Eur Deuba GIRUN DB USD
© SAP AG 2003
Just as in Trading, you can call up and correct information on entered transactions.
You can check, change, or add information that is relevant for posting and payment. If you have not
already done so, you must now assign an account assignment reference and payment details to the
financial transaction. Without this information, the flow cannot be posted in Financial Accounting
(see account assignment reference).
You can have the account assignment reference or the payment details of the particular business
partner appear as default values. You can add to or change these default values. Account assignment
references are created independently of valuation area. You can assign account assignment
references to positions variably and independently of valuation area, and/or control account
determination variably according to valuation area and account assignment reference.

Controlling with Position Indicators
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.
© SAP AG 2003
This indicator specifies the position management and valuation parameters on the company code
level, 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 Sequences

Active
Activity Activity Type Date Status
1 Order 10/01/YY replaced
2 Contract 10/02/YY replaced
3 Settlement 10/02/YY replaced
4 Rollover 10/31/YY replaced
5 Settlement 11/30/YY activ
... ... ... . e. .
Order Contract Settlement Rollover Settlement
Management data Management data Management data Management data Management data
CoCd0001SAP AGTransaction 4711 CoCd 0001SAP AGTransaction 4711 CoCd 0001 SAP AGTransaction 4711 CoCd 0001 SAP AG Transaction 4711 CoCd 0001 SAP AGTransaction4711
PTyp 51a
Basic data Activ ity 1 Basic 51a
PTypedata Activ ity 1 Basic51a
PType data Activ ity 1 Basic 51a
PTypedata Activ ity 1 PType 51a
Basic data Activ ity 1
TType100 Act. cat Order TType100 Act. cat. cont. TType 100 Act. cat. Settl.t TType 100 Act. cat. Roll. TType 100 Act. cat. Settl.
CoCd 0001 SAP AGTransaction
4711 CoCd0001SAP AGTransaction
4711 CoCd 0001 SAP AGTransaction
4711 CoCd 0001 SAP AG Transaction
4711 CoCd 0001 SAP AGTransaction
4711
PType51a Activ ity 1 PType51a Activ ity 1 PType 51a Activ ity 1 PType 51a Activ ity 1 PType 51a Activ ity 1
TType 100 Act. cat. Order TType100 Act. Cat. Cont. TType 100 Act. Cat. Settl. TType 100 Act. Cat. Roll. TType 100 Act. Cat. Settl.
© SAP AG 2003
The History function enables you to view the previous activity sequence for a selected transaction.
You can call up a list of the activities and these are either active, reversed, or have been replaced by a
subsequent activity.
The transaction history allows you to trace each activity and its corresponding details.
The system also stores significant changes to transactions in change documents. This provides a
record of how and when a user corrected or changed the structure characteristics of any transaction.

Correspondence
Confirmation Confirmation
External Internal
Fax
e.g. confirmations by e.g. dealing slips

fax, e-mail, SWIFT, IDoc
© SAP AG 2003
Correspondence serves to document and match concluded financial transactions.

You can define correspondence as internal correspondence types (e.g. dealing slips) and external
correspondence types (e.g. confirmations). By performing a correspondence run, you can confirm all
the financial transactions you have concluded with a partner in a given period. You can print the
generated data or send it directly from the system by fax. You can also use e-mail and IDoc. To send
e-mails, you must set up the SAP Connect communication interface. For money market and foreign
exchange transactions, you can generate SWIFT files MT320 (fixed-term deposits) and MT300
(foreign exchange).
You can control External Correspondence Types with Partner-specific standing instructions for
correspondence. Control of internal correspondence types is independent of the business partner.
The system also keeps a record of the confirmation status in the transaction. This includes
information about when the confirmation was sent/received, the relevant activity, the user, the form
used, and the output type of incoming or outgoing confirmations.

Confirmation Management
Difference between outgoing confirmation and

counterconfirmation
View confirmation status for transaction

correspondence in Status
Status management for counterconfirmation can be

controlled according to the business partner – in the
Standing Instructions + Customizing
Monitoring overdue counterconfirmations
Optical archiving of correspondence
Correspondence overview and correspondence monitor
© SAP AG 2003
You can determine whether or not counterconfirmation is required for external correspondence for
each business partner (in the Standing Instructions).
The system updates the confirmation status of the business transaction in Status:
executed, reconciled (that is, counterconfirmation has been received and matched).
You can archive correspondence letters optically. To do this, you must set the "Optical Archiving"
indicator in Customizing (choose "Define Correspondence Types") for the correspondence type you
require. However, you need to use an external optical archiving for this. You can access archived
correspondence from the transaction display. If you are in the display/change mode for a transaction,
you can display correspondence activities by choosing Goto. By double-clicking a line, you can
activate the Archive Link monitor and display the document.
The Correspondence Monitor provides the following additional processing and monitoring functions,
which build on existing correspondence overviews:
• Overview of the current processing status
• Setting the counterconfirmation status to matched directly from the (manual match) monitor
• Option to execute planned correspondence directly from the monitor
• Option to repeat previously generated correspondence ...

References Between Financial Transactions
Trans. 1 Trans. 2
BID Offer
CON Swift-confirmation files
EUR Euro transaction currency conversion
KMP Netting
MIR Mirror deal link
OPT Option reference derivatives
PRL Rollover of foreign exchange transaction
REF General reference
SWP Forex swap
© SAP AG 2003
To document the connections between Treasury transactions or objects, you can define links in the
administrative data of a transaction. To do this, you use fields in which you can enter any reference
terms or numbers and then select these for subsequent evaluations.
A reference between transactions documents a relationship between "n" transactions. A reference
category provides the purpose of a reference.
Some references are created automatically. These include relationships between transactions
resulting from processing activities (rollover) or which are elements of a transaction (currency
swap).
There are also references which are created by the user (netting).
You can set up and process all references under Reference - Collective Processing. Using the SAP
List Viewer, you can flexibly modify the layout and sorting and, if necessary, store it as your own
layout.

Back Office: Interest Rate Adjustment
Interest rate adj.
Manual Automatic
Prerequisite:
Ref. int. rate
must be maintained
Int. Fx. Dte. Ref. Int. Status Int. Rate Eff. from
11/30/YY EURIBORD03 3.00 11/30/YY
03/03/YY EURIBORD03 0.00 03/01/YY
© SAP AG 2003
For financial transactions with variable interest, you must periodically carry out an interest rate
adjustment, with which the interest rate is set at the current value of a reference interest rate.
The interest rate adjustment can be done either manually or automatically. With manual interest rate
adjustment, use the reference rate to enter the interest rate value for each transaction. With automatic
adjustment, the system checks in a table whether the current interest value is available for a reference
interest rate.
Use the Interest Rate Adjustment tab page to get an overview of all the adjustment data that has been
entered for the transaction.
A function is available for reversing interest-fixing.
For variable interest rates, you can enter the interest rate for the first period as soon as you enter
interest conditions. This means that the interest rate need not be adjusted for the first interest period.
The Information System provides a Money Market Interest Rate Adjustment Plan to monitor
deadlines.

Automatic/Manual Posting Approval
Product type
Transaction type
Posting approval X
Automatic!
Approval
Trading Back Office Posting
© SAP AG 2003
For organizational reasons, manual posting approvals can only be given by a second user.
If "x" is flagged, the posting approval is given automatically, that is, a transaction does not have to
be approved by a second user.

Money Market 4: Accounting Functions
(Fixed-Term Deposit)
Transaction process
Posting logic
Addendum:
integration in cash management
Posting overview/Posting journal
© SAP AG 2003

Transaction and Position Management: Fixed-Term
Deposit
Release

User authorization
Limit management
© SAP AG 2003
After the transactions have been entered in Trading, checked and completed in Back office, they are
accounted. Functions for the transfer to Financial Accounting - such as posting reports or postings in
position management are consolidated here. Corporate Finance Management relies on some
Financial Accounting functions. Financial transactions and positions must be handled accurately to
guarantee the correctness of the final processes. Accounting, therefore, incorporates tasks, such as
the periodical accrual/deferral of expenses and revenue and valuation activities.
You can only post transactions which have reached contract or settlement status (depending on the
processing category) on the internal level (system level).
If you do not yet wish to post certain financial transaction flows, you can block the posting of these
flows.

Accounting
Fixed-term deposit 1 month 4.5%

Sep 04 1100 - FT deposit 1.000.000
Oct 04 1120 + Final repmnt. 1.000.000

Oct 04 1200 + Nom. int. 3.750
Selection of the
FI interface transactions and flows
to be posted
Financial Accounting
© SAP AG 2003
The CFM information required for posting is transferred to Financial Accounting with an interface.
The posting logic is based on the flow types generated, the account assignment reference of the
financial transaction, and the account determination defined by the user.
You can post individual flows either to G/L accounts or to customer accounts. Payment transactions
are generally posted to corresponding clearing accounts. You can then process the items on these
clearing accounts using the functions provided by Cash Management (account statements) or
Financial Accounting (payment program). For Money Market, Foreign Exchange and Derivatives,
you have the option of using an extended payment program (payment requests). In this case, CFM
first generates payment requests which are then paid individually or jointly using the payment
program. The following four combinations are possible:
G/L accounts without payment requests
G/L accounts with payment requests
Customers without payment requests
Customers with payment requests

Transferring Data to Financial Accounting using
the Posting Report
Application
Foreign Exchange
Money Market
POSTING LOG
Derivatives
Securities
General selections
Company code
Transaction
Product type
Transaction type
Portfolio ...
Currency
Flow classification
Up to and incl. due date
Only post flow acc. to currency
Posting control
Posting date
Document date
Test run
only post operatively
post all valuation areas
© SAP AG 2003
Posting transfers the settled financial transactions to Financial Accounting. You can only post
transactions which have reached contract or settlement status (depending on the processing category)
on the internal level (system level).
Prior to posting, the transaction flows and/or positions to be posted are selected. You can have the
system carry out a test run in order to check the accuracy of the posting entries in the posting log.
When you execute the posting, flows and related documents are transferred to Financial Accounting.
Postings to the SAP Financial Accounting module take place online.
The FI document numbers are displayed.
When you post a transaction, the system generates a posting log. By double-clicking on a posting
line, you can access the corresponding posting document.
If you do not wish to post certain financial transaction flows yet, you can block the posting of these
flows.

Posting a Transaction: Summary
FT deposit 1 month 4.5% Position indicator: Cparty Ref.

DB000001
Sep 01 1100 - Fixed-term deposit 1,000,000
Oct 01 1120 + Final repayment 1,000,000
Balance sheet account
Oct 01 1200 + Nominal interest 3,750
acc. to account assignment ref.
Assigning update types

to posting specifications
Assigning MM1100 - Debit pos. Credit bank

flow types
to MM1120 +Debit bank Credit pos.
update types
MM1120 +Debit bank Credit int. earned
FT dep. acct. 113113 Bank clearing acct. 113105 Interest earned 273100
D C D C
Investment 1,000,000 D C
FT dep. inv. 1,000,000
Nominal 3,750
Nom. int. 3,750
Final 1,000,000 interest
Final
Repmnt. Repmnt. 1,000,000
© SAP AG 2003
Back office processing of financial transactions (money market, foreign exchange, derivatives,
securities) generate transaction processes which must be entered in Accounting. These automatic
postings and the corresponding offsetting postings to FI accounts may be carried out online. The
accounts to which the flows are to be booked are set in accounts by the account determination.
The posting of individual business transactions is controlled by the posting specifications. These
specifications contain the rules for posting and account determination for update type. You make the
corresponding settings within system configuration.
The appropriate posting specifications for each flow to be booked are determined by applying the
update type. Each update type is assigned exact posting specifications.
The document type and the posting keys for the debit and credit sides of the posting included in the
posting specifications contains control information which is passed on directly to Financial
Accounting. In addition, the posting specifications with the posting category and the account
symbols include the relevant information for determining the actual G/L and subledger accounts with
the Treasury posting interface.

Addendum: Cash Flows in Cash Management
Cash Flow in Transaction Manager

Sep 04 1000- FT dep. investment 1,000
Oct 04 1120+ Final repayment 1,000
Oct 04 1200+ Nominal interest 200
Business partner/transaction
Planning groups Payment details and house banks
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 Alternative 2
Pmnt. details Pmnt. details
unknown known
© SAP AG 2003
Even if the payment details of a business partner are unknown when you create a transaction, and are
only entered in Back Office, for example, the transaction data remains stored in Cash Management.
It is, however, prerequisite that an entry is made in the business partner master data (Cash
Management group). The transaction then appears under the grouping "Person" and not "Bank".

Addendum: Transfer to Financial Accounting –
Logical Sequence
Assigning Planning Levels
1000 IDES AG
51A Fixed-term deposit
TB Banks - Time dep.

Cash Management: Display Levels
10 Contract
Banks
Lev. Description 10/02
10/02 10/03
10/03 10/03
10/04 10/05
10/05 later
Later
TB Time deposits 150,000 xxx,xxx xxx,xxx xxx,xxx xxx,xxx

... ... ... ... ... ... ...
B5 Settlement 150,000 xxx,xxx xxx,xxx xxx,xxx xxx,xxx

... ... ... ... ... ... ...
F0 Banks 150,000 xxx,xxx xxx,xxx xxx,xxx xxx,xxx
Balance xxx,xxx xxx,xxx xxx,xxx xxx,xxx xxx,xxx
© SAP AG 2003
Each activity within a business transaction (contract, settlement, etc.) is displayed in Cash
Management. You can view and analyze the activity using a separate level.
Cash flows resulting from the transactions – whether already posted or not – can be viewed in Cash
Management as soon as the transactions are entered.
For each product type and activity category, you can maintain the planning levels of G/L and
subledger accounts, where the information is to be displayed, in Customizing.
Example:
Concluded time deposit transaction: Level TB – Time deposit
(pre-)posted time deposit transaction: Level B5 – Bank clearing account
After receipt of bank statement: Level F0 – Bank account

Addendum:
Transaction Manager and Cash Management
TM With activity on
Fixed-term deposit
fixed-term deposit level
Posting flows to Change to

TM
a clearing account clearing accounts
Clearing postings with Change to

account statement bank account level
© SAP AG 2003
Here, you can see a typical process describing the interaction between Transaction Manager and
Cash Management and also the posting in Financial Accounting.
Payments are generally triggered by the business partner (bank) and processed further with the
automatic bank statement in Cash Management.

Money Market: 5 Special Functions
Alterations of capital
Effective interest rate
Archiving
Rollover
Reversal
Accrual/Deferral
Workflow
Mirror transactions
BAPIs
© SAP AG 2003

Other Alterations of Capital
Alterations of capital
at the start of term during rollovers during the term
Advantage:
☺ More flexibility in representing transactions

(e.g. creating repayment schedules)
Button behind amount field

Automatically incorporated in cash flow
© SAP AG 2003
In addition to the main flows at the start of term or during rollovers, you can enter other capital
increases and decreases during the term. This enables you to represent repayment schedules, for
example.

Contract Rollover: Fixed-term Deposit
1100 Investment/
Transaction ... Increase
created
1110 Decrease
Roll- Principal change Term
over
Flow type Start 08/10/YYYY
Amount Rollover 10/10/YYYY
End ?
Interest structure
...
...
© SAP AG 2003
You can rollover existing transactions using the same transaction number, and, where applicable,
change some of the conditions.
You can display the transaction activity in its present status or display its history with all the related
details.
You can specify additional information for each activity using the memo function.
You can view a list showing the capital and interest flows due before or on the relevant key date for
each transaction and sorted according to amounts by choosing Extras Amount overview.

Contract Rollover: Interest Payment
Example: Fixed-Term Deposit Investment

1) Payment Interest from
original Interest from rollover
transaction
t1 t2 t3
Compound interest from
original transaction
2) Capitalization
Interest from rollover
t1 t2 t3
Interest from original transaction

3) Deferral
Interest from rollover
t1 t2 t3
© SAP AG 2003
Example for fixed-term deposits:
- deposit in t1
- rollover in t2
- repayment in t3

Reversing a Contract: Fixed-Term Deposit
Reversal
=
Resetting the last activity change made to a transaction
Process. error
Reason for Custom. error
reversal Capital transfer
Cond. adj
Other reasons
Customizing
© SAP AG 2003
A reversal involves resetting the last change made to the transaction, that is, resetting the last
transaction activity recorded by the system. If there are postings associated with the reversed
activity, these are cancelled with reverse postings (see also "Reverse Documents"). You must enter a
reason for the reversal in the corresponding field in order to execute the reversal. The reversal
function reverses the most recent activity and reactivates the previous one.

Reversing a Contract: Fixed-Term Deposit (1)
Case 1: Posting has not yet been made

Possible reasons for reversal:
business partner, currency, product type, transaction
type was incorrect
a) Status Create Contract

contract Reversal
contract reversed
b) Status Create Contract

Reversal 1 Reversal 2
contract contract settlement
settlement
Time
© SAP AG 2003
If only the conditions or any other data were incorrect, you can correct this directly without having to
reverse the activity.

Reversing a Contract: Fixed-Term Deposit (2)
Case 2: Posting already executed

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

a) Create Settle Post
Reversal 1 Reversal 2 Reversal 3
contract contract contract
Generate offsetting flow
Post offsetting flow

Changes to data
b) Create Settle Post in initial screen
Reversal 1 Reversal 2
contract contract contract Settle contract
Post contract
Generate offsetting flow
Time
© SAP AG 2003

Accrual/Deferral Processes and Methods
Accrual/deferral processes
Difference processes
Reset processes
Accrual/deferral methods
pro rata temporis
pro rata temporis with
linear discounting
© SAP AG 2003
To determine the earnings of a given period, you must expenses and revenue to the period in which
they were incurred/generated, regardless of the date on which they are paid. You use the
accrual/deferral function to calculate the expenses and revenue for a certain date/period-end closing
(for example, at the end of a fiscal year).
The Accrual/deferral method describes how the amount to be accrued/deferred is calculated.
The Accrual/deferral process, on the other hand, describes how the expense and revenue accounts
are updated:
The Difference procedure is used to transfer income and expenses arising since the last
accrual/deferral run from accrual/deferral accounts to the corresponding income statement
accounts.
The Reset or Accumulation procedure is used to adjust the income statement accounts by the
accrual/deferral date in the accrual/deferral amounts that have been determined, and then to
reset them.

Interest Accrual/Deferral
Accrual/Deferral of Expenses and Revenues
Due dt. FType D P Flow type ...
Company code 1000 Transaction 9 Product type 51A
06/05/YYYY 1200 + Nominal interest 4,546.66 UNI
06/05/YYYY 2100 + Accrued interest anticip. 139.03 UNI
© SAP AG 2003
When you execute the accrual/deferral, the accrual/deferral amounts for user-defined
transactions/positions and time periods are generated. The accrual/deferral amounts and the
corresponding accrual/deferral flows are generated for each flow. The accrual/deferral flows can be
posted immediately in Financial Accounting with an update run or they can be processed later using
the posting function.
You can also execute a test run in advance.
When you reverse accruals/deferrals with the Reset procedure, only the accruals/deferrals made on
the key date are reversed.
Since accruals/deferrals made with the difference procedure follow on from each other in the order
of accrual/deferral key dates, when you reverse accruals/deferrals with the difference procedure for
one key date, all chronologically subsequent accruals/deferral flows of the same transaction (in so far
as they exist) are also reversed.

Mirror Transactions: Current Situation and
Objective
Current situation
Management of a mirrored mapping of transactions within a group, that is,
identical cash flow with reversed signs
Objective
one-off processing of the original transaction
(no duplicate entry)
+
automatic execution of the corresponding processing step for the
mirrored transaction
© SAP AG 2003
The mirror transaction function enables you to create a mirror transaction within a system.
The create function is supported for the following products:
- Spot exchange and forward transactions
- Currency swaps
- Fixed-term deposits and deposits at notice
- Cash flow transactions
The linked transactions reference each other. A message is also displayed saying that a mirror
transaction exists. Changes and other processing steps must still be carried out manually.
Additional flows are not mirrored.
Mirror transactions cannot be created for existing transactions at a later date.

Mirror Transactions: Functions
Head office view

Fixed term deposit
Company code head office Partner A
The mirror transaction

corresponds to is created automatically corresponds to
Partner head office Company code A

Fixed-term deposit -
borrowing View of subsidiary A
© SAP AG 2003

Transaction Manager: Forex, Derivatives Overview
Diagram


Derivatives

© SAP AG 2003

Unit 4 Transaction Manager: Foreign Exchange
1 Introduction to Foreign Exchange trading
2 Trading functions
3 Accounting functions
4 Addendum: Parallel Position

Management
5 Valuation Functions
© SAP AG 2003

Transaction Manager: Foreign Exchange – Unit
Objectives

z Minimize currency risks using the example of forward
exchange transactions
z Process spot/forward transactions and currency
swaps
z Use the tools to monitor and speed up back-office
processing
z Be able to explain the valuation area.
© SAP AG 2003

Foreign Exchange 1: Introduction to Foreign Exchange
trading
Foreign exchange product types
Transaction and position management

process
© SAP AG 2003

Foreign Exchange Product Types
Product Types
Investment/Borrowing
instruments Securing instruments
Money Market Securities Forex Derivatives

Forex spot
transactions
Forex
forward
transactions
Forex swaps
© SAP AG 2003
Forex trading incorporates the following product types:

y Forex spot transactions and forward exchange transactions
y Forex swap transactions
y OTC currency options
The currency options are covered in the derivatives unit.

Transaction and Position Management Process:
Example – Foreign Exchange Transaction
Release
Create new order/contract Settlement/Control Postings

Exercise/expiration Netting Payment transactions
Rollovers Confirmation Letters Reversals
Reversals Reversals Accrual/Deferral
Transaction history Transaction history Valuations
User authorization
© SAP AG 2003
The uniform structure of the trading and transaction management processes forms the basis for
integrating and further processing transactions within the SAP System. It also provides the
framework for adapting the way transactions are represented in the system to meet company-specific
requirements.
You can grant user authorizations for the various activities in the transaction and position
management process. The authorization concept is specifically designed to allow you to assign
different authorization profiles to employees in different organizational areas. This enables you to
separate trading, back office and accounting functions.
For each product/transaction type, you determine whether a special posting release is required.
You can create user authorizations for activity combinations.

1 Introduction to Foreign Exchange trading
2 Trading Functions
3 Accounting Functions
Addendum: Parallel Position

4
Management
5 Valuation Functions
© SAP AG 2003

Foreign Exchange: 2 – Trading Functions
Spot Exchange/Forward Exchange

Transaction
Forex Swap
Rollover/Premature Back-Office
Processing
© SAP AG 2003

Addendum: Customizing Settings – Foreign Exchange
Transactions
z Product types (60a - Forex External)

z Transaction types (60a - Forex External 101 - Spot Transaction)
z Number ranges
c for transaction
d for underlying transaction
z Flow types (1000 Buy foreign exchange - Principal increase)
z Assign flow types
z Update types
z Assign foreign exchange attributes
© SAP AG 2003
The system creates two artificial business transactions in the parallel valuation areas for
initializing (OPEN) and closing (CLOSE) the position (cf. Customizing:
Assign Update Types for Position Update)

Addendum: Customizing – Foreign Exchange
Master Data 1
Product category Transaction category Activity category Processing Category
600 Forex 100 Spot transaction Contract 1 Order - Contract

100 Forward trans. 2 Contract
: Settlement 3 Contract-
: settlement
:
SYSTEM LEVEL
Product Type Transaction Type

- Forex - external - Spot transaction
: - Forward
transaction
:
USER LEVEL
© SAP AG 2003

Addendum: Customizing – Foreign Exchange
Master Data 2
Product Category Transaction Category Flow Category Calculation Category
600 Forex 100 Spot transaction 10 Principal ET - Inflow

100 Forward trans. increase
: 90 Other flow
SYSTEM LEVEL
Product Type Transaction Type Flow Type

- Forex - external - Spot transaction 1000 -Buy foreign
: - Forward transaction exchange
: 2000 -Sale forex
USER LEVEL
© SAP AG 2003
Unlike in money market, condition types are not necessary in foreign exchange trading.

Position Monitor 1
z The Position Monitor:

- Enables you to summarize information from Cash
Management and CFM in one report
- Gives you a clear view of the individual currencies
of the foreign exchange position of your company
© SAP AG 2003
You can use the Position Monitor function in foreign exchange trading to get a quick, up-to-date
overview of the current foreign currency risk from all transactions that you have created in the
Transaction Manager. You can include foreign currency bank accounts.
With the Position Monitor, you can put the cash flows from Cash Management and the financial
transactions (funds and foreign exchange transactions, securities, and derivatives) from CFM
together. This gives you a complete view of the foreign exchange position in all relevant currencies
in your company. You can select the data that should be taken from Cash Management and you also
decide the transactions that should be displayed in combination with this data.
You can divide time in the report into convenient segments. In addition, the net present value is
calculated for payment flows on the basis of the latest fair values.

Position Monitor 2: Example
© SAP AG 2003

Create Order/Contract: Forex Forward Transaction
...
y Company Purchase Sale
code 1000
IDES AG Currency USD Currency EUR
yProduct Purchase amount 1,000,000.00 Sale amount

type 60A
Forex
EXTERNAL
Rate/value date
yTransaction
type 102 Rate Inverse
Forward
Spot 2.07
transaction
Current rate !!
yPartner Swap 0.00975-
Deuba
Liquidity
...
Value date ++3
Cash settlement
Conclusion
Contract date 09/29/YYYY Traders
Contact person External Ref.
© SAP AG 2003
On the entry screen, you enter further transaction data for contract conclusion, currencies, payment
amounts, rate, value date, etc.
For transactions with two foreign currencies, you can calculate the rate using the cross-rate
calculator. You can call this up under Extras --> Cross-rates.
From here, you can branch to the entry screens of general transaction management. Tab strips help
you navigate between the screens.
Administration:
Information on portfolio assignment, account assignment references for position posting.
Other flows:
You can manually add other flows (charges, commissions, etc.) to those flows that were generated
automatically.
Payment details:
Entry of payment details that are relevant for this transaction.
If the payment details are maintained as standing instructions for a business partner, they appear as
default values.
Using Memos, you can store additional information for each activity.
Other available functions include fast processing, collective processing, rollover, premature
settlement, reversal, transaction history and deadline monitoring.

Cash Settlement: Foreign Currency
1 Physical exercise Settlement
Cash settlement
2 Cash settlement Settlement
Cash settlement
Rate Proposal from rates table
Date Pmnt Crcy Amount -
Flow is not relevant for posting
* Not yet defined
© SAP AG 2003
This function enables you to enter cash settlements for foreign currency transactions. The main flows
are then locked for posting.
For the cash settlement, the current rate is drawn from the rates table. The values can be changed
manually, however.
If you wish to use the cash settlement function, you must check the appropriate indicator when
making the Customizing settings for the product type.

Value Date Input in Forex Transaction Entry
Dom. Curr. For.

L-Währ. Curr.
F-Währ. Spot Value Dates
Spot-Valutatage
Number of working days between
EUR
EUR USD
USD conclusion of contract and spot
USD
USD CHF
CHF value date
USD
USD FRF
FRF
User Name
Benutzername MM DT WDC REC Traders Date String
GTP KEP Händler Dat.str. Date string from
spot value date
© SAP AG 2003
In the field Spot days (see Define Leading Currency), you can store the number of days between the
conclusion of the contract and the value date of the forex transaction.
As a rule, the number of working days is two. Depending on the particular currency pair, this number
can vary. You should only make an entry here if a rule other than two days commonly applies to a
particular currency pair in the international foreign exchange market.
If the flag "Date string" is checked (see Define User Data), the date strings you enter (e.g. ++1 for
one month) in the value date fields in forex and forex option entry are interpreted and calculated
from the spot day and not from the date of conclusion of the contract.
Example:
Conclusion of the contract is 03/08/YYYY.
The Date string flag is not checked.
An entry of +2 determines the date 03/10/YYYY for the currency pair EUR/USD.
If the flag is checked, the system determines the date 03/12/YYYY.

Create Order/Contract: Forex Swap Transaction
...
1st Transaction 2nd Transaction
Product type 60A Forex EXTERN 60A Forex EXTERN
Transaction type 101 Spot transaction 102 Forward transaction
Transaction
Currency pair In.
Purchase USD 1,000,000.00
Sale EUR
Rate
Spot 1.88
Swap 0.01287-
Liquidity
Value date ++4
Ext. reference
Finance project
...
© SAP AG 2003
Foreign exchange swap transactions are an important part of foreign exchange management. When a
foreign exchange swap is created, a spot transaction and a forward transaction are created
simultaneously in the SAP System. The foreign currency bought today is sold at a later date, or the
foreign currency sold today is bought back at a later date.
The entry of foreign exchange swaps enables combined entry of a foreign exchange spot transaction
and a forward exchange transaction.
The forward rate is automatically determined via a premium or discount which has been entered. The
criteria for the authorized business partners just as for the payment details correspond to those of
spot and forward transactions. To speed up entry, there are convenient copy functions available. You
can use these to copy data from the first transaction (spot and/or forward) to the corresponding field
of the second transaction (forward and/or swap).

"Internal Foreign Exchange" Function
z Process for entering foreign exchange transactions locally

from 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
© SAP AG 2003
Internal Foreign Exchange Trading is a process for entering foreign exchange transactions locally
from the view of the company code entering the transactions.
A subsidiary company can use the transaction closing function to request an exchange rate for a
foreign exchange transaction (spot exchange, forward exchange, foreign exchange swap) from the
head office. You can accept this exchange rate and close the transaction.
In transaction closing, the rate is automatically created from the view of the head office in the
company code of the head office. You can also create this transaction in the company code of the
subsidiary as a mirror transaction.
In addition to entering internal foreign exchange transactions, you can also use the report Exchange
Rate Overview for Internal Foreign Exchange Transactions. This gives you an overview of the
current exchange rates for each currency. You can also use this report to check the Customizing and
the market data for completeness.

Rollover/Premature Back-Office Processing
Rollover/premature back-
back-office processing
Forward exchange transaction
Finance Finance
System generates 2 new transactions
project project
New forward transaction Netting transaction
Swap unit
Adjusting the term Offsetting
© SAP AG 2003
With the functions, Premature back office processing and/or Rollover, the system generates two
individual transactions that are linked by a swap unit. One transaction serves to offset the original
forward exchange transaction (with identical, reversed conditions so as to avoid exchange rate
gains/losses), the other transaction (as a new transaction) enables the desired adjustment of the term
while retaining the same amounts. The relationship of the swap to the original forward transaction is
documented through the assignment of the individual transactions to a common finance project with
an identical project number. This project number is stored in the administrative data. Whenever a
part of the swap is to be changed, the system displays a warning message to refer to the relationship
with the second swap component.
With this change in transaction data, you can use premature back-office processing and/or a rollover
to split a forward exchange transaction into separate transactions. Via the liquidity effect, financial
income and expenditure from rollovers can be generated on the old rate basis and included in the
extended transaction as a premium. In this case also, the pairing of the swap components is done by
means of the finance project.
If the flag "New base" is checked for the forex attributes, you can enter a current rate for those
transactions that are using the function. If the field has the initial value, then the rate of the rolled
over/prematurely processed original transaction is used as the forward rate for the netting
transaction. You cannot change the rate for this rolled over/prematurely processed transaction that is
based on the old rate.

Addendum: Foreign Exchange in Cash
Management
Assigning Planning Levels Cash Management: Display Levels
1000 IDES AG Banks

Lev. Description 10/02 10/03 10/04 10/05 Later
60A Forex EXTERN
TB Time deposits xxx,xxx xxx,xxx xxx,xxx xxx,xxx xxx,xxx
... ... ... ... ... ... ...
DB Forex banks
20 Contract
OB Currency options xxx,xxx xxx,xxx xxx,xxx xxx,xxx xxx,xxx

... ... ... ... ... ... ...
DB Forex 123,456 xxx,xxx xxx,xxx xxx,xxx xxx,xxx
Balance xxx,xxx xxx,xxx xxx,xxx xxx,xxx xxx,xxx
e.g. forex
transaction
Display accounts
DBGiro - 1.48M UNI
Outflow in local currency
DBUS$ +1.00M USD

Inflow in foreign currency
© SAP AG 2003
Each activity within a transaction (order, contract, settlement, etc.) is displayed in Cash
Management. You can then view and analyze each activity using a separate level.
For each product type and activity category, you can maintain the planning levels of G/L and
subledger accounts, where the information is to be displayed, in Customizing.
When displaying forex transactions, for example, forward exchange transactions, you should note
that an inflow takes place on one currency side and an outflow on the other currency side. If you
perform the evaluation for each level, for example, at forward exchange transaction level, only the
difference between the two currency amounts may be shown. Only when you call up the accounts,
can you display the incoming and outgoing cash flows of the single currency accounts.

1 Introduction to foreign exchange trading
2 Trading functions
Addendum: Parallel position

4
management
5 Valuation functions
© SAP AG 2003

Accounting Functions: Transfer Data to Financial
Accounting by Posting Report
Application
Forex
Money market
POSTING LOG
Derivatives
Securities
General selections
Company code
Transaction
Product type
Transaction type
Portfolio ...
Currency
Flow classification
Up to and incl. due date
Only post flow acc. to currency
Posting control
Posting date
Document date
Test run
Only post operatively
Post all valuation areas
© SAP AG 2003
on the internal level (system level).
Prior to posting, the transaction flows and/or positions to be posted are selected. You can have the
system carry out a test run in order to check the accuracy of the posting entries in the posting log.
When you execute the posting, flows and related documents are transferred to Financial Accounting.
When you post a transaction, the system generates a posting log. By double-clicking on a posting
line, you can access the corresponding posting document.
If you do not wish to post certain financial transaction flows yet, you can block the posting of these
flows.

2 Trading functions

4
management
© SAP AG 2003

Reasons for Using Parallel Books...
z Legal requirements
z Comparability
Standard accounting principles enable benchmark comparisons between companies
Within corporate groups

Comparison of several subsidiaries from
various countries
Group-external
Comparison of different companies (in the same industry)
z Consolidation
z Globalization
© SAP AG 2003

Valuation Areas
Transaction Position Management

Management German HGB
Valuation
Distributor
Position Management
US GAAP
.
.
Loans Management
Rate gains
Position Management
IAS
Securities Account
Management
Valuation areas
© SAP AG 2003
The architecture of Parallel Position Management was created to manage positions simultaneously
(in parallel) on the basis of several generally accepted accounting principles.
This allows you to create various valuation areas.
Valuation and posting rules that are required to comply with the legal requirements of the relevant
accounting rule can be defined in these valuation areas.
Transactions that are entered in Transaction Management of the various Treasury modules are then
distributed to the various parallel valuation areas with a distributor from parallel position
management.

Transaction Entry
Administration
EXAMPLES:
General valuation class IFRS/US GAAP: Held for Trading / German HGB: CA
IFRS/US GAAP: Held for Trading / German HGB: UV
IFRS/US GAAP: Held for Trading / German HGB: AV
IFRS/US GAAP: Available for Sale / German HGB:
UV IFRS/US GAAP: Available for Sale / German
HGB: AV IFRS/US GAAP: Held to Maturity / German
HGB: CA
IFRS/US GAAP: Held to Maturity / German HGB: AV
IFRS/US GAAP: Loans and Receivables / German
HGB: CA
HGB: AV
IFRS/US GAAP: Other Liabilities
© SAP AG 2003
When entering a transaction, you can use the general valuation class to determine the investment
horizon as short-term, medium-term, or long-term. Then, if you make the appropriate entry in
Customizing, the general valuation class is assigned for each valuation area to the valuation class
(fixed assets, current assets, trading, available for sale, held to maturity).
You enter the general valuation class when you enter a contract. It is an important link in the
procedure chain for assigning transactions to the correct positions.

Parallel Valuation: Organization
!
FI
Treasury & Risk

TR accounting code
Company code
Valuation area Valuation class
© SAP AG 2003
As general settings, you define the organizational units required for position management. These
units include the valuation areas, company codes and accounting codes.
One of these CFM-relevant entities relating to parallel position management is the Treasury
Accounting Code (TAC). Each TR accounting code currently corresponds to exactly one company
code (1:1 assignment). In the future, you will be able to use the TAC to separate the TR ledger from
the FI general ledger.
You define various valuation areas in order to manage parallel valuation according to US GAAP
or/and IAS, for example. For each valuation view (accounting rule) supported by the system, you
have to set up a parallel valuation area in addition to the operative valuation area in Customizing.
You define the valuation classes for the parallel valuation areas in three steps: First you define the
general valuation classes. These are independent of the valuation areas. Then you define the
valuation classes for each valuation area. You then assign the general valuation class to the
respective valuation class for each valuation area. The advantage of this procedure is that you can
use a common, general term (such as "trading") in the interface for entering the operative transaction.
In the background, this term is then mapped to the specific valuation classes used for accounting
purposes.

Valuation Areas and Accounting Codes
Define valuation areas

001 Operative valuation area
002 IAS
!
es
pl
003 US GAAP
am
Ex
Define accounting codes
TRxx TRxx
© SAP AG 2003
For each valuation view (accounting rule) supported by the system, you have to set up a parallel
valuation area in addition to the operative valuation area in Customizing.
Note: The parallel valuation area 001 has a special role.

Assigning Accounting Codes and Valuation Areas
001 Operative
CFxx valuation area

002 IAS
003 US GAAP
TR accounting code Valuation areas
Post to
z General Ledger
z Special Ledger
© SAP AG 2003
The respective valuation areas are assigned to the TR accounting codes. In this way, the valuation
areas are defined implicitly for each company code.
There are two alternatives for the update to FI:
y Posting to the general ledger
The business transactions are posted in separate account intervals for each valuation area. For
this, you have to define a separate account interval in FI for each valuation area. Here the business
transactions are updated for each valuation area.
y Posting to a special ledger
You need not set up parallel accounts in the general ledger if you set up a separate special ledger
per valuation area, in which all business transactions for this valuation area are posted.
In the parallel valuation areas, you can explicitly exclude product categories from the update in
position management.

Parallel Valuation: Valuation Classes
Tasks:
• General valuation class:
IFRS/US GAAP: Held for Trading / German HGB: CA
IFRS/US GAAP: Held for Trading / German HGB: UV
IFRS/US GAAP: Held for Trading / German HGB: AV
Valuation Class IFRS/US GAAP: Available for Sale / German HGB: UV
IFRS/US GAAP: Available for Sale / German HGB: AV
IFRS/US GAAP: Held to Maturity / German HGB: CA
IFRS/US GAAP: Held to Maturity / German HGB: AV
HGB: CA
HGB: AV
IFRS/US GAAP: Other Liabilities
• Valuation Class:
Define and assign valuation classes:

Balance sheet
General
Valuation class Valuation area
valuation class
© SAP AG 2003
Valuation classes in the parallel valuation areas differ from those in the operative area as far as their
purpose is concerned. In contrast to the operative valuation classes, the definition of the classes for
the parallel valuation areas is not accompanied by the assignment of valuation rules and so on.
The valuation class has two characteristics:
y The general valuation class serves as an indicator for the trader as to where the position is to be
assigned.
y The balance sheet for the relevant parallel valuation area is structured based on the valuation class.
The valuation classes are dependent on the valuation area since different accounting rules allow
different classifications. Examples of valuation classes include fixed assets, current assets (HGB-
German commercial code), or also held-for-trading or available-for-sale (IAS).

Overview: Position Management Procedure
z Define valuation procedure

(such as rate valuation procedure for forward
exchange transactions)
z Define position management procedure
z Assign position management procedure
© SAP AG 2003
The position management procedure determines how positions are managed and valued in the
parallel valuation areas.
In order to comply with the legal requirements of the relevant accounting rules, you have to first
define the necessary procedures to be carried out as part of a key date valuation.
You then set the sequence of the key date valuation procedures within the position management
procedures. In this way, you can combine the relevant procedures for amortizations, one-step price
valuations, security price valuations and foreign currency valuations according to the respective
accounting rules.
You can assign position management procedures dependent on different factors (for example,
valuation area, valuation class, product type).

Define Valuation Procedure
Example: rate valuation procedure for

forward exchange transaction
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 value
or - No write-down
Write-up rule: (Unrealized gains):

- No write-up
or - Write-up to market value
or - Write-up to purchase value
© SAP AG 2003
Write-down rule
The write-down rule decides how a negative difference between market and book value for a
valuation step: is dealt with in a key date valuation.
No write-down: No flows are generated
Write-down to market value: A write down is generated for the difference between the book and
market value.
Write-down to purchase value: If the market value lies below the purchase value plus the previous
amortization, then a write down is only generated for the difference between both amounts.
Write-up rule
The write-up rule decides how a positive difference between market and book value for a valuation
step: is dealt with in a key date valuation.
No write-up: No flows are generated
Write-up to market value: A write up is generated for the difference between the market and book
value.
Write-up to purchase value: If the market value lies above the purchase value plus the previous
amortization, then a write up is only generated for the difference between both amounts.

Define Position Management Procedure
Position management procedure 4000

Name Forward exchange transactions: Spot/spot
Position management category Foreign exchange transactions
Step 1
Step category 6 Rate valuation for FX transaction
procedure 1000 Rate valuation spot/spot
( Carry out for key date valuation
Step 2
Step category 7 Swap/margin accrual
procedure
(
Step 3
Step category 8 Swap valuation
procedure
© SAP AG 2003
The sequence of the steps in a valuation is established in the definition of the position management
procedure.
In the position management procedures, you define which valuation steps are performed in which
order. For this, the previously defined valuation procedures are grouped into one position
management procedure.

Position Management: Assignment Procedure
Assignment criteria: 4000

Position Management Procedure
Valuation area Accounting code

Step 1
Product category Product type
Valuation class Transaction type Step 2
...
Assign position management procedure:
Balance sheet
Valuation TR 60A... Valuation

accounting 4000
area class
code
© SAP AG 2003
When assigning the position management procedure, you can use the criteria valuation area,
accounting code, product category, product type, valuation class and transaction type, for example.
For all newly created positions, the position management procedure is initially derived from the data
stored here. You can change this default value manually using the transaction Maintain Position
Management procedures (TPM50).
To ensure that a position management procedure is found in all cases, you can define a default
procedure (where all influencing factors have their initial value).

Update to TR Ledger
Update types
Derived business transactions
Account determination
© SAP AG 2003

Update Types: Terminology
z The identification of the new update types has been taken from the old
flow types:
Example: Update type FX1000+
FX = Foreign Exchange
1000 = Flow type Forex purchase
+ = + sign
DE = Derivatives
FX = Foreign Exchange
CML = Loans Update types are
MM = Money Market managed across
modules in a table.
SE = Securities
V = Valuation
VR = Valuation reset
DBT = Treasury ledger transactions (PG, PL, translations and
reconciliation flows, valuation, etc.)
© SAP AG 2003
You create the update types in the IMG activity Define Update Types, specifying a short and long
name for each one.
The Customizing settings delivered with the system include update types, assignment of update
types to usages, and specifications for the various uses. SAP recommends that you use the
Customizing settings delivered with the system as the basis for making your own settings.
Update types are similar to flow types. They describe and classify flows.
Update types are used comprehensively in the parallel valuation areas.
The new term has been created because the existing flow type is not used and interpreted uniformly.
Objective: Uniform view of the flows
The update types are no longer dependent on the modules and have an implicit direction. This
means, for example, that incoming and outgoing charges must be represented as two different
update types.
The new update types consist of the definition itself and a language-dependent text. No further
indicators are defined directly with the update types.

Key Date Valuation: Update Types
Define update types
Assign update types to usages
Assign update types for valuations
Position Management Procedure
© SAP AG 2003
For the individual usages, you must first define the required update types and then assign them. You
assign update types for derived business transactions and valuations for each position management
procedure. In account determination, the posting systematic is defined using the assignment of the
posting logic to the update type. Using different update types therefore enables you to differentiate
between the position management procedures.

Derived Business Transactions
Define update types
Assign update types to usages
Assign update types for derived business

transactions
© SAP AG 2003
When the transactions from the operative valuation area are updated to the parallel valuation areas,
they are adjusted to remove the effects of the operative valuation criteria.
Based on the assigned position management procedure, derived business transactions are then
calculated for each parallel valuation area. The derived flows include rate gains and rate loss
flows.The determination can be done online or offline.
y Online processing:
For each position-changing business transaction, the derived business transactions are updated
immediately.
y Offline processing:
The derived business transactions must be generated manually using a report (Transaction
TPM27).
If the status control is set to Status Plan, the derived business transactions are held as plan records;
these become actual records when they are “fixed”.

Account Determination - Account Assignment
Reference
Define account assignment references
Define account assignment reference determination
Define account determination
© SAP AG 2003
The account assignment reference controls which G/L account in FI the positions are to be posted to.
Within the parallel valuation areas, the account assignment references no longer contain the
(original) information as to which account is to be posted to; however, the account assignment
reference can be used as a factor (besides position currency and valuation area) to determine the
relevant account.
The account assignment references for the parallel valuation areas can be determined automatically.
Here we distinguish between:
- OTC financial transactions (Money market/Foreign exchange/Derivatives) -
Securities / Listed derivatives -
Loans
The account assignment references for the parallel valuation areas can be determined
automatically. You can use derivation rules and/or assignments.

Account Assignment Reference
Acct. assig. ref. Name of account assignment reference

... ...
IAS_AFS_AKT IAS - Available for Sale - Stocks
IAS_AFS_AKT IAS - Available for Sale - Bonds
IAS_HTM_AKT IAS - Held to Maturity - Stocks
IAS_HTM_AKT IAS - Held to Maturity - Bonds
IAS_TRA_AKT IAS - Trading - Stocks
IAS_TRA_AKT IAS - Trading - Bonds
... ...
Assignment:
Assignment:
Derivation Manual
rule(s)
© SAP AG 2003
Within the parallel valuation areas, you initially define account assignment references without
specifying a balance sheet account. In the context of account determination, you can assign the
balance sheet accounts using a similar systematic to the one used for account assignment references.
The account assignment references for the parallel valuation areas can be determined automatically.
You can use derivation rules and/or assignments.
When you are using DERIVATION RULES, characteristics serve to control the account
assignment references in the form of "If-then relationships".
y Example:
You should determine the account assignment reference in accordance with the characteristics
valuation area, valuation class and product category. If necessary, you can further restrict these
assignments using conditions (for example, if you use the characteristic company code in a
condition, you can restrict the validity area of an assignment to a specific company code).
ALLOCATIONS are used for relatively fixed assignment scenarios.
y You can define a value in the source field, which is then used during the account assignment
reference.
y You define the account assignment reference as the target field.
y You use a constant to explicitly assign the account assignment reference that is used for the target
field AA_REF (account assignment reference in the parallel valuation area).

Account determination
Definition of account symbols

Acct symb. Account symbol text Posting category from acct symbol
1 Position (book value) Position posting (book value)
Definition of posting specifications

0001 Position to bank clearing
Debit entry
Account symbol 1
Credit entry
Account symbol 3
Assigning 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 to account symbols
Account symbol AcAsRef VA G/L acct
1 Position 10001 113113
© SAP AG 2003
First the account symbols are defined in abstract form. These are valid for all valuation areas.
Since the account assignment references in the parallel valuation areas no longer contain the
(original) information as to which account is to be posted to, you must also define an account symbol
for the position.
All the required posting specifications are first defined abstractly and then assigned to the update
types. This simplifies the process as it reduces the number of Customizing entries.
Next, the update types are assigned to posting specifications.
This assignment is valid for all valuation areas. If you wish to post business transactions in the
individual valuation areas in a different way to these assignments, you can make different
assignments of update types to posting specifications for the individual valuation areas.
A differentiated assignment of update types for individual valuation areas is also possible.
Finally, you assign the G/L accounts to the defined account symbols. Here, the criteria valuation
area, account assignment reference and/or currency can be used for controlling the G/L account
postings.

2 Trading functions

4 management
© SAP AG 2003

Position Management: Valuations
You can carry out the following foreign currency valuations:
z Key date valuation: The position is valued on a key date –

the realtime datafeed can provide the required valuation rates.
Key date valuation is carried out with transaction TPM1.
z Realized gain/loss: In case where positions are closed, the
realized gains or losses are determined according to the Single
valuation of transactions principle. This is calculated by taking
the difference between the forward rate based on the conclusion
of the contract and the posted rate on the value date.
Realized gains/losses are posted with the derived business
transactions (TPM18).
© SAP AG 2003

Market Risk Analyzer: Saving OTC Net Present
Values
Mark-to-Market Saving Valuation
EUR USD GBP
10
Net present
8
values
6
4
Money
2 Market Financial
1 2 4 6 8 10 Foreign Accounting
M Y Y Y Y Y Exchange
Derivatives
© SAP AG 2003
In the Market Risk Analyzer area, you can store net present value (NPV) figures (determined with
the Mark-to-Market valuation) in the OTC NPV table.
You must calculate and save a net present value for the relevant key date before the valuation run for
all positions for which you wish to carry out a Mark-to-Market valuation.
The key date valuation then access this net present value.
Transaction TPM60 carries out the calculation and saving.

Key Date Valuation
General selections
Company code TRxx to
Valuation area 001 to 002 Posting control for
Product type updating to the parallel
to valuation areas
Valuation class to
Portfolio to
OTC transactions
Transaction to
Various valuation
categories enable
Valuation parameters
end-of-quarter closings
Key date for valuation 09/30/YYYY and year-end closings
to be created
Valuation category
© SAP AG 2003
The key date valuation is carried out on the basis of the position management procedure that is
determined for the relevant position. With the parallel valuation areas, you have three options for key
date valuation:
y Year-end valuation (without reset)
This key date valuation without reset is typically used in the context of annual accounting. Key
date valuation permanently changes the book value of the position. The book value after the key
date valuation is the starting point for all subsequent calculations of rate gains, for example, as
well as for future valuations.
y Mid-year valuation without reset
y Mid-year valuation with reset
You can use this valuation category for monthly or quarterly accounts. The results of the valuation
are reset on the same date as the key date valuation. The key date valuation with reset, therefore,
does not change the position permanently, but only for the period between the valuation key date
and the reset key date.
In the case of a valuation with reset, the reset occurs and is posted in the same run as the valuation.
The reset key date is one day after the valuation key date.

Closing Operations: Key Date Valuation
© SAP AG 2003
The key date valuation can be done with or without reset. The valuation is controlled by the
"Valuation category".
The following valuation categories are available:
y Year-end valuation
y Manual valuation with reset
y Manual valuation without reset

Closing Operations: Valuation Log
© SAP AG 2003
y For key date valuation, all relevant valuation steps defined in the position management procedure
are performed – for example, amortization, security and forex valuation.

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
Write-down rule: (Unrealized losses):

- Write-down to market value
or - Write-down to purchase value
or - No write-down
Write-up rule: (Unrealized gains):

- No write-up
or - Write-up to market value
or - Write-up to purchase value
© SAP AG 2003
Write-down rule
The write-down rule decides how a negative difference between market and book value for a
valuation step: is dealt with in a key date valuation.
No write-down: No flows are generated
Write-down to market value: A write down is generated for the difference between the book and
market value.
Write-down to purchase value: If the market value lies below the purchase value plus the previous
amortization, then a write down is only generated for the difference between both amounts.
Write-up rule
The write-up rule decides how a positive difference between market and book value for a valuation
step: is dealt with in a key date valuation.
No write-up: No flows are generated
Write-up to market value: A write up is generated for the difference between the market and book
value.
Write-up to purchase value: If the market value lies above the purchase value plus the previous
amortization, then a write up is only generated for the difference between both amounts.

Position Management Procedure:
Valuation Rules II
Define position management procedure
In the position management procedures, you define the basic

rules for how positions are managed, that is, how positions are
to be valued.
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 valuation for forward exchange transaction
© SAP AG 2003

Position Management Procedure: Valuation Rules III
Position management procedures are assigned to certain

influencing factors:
- Accounting code
- Valuation area
- Valuation class
- Product category Position management procedure, for example:
- Product type FX spot rate on the market against spot rate in the
- Transaction type transaction
- Portfolio
- Sec. account group
© SAP AG 2003

Payment Transaction Processing
... via clearing accounts
FT dep. bal. sheet acct House bank account

(Deuba) (Deuba)
c 100M 100M d IDES

FT dep. inv.
House bank
Bank clearing acct DEUBA
d 100M 100M c
c FT dep. inv.
d Statement from bank
© SAP AG 2003
In the case of financial transactions that are concluded with business partners that are also the house
bank of the company, active payments are not usually made.
Rather the corresponding postings on the business partner side (= the house bank) are posted to the
bank account. The flows "preposted" by Transaction Manager to the bank clearing accounts are then
cleared with the aid of the electronic account statement.

Payment Transaction Processing Using the
Payment Program
...using a clearing account for payment requests

FT dep. inv.
Fixed-term deposit –
Balance sheet account House bank – IDES Broker
(broker) Current account (Deuba)
Payment
Order
c 100M 150M f
d 50M House bank
DEUBA Payment
Clearing account for

payment requests Bank clearing account
e 150M 100M c f 150M 150M e

50M d
c First fixed-term deposit – investment e Payment

(Trigger PR run)
d Second fixed-term deposit – investment f Bank statement
© SAP AG 2003
If you conclude transactions with a partner for whom you do not have a house bank account, you can
generate payment requests which are processed by a special payment program. This option applies to
cases where the payment details are known, but where you do not want each transaction to result in a
physical payment. This function also enables you to make joint payments for groups of transactions.
Examples of use of the extended payment program:
y Several transactions are concluded with a business partner that is not a house bank
y When a fixed-term deposit is posted, a payment request is generated simultaneously
y All transactions are managed in the payment request clearing account
y Payments can be grouped together/netted
y When payment is due, a payment run is triggered in Accounting and the payment amount is
transferred to the bank clearing account
y A payment medium is generated simultaneously and is passed on to the house bank
y When the bank statement is received a day later, the payment amount is posted to the bank
account.

Payment Transaction Processing: Overview
FI pmnt program Pmnt program for PR
Four Alternatives:
1) G/L account posting - -
2) Posting to G/L accounts with payment request - x
3) Posting to customer accounts x -
4) Posting to customer accounts with payment

requests - x
© SAP AG 2003
Use of the four alternatives - Examples:
1) Transactions with the house bank are usually processed as pure G/L account postings.
2) Transactions with a partner that is not a house bank, without using a customer account.
Payment using the payment program for payment requests.
Payment requests are documents used to generate payment media. They are usually generated
automatically when you post flows that are due. The payments are then made individually or
jointly using the payment program for payment requests (F111).
3) Transactions with a partner that is not a house bank, using a customer account. Payment
using the FI payment program.
4) Transactions with a partner that is not a house bank, using a customer account. Payments
made with the payment program for payment requests in order to use the netting option.

1) Posting to G/L Accounts
Bank Business House bank

Partner
Standing
Instructions
Transaction – Payment Details

D Currency ... House Account Payment Payment
Bank ID Process Request
+ EUR ... DB GIRUN
- EUR ... DB GIRUN
© SAP AG 2003
In the transaction, you enter the information required for processing payments on the Payment details
tab.
In the case of a pure G/L account posting, you must enter the following:
- R: Direction of the flow (inflow, outflow)

- Curr.: Currency of the flow
- House bank: House bank key (ID)
- Account ID: Account key at the house bank

2) + 4) Automatic Payment: Payment Program for PR
Bank Business House Bank

Partner
Standing
Instructions
Business partner – Payment details

D Currency ... House Account Payer/ee Partn. bank ... Pmnt. Indiv. Pmnt.
Bank ID request pmnt Methods
+ EUR ... DB GIRUN Recipient B1 ... X ESU
- EUR ... DB GIRUN Recipient B1 ... X X ESU
© SAP AG 2003
To use the payment program for payment requests, you must enter the following data:
- D: Direction of the flow (inflow, outflow)
- Curr.: Currency of the flow
- House bank: House bank key (ID)
- Account ID: Account key at the house bank
- Payment transaction: Blank = G/L account posting, or X = customer account posting
- Payer/payee: Person receiving the payment (usually the business partner)
- Partner bank: Partner bank ID (encodes the bank details – bank and account –
of the payee)
- Payment request: Blank = Do not generate a payment request
X = Generate a payment request
- Individual payment: Blank = This payment flow may be settled together with other
flows, for example for netting purposes
- Payment methods: List of payment methods used to process payments in the
payment run
If you post payments using the payment program for payment requests, you can define in
Customizing which bank account should be used - the bank account specified in the payment details
for the CFM transaction, or the bank account found using account determination for the payment
program.

2) + 4) Automatic Payment: Payment Program for PR
Payment Current
control parameters Payment
Master Request
Proposal run
Docu-
ments
Proposal data set
Edit
proposal
Payment run
Print data set
Print program
Check
Payment Payment IDoc
Bank transfer
advice summary
Eur oc hec k
© SAP AG 2003
The payment program for payment requests has the following functions:
- Payment requests processing: Automatic selection of requests
- Generation of payment documents (customer accounts / vendor accounts / G/L accounts):
Transfer posting to the corresponding bank (sub-)accounts for each house bank and currency
- Generation of payment data
- Generation of payment lists and logs
- Generation of payment media (such as checks) for this payment data by print programs
You usually carry out a payment proposal run first. The run creates a proposal data set, which you
can edit before the actual run.

Payment Program for Payment Requests
Prerequisites
- The payment program for payment requests also uses parts of
Customizing for the Standard Payment Program.
- You must make additional settings 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
© SAP AG 2003

Netting
z Especially in the case of transactions with business

partners that are not house banks (that is, they require an
exchange of payments), situations can arise where several
transactions are to be settled at once.
Example: Fixed-term deposit investment in EUR and fixed-term deposit
borrowing in EUR
You balance the open payment amounts and only pay or receive the net
amounts.
Advantage: 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
© SAP AG 2003
All netting transactions are explicit arrangements between the business partners in order to simplify
the handling of payments.
Transactions are blocked against changes to any relevant fields
(particularly due dates, amounts, house bank and payment data)
You can net transactions in the money market, foreign exchange, derivatives and securities areas, or
across several of these areas.
As a result of the integration of securities into Treasury Transaction Management, you can now
create netting transactions with securities. These transactions can be netted with each other or in
combination with other Treasury transactions from the money market, forex or derivatives areas.
Payment requests have a special "Grouping term" field. You can use this field to control which
payment requests are to be kept separate.
All payment flows and/or their payment requests belonging to the same netting transaction are
assigned the same unique grouping term and are, therefore, separated from other payment requests.
These are not to be combined with other payment requests.
Transactions linked by netting are referenced to each other by way of object links (reference key:
KMP).

Business Partner: Payment Details
Business Partner
Standing Instructions
Currency ...... Payment Individual Same Payment Determ. Determine

request payment direction methods group. grouping (text)
EUR ...... X X X EU All transactions can

be grouped
USD ...... X EU All transactions can
be grouped
© SAP AG 2003
Using the "Payment request" flag, you control whether transactions can be settled together.
The "Determine grouping" field controls which restrictions are to apply to the grouping of
transactions – for example:
- ..within Treasury
- ..within a TR application
- ..within a product type
- ..only flows of a financial transaction

Netting: Process
z When netting is used

All netting transactions are explicit arrangements
between the business partners in order to simplify
the handling of payments.
The transaction confirmation (correspondence) contains Confirm ation
a 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.
© SAP AG 2003
Payment requests have a special "Grouping term" field. You can use this field to control which
payment requests are to be kept separate.
All the payment flows and payment requests linked to the same netting unit are given the same
unique grouping term which separates them from other payment requests. These are not to be
combined with other payment requests.

Netting and Payment Requests
Contract Settlement Netting Posting
Management data Management data Create Netting Transaction: Data CFM: Post Flows
CoCd 0001 SAP AG Transaction 4711 CoCd 0001 SAP AG Transaction 4711 Type KMP Netting
PType 51a Activ ity 1 Test client CFM: Postings
Basic data PType 51a
Basic data Activ ity 1 No. 001 Value date
01.01.97
TType 100 Act.cat. Contract Walldorf Log
TType 100 Act.cat. Settlmt Partn DB Deutsche Bank
CoCd 0001 SAP AG Transaction 4711 CoCd 0001 SAP AG Transaction 4711
PType 51a Activ ity 1 PType 51a Activ ity 1
TType 100 Act.cat. Contract TType 100 Act.cat. Settlmt
Accounts
Transactions Netting Pmnt
CFM FI request
CFM
FI
© SAP AG 2003
Netting is a special form of joint payment of transactions. While you can always settle all
transactions at once, netting only applies to an explicit subset of these transactions.
The decision to create a netting transaction is usually made shortly before the payment flows are due,
usually on the same day the transactions are posted. Only then do you know which transactions (e.g.
forward exchange and spot exchange transactions) are suitable for net payment.
You can group flows in netting transactions if they share the following parameters:
y Same company code
y Same business partner
y Same payment date
y Same payment methods
y Same settings for other payment program criteria

Unit 4 Transaction Manager: Derivatives
1 Introduction to derivative financial

instruments
Control of exchange rate risks via OTC

2 currency options
- OTC currency options
- Currency barrier options
- Compound options
3 Control of interest rate risks via

derivatives
-FRA, Interest rate swap, Cap/Floor
4 Information system
© SAP AG 2003

Derivatives: Unit Objectives
By the end of this unit, you will:
z Know various instruments for hedging against interest

rate and exchange rate risks
z Be able to map these instruments in Transaction
Manager
© SAP AG 2003

Selection of Relevant Product Types
Product Types
Investment/Borrowing Hedging
instruments instruments
Money market Securities Foreign Exchange Derivatives

Cap/Floor
FRA
Swaps
- Interest rate
- (Int. rate) Currency
OTC options
- Currencies
Further extract of OTC options:
- Interest rates
- Securities
Such as for FX standard options: - Swaption
-Barrier Futures
-Double-barrier - Interest, Bond, Index
-Compound Repo
-Average rate
-Basket
-Correlation
-Forward volatility agreement
© SAP AG 2003

Product Matrix – Derivative Financial Instruments
Important Hedging Instruments
Exchange rate risk Interest rate risk
• Forward exchange • FRA

transactions • Forward rate agreements
• Interest futures
• Cross-currency swaps • Interest rate swap
• OTC interest rate options

• OTC currency options • Cap/Floor
• Swaption
• IRG
© SAP AG 2003
The hedging instruments you choose will determine what you want to hedge against (elimination of
the currency risk, interest rate risk, or price risk).
Derivative financial instruments can roughly be divided into exchange transactions (upper half) and
optional transactions (lower half) on the currency and interest side. The latter can also be further sub-
divided into listed and OTC (Over The Counter) options.
The building block concept applies here – this means that an instrument can be formed from another
one or combined with others to form a new instrument.

1 Introduction to derivative financial instruments

2 currency options
- Compound options

derivatives
© SAP AG 2003

Derivatives: 2 – Control of Exchange Rate Risks via
OTC Currency Options
Typical Transaction and Position Management Processes:
Transaction entry and back-office processing
Currency Barrier Options
Compound Options
© SAP AG 2003
Using an option provides the flexibility to both reduce the risk of loss and at the same time to profit
from favorable market trends. Options represent a type of insurance, therefore, and a premium is
paid or collected for this.
The use of currency options is recommended when there are strong exchange rate fluctuations or
when future expectations are very uncertain.
OTC currency options can be assigned to both foreign exchange trading and to the area of
derivative financial instruments, and can be created in both areas. The input logic for derivatives
follows that of other option types so that you can branch from the option data to the separate input
screen of the underlying transaction (in the case of currency options, the spot transaction).
OTC currency options are asymmetric hedging instruments since rights and obligations are split
unevenly between purchaser and seller. In contrast to listed instruments, the OTC options with user-
defined structures are traded directly between business partners.

t0 t0+2 ti ti+2
n At t 0 the transaction is concluded

(creation and settlement)
o At t 0+2 (Value date) the premium is paid

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

(transfer posting of the premium flow)
- The spot transaction (underlying transaction) is generated at the
same time.
This must be settled according to the back-office processing
category.
q At t i+2 (Value date) the posting of the spot transaction occurs.
© SAP AG 2003

Creating an OTC Currency Option
Cross-rate calculator Option price calculator

Company code 1000 IDES AG Financial transaction
Product type 76A OTC currency options Activity 1 Contract
Transaction type 100 Purchase
...
Option
Exercise period ++2 Exercise European Settlmnt. Physical exercise
Currency pair USD EUR
Underlying curr. USD 5,000,000.00 Call Put
Strike 1.82 Inverse
Value date
Premium
Point quot. Perc.quot.
Points
Payment date Curr. EUR Amnt 300,000.00
Contract date
Contract date 09/29/YYYY ...
...
© SAP AG 2003
When you create a currency option, you record the intention to buy or sell a currency option. On the
initial screen, you enter the transaction type (purchase/sale) and the business partner for the product
type, currency option.
On the subsequent screen, you enter the term, the exercise and purchase premium for the option, in
addition to the transaction data for the underlying spot exchange transaction.
From here, you can branch to the entry screens of general transaction management. Tab strips help
you navigate between the screens (Structure, Administration, Other flows, Payment details, Cash
flow, Memos, Status).
You can branch to the option price calculator to calculate the option premium.

Underlying
OTC Currency Option
Underlying
Product type 60a Forex - external Strike 1.82
Trans. type 101 Spot transaction Pmnt. amount 3,640,000 EUR
Transaction 1800002 USD-CALL USD 2,000,000
© SAP AG 2003
When you define the product types in CFM, you can include the related underlying transactions. In
this way, a spot exchange transaction is entered as an underlying transaction in currency options, for
example. In the case of physical exercise, the underlying transactions are normally generated
automatically. This separation into two transactions allows you to specify different payment methods
for the underlying transaction and the option.
Option type: PUT/CALL
The internal view is focused not on the traded amount but rather on the risk currency. If you
conclude an option – foreign currency against local currency, the put/call type is always determined
dependent on the foreign currency. In the case of cross transactions (up to Release 4.5A), the type is
determined dependent on the lead currency only. From Release 4.5B the following change is
effective regarding cross transactions: if the local currency is a participating currency in the
European Monetary Union, then the option type for cross transactions including a participating
currency is not dependent on the lead currency but rather on the non-participating currency.

Currency Option: Option Price Calculator
Premium Calculation for Standard Options

Market data Swap/forward Premiums Sensitivities Implied List
Curr. pair ... volatility
Market data
Spot 1.70900 / 1.71100 Int. 1st currency 6.4152 / 6.4574
Swap 0.11212- / 0.10644- Int. 2nd currency 3.8005 / 3.8997
Forward 1.59688 / 1.60456 Volatility 10.0000 / 10.0000
Premiums
Basis European American
Put 1 / /
Put 2 1.700000 0.06347 / 0.06527 0.06366 / 0.06545
Put 3 / /
Call 1 / /
Call 2 1.700000 0.04502 / 0.04650 0.04878 / 0.05020
Call 3 / /
© SAP AG 2003
While entering the option data, traders can use the direct link to the option price calculator to
calculate the accounting par value of the option premium. Besides supplying the premium, this also
provides you with the critical sensitivities of the options. You can enter the option premium on the
entry screen as a percentage of the basis transaction (in percentage points) or as a fixed amount. The
premium is calculated on the basis of: spot price, strike price, term, the risk-free interest rate in both
currencies, the option category and the volatility of the exchange rate.
You can choose Market data to obtain the current market data: spot rates, swap rates, interest rates
for currency 1 and 2 as well as exchange rate volatility.
You can enter different strike prices for the underlying currency transaction for 3 put and call
options.
You can determine premiums for European and American standard options and also for European
currency barrier options (exotic options).
If you position the cursor on a premium and choose sensitivities, the option sensitivities (delta,
gamma, etc.) are calculated. You can have a list displayed with all key figures for all the calculated
options.
By specifying an option premium, you can determine the underlying volatility (implied volatility) by
calculating backwards using the option price model.

Configuration of the Master Data
z Define product types

z (Assign cash management levels)
z Transaction types
Define number ranges for transaction
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 assignment
reference, posting logic, derived business transactions
© SAP AG 2003

Exercise
OTC Currency Option
Exercise
Cash settlement
Physical exercise
© SAP AG 2003
At the time of conclusion of the transaction, the cash flow consists only of the premium. Both
European and American option forms can be represented in the SAP System. As settlement, you
can have either physical exercise or cash settlement.
When the option is exercised, in the case of a cash settlement, the settlement amount is based
on the difference between the strike price and the market price. In the case of physical exercise,
the spot transaction is generated automatically from the underlying transaction (option).
If the option is worthless, it is deleted. As with the exercise, it may be necessary – depending on the
back-office processing category – for this expiration to be settled by the back-office processing area
again.

Currency Barrier Options
z Barrier options are represented as product types with a specific

option category.
z The transactions are processed using special processing categories
that take into account activities such as knock-in/knock-out.
z As with options, the underlying transaction is assigned.
z The barrier must also be specified.
© SAP AG 2003
Currency barrier options are different from regular OTC options in that they have a defined upper
and lower limit (instrike or outstrike). If these limits are exceeded or fallen short of by the market,
the option either becomes effective or expires – depending on the option type. This barrier is
specified in the financial transaction data.
In Transaction Manager, you can see the basic categories traded on the market: These are:
y Calls: Down&Out option expires below the outstrike
Up&Out option expires above the outstrike
Down&In option comes into existence below the instrike
Up&In option comes into existence above the instrike
y Puts: Down&Out option expires below the outstrike
Up&Out option expires above the outstrike
Down&In option comes into existence below the instrike
Up&In option comes into existence above the instrike
You can also enter double barrier options. These either come into existence or expire if two barriers
are exceeded or fallen below.

Currency Barrier Option
Barrier Option price calculator

Company code 1000 IDES AG Transaction
Product type 76F Currency barrier option Up. Activity 1 Contract
Structure Underlying ... ... ... ... ...
Partner Deuba ...

Exercise
Curr. barrier option Up&In
Currency barrier 2.10 USD/EUR

Underlying
Continue Cancel
Premium
Conclusion
© SAP AG 2003

Knock-In/Knock-Out Activities
Currency barrier option
Barrier
Barrier exceeded/fallen
exceeded/fallen short
short of
of
Knock-in
Knock-out
Exercise Expiration
© SAP AG 2003
The options are activated either for exercise or expiration by means of the knock-in/knock-out
activities. Using the function Expiration/Barrier check, you can have the instrikes and outstrikes
checked by currency barrier options. After comparing the transaction data with the relevant rates,
the SAP System proposes a transaction (knock-in, knock-out, or expiration) to process the
transaction further.
To determine market-driven option prices, you can use the option price calculator. This takes the
agreed barriers into account and also any rebates that are to be paid upon expiration of the option.

Compound Options
z With the purchase of a Compound Option, the buyer acquires the

right to buy or sell a specified option (the underlying option) at a
certain premium, at a certain time or within a certain time period.
Compound forex option = Option on a currency option

Underlying: Currency options
z Advantages compared to a currency option:

Reduction in the cost of the option premium
Exercise decision is postponed
© SAP AG 2003
Example:
y Alternative 1: Purchase of a 6-month currency option
y Alternative 2: Purchase of a 3-month compound forex option with a 3-month currency option as
the underlying transaction.
Note here, however, that if the compound option is exercised, a second premium must be paid, that
is, for the underlying option. If the option is not required, the hedging partner has paid a lower
premium for the hedge, than the underlying option would have cost.

Compound Options: Initial Screen

Product type 76L Comp.FX Opt.Long Call Activity 1 Contract
Structure Underlying ... ... ... ... ...
...
Exercise
...
Underlying
Underlying
Product type 76A Currency option (OTC) Activity 1
Trans.type 100 Purchase Act.cat. underlying
Option
Premium ...
...
Contract data
...
© SAP AG 2003


2 currency options
- Compound options

derivatives
© SAP AG 2003

Derivatives: 3 – Control of Interest Rate Risks via
Derivatives
Typical Transaction and Position Management Processes:
Transaction entry and back-office processing
FRA
Interest Rate Swap
CAP/FLOOR
© SAP AG 2003

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
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 nominal
amounts.
© SAP AG 2003
Background: The buyer of a FRA anticipates higher interest rates for the
reference period, while the seller anticipates lower interest rates.
Example: FRA 3x9; Nominal amount 10M EUR

FRA rate 5% (=> in 3 months for 6 months)
Reference interest rate LIBOR 6 months
Interest rate comparison in 3 months, Hedging period 6 months
6M LIBOR in 3 months = 6%
=> Settlement payment to the purchaser
= Interest rate payment x Nom. amount x Hedging period in days
360 x Discount factor
If the LIBOR rate was lower than the FRA rate, the purchaser would have to make the settlement
payment.

FRA - Forward Rate Agreement
1 23 4
t0 t8 - 2 t8 t11
n At t0 the transaction is concluded

(Input and settlement)
o On fixing day = Start of hedging period -2 days (from the definition of

the reference interest rate)
(Carry out the interest rate adjustment)
p Start of hedging period and payment of the discounted settlement

amount
(Posting of the flows generated under 3)
q End of hedging period
© SAP AG 2003
A company will receive EUR 10M in 8 months and it wishes to invest this as 3-month money. The
company expects falling interest rates. Therefore, at time t0 the company agrees an FRA with the
bank for EUR 10M. The FRA will start in 8 months (t8) for a term of 3 months until (t11). The
agreed interest rate is 5%; 8 months later (Fixing day = t8 minus 2 days):
y The reference interest rate (3 months LIBOR) is 4.5%. Therefore, the bank is obliged to pay the
company a settlement of EUR 10M x 0.5% x 90/360 = EUR 12,500 (this amount is still to be
discounted).
If the interest rate on the fixing day had been higher than the agreed interest rate of 5%, the
company would have had to pay a corresponding settlement. This is because the FRA is a
symmetrical financial instrument.

Creating an FRA

Product type 63A FRA Activity 1 Contract
Transaction type 200 Sale
Structure ... ... ... ... ... ...
...
Term
Start of lead time 10/07/YYYY
Start of hedge period ++8
End of hedge period ++11 Inclusive No. int. days
Interest structure
Base amount 10,000,000.00 EUR
Interest rate 5.0
Reference interest rate LIB_3_EUR
Interest calc. method Act/360
Fixing 2-
Business calendar ...

Conclusion
Contract date 10/05/YYYY ...
© SAP AG 2003
Forward rate agreements are financial instruments with which purchasers and sellers agree today
on a fixed interest rate for a future time period. Amounts, currencies and terms can be determined
by the parties to the contract; the interest rate reflects the forward interest rate curve.
A notional money market transaction underlies the FRA. The capital amount of this transaction is
used purely for calculation purposes. A '8 x 11' FRA has a contract period of 3 months and the term
starts in 8 months. The contract is settled and paid at the start of the term. The buyer of a FRA is
looking for protection against rising interest rates, whereas the seller wants to hedge against falling
interest rates. The entry in the SAP System is user-defined and is based on the trading conventions
shown.

Swaps
z A swap is an exchange of cash flows over a fixed period of time.

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).
z Depending on the type of cash flows to be exchanged, we differentiate

between:
- Interest rate swaps and
- Cross-currency interest rate swaps
Possible variations for exchange of interest payments:

PAYER: Outgoing interest payments are fixed, incoming interest
payments are variable
RECIPIENT: Incoming interest payments fixed, outgoing variable
BASIS: Variable vs variable interest payments
FIX TO FIX: fixed vs fixed interest payments
© SAP AG 2003
Background: Swaps offer comparative cost advantages; these are achieved by two partners on the
basis of their different positions in different financial market segments and could not be achieved
individually.

Interest Rate Swap – Example Interest Rte Fixing –
Interest Payment
1 2 3 4 5 6 7
1) Conclusion of the SWAPs and 1st interest rate fixing

(Entry and settlement of the transaction as well as the first interest
rate adjustment)
2) Interest rate fixing for the second period of the variable interest rate
(6 months)
(Adjust interest rate -> Generate interest flow)
3) Interest payment for variable side/start of the second period
(Posting of interest flow from 1 )
4) Interest rate fixing for the third period
5) Interest payment for variable and fixed side/start of the third period
6) Interest rate fixing for the fourth period
7) Interest payment for variable side/start of the fourth period
© SAP AG 2003
A company finances an existing investment with a fixed rate loan of 6.5%. The treasurer of the
company expects falling interest rates and, therefore, agrees an interest rate swap with a bank. The
company receives an annual fixed rate of 7.25% and pays a variable rate of 6 M LIBOR. The
company incurs the following interest costs:
y Interest expense of 6.5% and 6 M LIBOR
y Interest revenue from SWAP of 7.25%
equals an interest expense of 6 M LIBOR – 0.75%

Creating Interest Rate Swap

Product type 62A Interest rate swap (IRS) Activity 1 Contract
Transaction type 300 Payer
...
Term Business calendar ...

Start 10/15/YYYY Calendar 1
End 10/15/YY+5 Inclusive Calendar 2
Outgoing interest Incoming interest
Nominal amount 10M EUR Nominal amount 10M
Eff. from 10/15/YYYY Eff. from 10/15/YYYY
1st due date ++12 Freq.month 12 1st due date ++6 Freq.month 6
Fix.rate 4.6 Fix.rate
Var. interest Var.interest Lib_6_EUR
Int.calc.method 360/360 Int.calc.method Act/360
Int. Interest Rate Adjustment Int. Interest rate adjustment
Conclusion
Contract date 10/13/YYYY
© SAP AG 2003
You input the transaction data for the partner, transaction conclusion, term and the actual trading
object (amount, currency, interest structure, etc.).
You can also branch to other entry screens to enter detailed information:
There are conditions overviews available for the incoming and outgoing sides and also the detailed
information in each case. You can change the nominal amounts and also specify the
interest rate adjustment conditions.
In the Detail view: Interest rate adjustment, you can set the frequency with which the variable
interest is to be calculated and on what day the value of the underlying reference interest rate is to be
taken. An interest rate adjustment can be carried out at the start of the period, at regular intervals, or
at specific times.
To have the interest rate adjusted automatically, choose Back Office -> Variable Interest Calculation
-> Interest Rate Adjustment -> Automatic Processing -> Create.
You can access the NPV calculator for Swaps by choosing Extras – NPV calculation.
There is a notice function for premature settlement of a swap or a CAP/Floor.

Conditions in Detail: Interest rate
Example Conditions in Detail: Interest rate
Update
Rule Unadjusted Standard Special
Frequency 12 Months
Days +/- 1-
Due date
Due date DD.MM.YY Month-end
Working day Next working day
Calendar
Calendar 01
Calendar GB
Calendar
© SAP AG 2003
You can choose between standard update methods (rhythmic, unadjusted, adjusted) and special
update methods.
Examples:
Update method Calculation date Due date

Unadjusted relative to due date before shifting regular
Adjusted relative to due date after shifting regular
Regular regular regular
Unadjusted (interest period) regular relative to due date

before shifting
Adjusted (interest period) regular relative to due date
after shifting
As the table shows, for the "Adjusted" and "Unadjusted" methods, the calculation date is determined
relative to the due date. For all other update methods with the supplement "Adjusted" or
"Unadjusted", the due date is determined relative to the calculation date. Contrast this with the
"Unadjusted (interest period)" and "Adjusted (interest period)" above.

Back Office: Planned Record Update
Range of Planned Record Update Methods
Corporate Finance Management

Transaction Manager
General Settings
Organization Chart Title
Define Company Code Additional Data
Update
with zero amounts
Update with automatically

maintained interest rates
Update with manually

maintained interest rates
Update with
current interest rates
Update with automatically

or manually maintained
Interest rates Conversion program:
Transaction: OTC_CONV
© SAP AG 2003
For financial transactions with variable interest, you carry out an interest rate adjustment
periodically. You fix the interest rate to the current value of a reference interest rate.
You can use the new interest rate adjustment functionality for money market transactions and
derivative interest rate transactions with variable interest calculation.
The planned record update strategy determines the values with which unfixed interest flows from
interest rate derivatives and interest rate instruments are to be shown in the cash flow and are to be
transferred to cash management.
There is a function for updating the planned records.
You carry out data conversion for OTC derivatives using a one-off report. You must do this to
enable the new interest rate adjustment to take place. The data conversion is relevant for customers
who are already dealing with product category 610 to 630 transactions and/or OTC options based on
these product types.

Cap/Floor
z CAPs/Floors are a series of interest options that you can fit to the
periods/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 the
agreed fixed interest rate (Strike), to pay the difference in the interest
rates to the holder of the Cap. If the agreed interest rate is fallen short of,
a settlement payment is not made.
z FLOOR: The purchaser only receives a settlement payment if the agreed

interest rate lower limit is fallen short of.
© SAP AG 2003
Background: Both are examples of a type of interest insurance. The purchaser of the Cap wants to
hedge against rising interest rates. He agrees an interest rate upper limit for which he pays an
"insurance premium". The purchaser of a Floor wants to have a minimum interest rate and agrees an
interest rate lower limit for protection against falling interest rates.
Caps/Floors are a series of interest rate options that are exercised when a particular interest rate level
is exceeded/fallen below. The exercise of the option right is regulated in such a way that the
purchaser's declaration of intent is understood to be given automatically as soon as the favorable
conditions apply.

CAP
12 3 4 5 6 78 9
1) Conclusion of the transaction (Entry and settlement)

2) Payment of the premium (Posting of the premium flow)
3) Fixing day for the first hedging period (Carry out interest rate adjustment)
4) Start of first hedging period
5) Fixing day for second hedging period
6) End of 1st/start of 2nd hedging period – possibly first compensation payment
7) Fixing day for 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
© SAP AG 2003
A company has a variable loan liability of UNI 10M and has to pay interest at the LIBOR 6 month
rate. The company expects that interest rates will stay roughly the same but does not rule out a rise.
Therefore, it purchases a CAP.
y Term: 07/01/YY until 06/30/YY+2

y Interest rate upper limit: 6.125%
y Nominal amount: UNI 10M
y Premium: 0.85% = 85,000 UNI

Creating a Cap/Floor

Product type 61A CAP Activity 1 Contract
...
Term Business calendar ...
Start 10/15/YYYY
End ++62 Inclusive
Strike
Upper limit 4
Interest Premium
Base amount 15M EUR Amount 200,000.00 EUR
Effective from ++2 Percentage
First due date ++6 Freq. mon 6
Reference interest rate LIB_6_EUR Pmnt date 10/15/YYYY
Interest calc. Method Act/360 Eff. from 10/15/YYYY
Interest Interest rate adj Option premium
Conclusion
Contract date 10/13/YYYY
© SAP AG 2003
You input a contract for purchasing or selling a CAP or Floor in the usual way. The important point
here is the interest-related data such as interest rate upper limit/lower limit, reference interest rate,
interest calculation method, frequency of interest rate adjustment, etc.
A detail view is available: Interest, interest rate adjustment, and option premium.
In the Detail view: Interest rate adjustment, you can set the frequency with which the variable
interest is to be calculated and on what day the value of the underlying reference interest rate is to be
taken. An interest rate adjustment can be carried out at the start of the period, at regular intervals, or
at specific times.
When you create the CAP/Floor, the system will propose a single premium as default. In the Detail
view: Option premium, you can generate several premium payments by setting a frequency.
By choosing the menu option Reverse, you can reverse activities.
There is a notice function for premature settlement of a swap or a CAP/Floor.

Interest Rate Scenario: LIBOR with CAP
Int.
7.0 Interest rate upper limit

6.5
6.0
5.5
5.0
4.5
© SAP AG 2003
By purchasing a CAP, the purchaser is not relieved of having to pay the complete variable interest
for the loan. However, the seller of the CAP is obliged to pay to the purchaser an amount equal to the
excess of the variable interest rate over the agreed upper limit.

Master Data: CAP/FLOOR
Product type 61A

Text CAP
Product category 610 CAP/FLOOR
Interest rate instruments

CAP/FLOOR 1
CAP/FLOOR
1 Upper limit
2 Lower limit
© SAP AG 2003

Interest Rate Adjustment
CREATE INTEREST RATE ADJUSTMENT
Interest Rate Adjustment Overview
Int. fx dte Weekday Ref.int.rate Status Interest Rate Start
Interest Rate Adjustment Detail View

Int. fx dte Eff. from
Ref.int.rate Status
Manual adjustment
Int. rate Trigger
Automatic adjustment
© SAP AG 2003
The amount of the interest payments that can result from derivative interest rate transactions is
usually determined by a variable Index (reference interest rate). Two examples are the reference
interest rates LIBOR_6_months and LIBOR_12_months. Today, these might have the values 4.75
percent and 5.23 percent. Future values are not known, however. An example of a derivative
financial instrument is a plain vanilla swap with variable and fixed interest rates: Libor_6 in return
for 5.5%, term 20 years with semiannual interest payments.
In the derivative financial instruments application, when you create a swap, you can create flows for
the fixed interest side and the variable side of the contract. These flows correspond to the term. You
can determine the payment amounts on the fixed interest side when you create the swap by using
finance-mathematical rules. The future amounts on the variable side are, by definition, unknown
since the future reference interest rate percentage is unknown when the swap is created. For this
reason, the activity "interest rate adjustment" is necessary. This changes a plan interest rate (that is, a
rate where the payment amount is unknown) into an actual interest rate (payment amount is known).
This activity occurs at "interest rate fixing”.
The interest rate adjustment activity is usually run daily in a batch process. The function determines
the plan interest rates that are to be converted to actual interest rates on a specific day (using the
fixing date that is stored at the rate level). The function then determines the interest values per
interest rate reference, calculates the amounts and writes the actual interest rates to the database.
Following the interest rate adjustment, the plan interest rate is no longer available in the transaction.
The result of the interest rate adjustment function is an interest rate fixing of the plan rate and
generation of the actual interest rate.


2 currency options
- Compound options

derivatives
4 Information systems
© SAP AG 2003

Special Topics 1: Information System (Extract)
Structure of information system
Journal: Money Market
Journal: Money Market, Foreign Exchange,

Derivatives, Securities
Payment schedule
Position list
Interest rate adjustment schedule
Facilities: Reporting
Alert Monitor
© SAP AG 2003

Information System: Overview
Reports delivered User-defined

by SAP Reports
Cumulative values Non-cumulative values
© SAP AG 2003
In addition to using the reports delivered by SAP, you can define your own evaluations in the
Information System.

Structure of the Information System: Example –
Journal
... Accounting
Corporate Finance Management

Transaction Manager
Area-specific journal
Money Market
Information System
Transaction
Information System Transaction Overview
Reports
Strategic Cross-area journal
Operative
Transaction
Transaction Overview
Journal: Money Market, Forex, Derivatives, Securities
© SAP AG 2003
For an overview of all CFM reports, see Reports.

You can find the cross-CFM reports under the menu option Reports -> Strategic. These include
reports from Cash Management for analyzing liquidity, reports from the Limit Management and Risk
Analysis areas for controlling risk, and cross-CFM reports for analyzing your positions and revenue.
For detailed analyses for supporting work processes in day-to-day business, see the menu option
Reports -> Operative.
Information on area-specific reporting is aggregated in the cross-application reporting section in the
Transaction Manager Information System.
The reporting tree displays a complete directory of all reports that are defined in CFM and that can
be assigned to users. Just as with transactions, you can assign reports to specific users (role-specific).

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
Transaction Counter party Portfolio Finance project Trader End. Invent. Begin. Invent. Contract date Ent./changed
Category Status Currency Amount Start of term Rollover start End of term. Interest rate Valid since Currency
1 1000 Bank of America 1 1 09/06/YYYY 09/06/YYYY
contract active UNI 100.000,00 09/06/YYYY 11/06/YYYY 2.5 09/06/YYYY BAUERT
Company code 1000 IDES AG Entered/changed on 09/06/YYYY

Product type 52A Call option EXTERN Transaction type 100 Investment
Transaction Counter party Portfolio Finance project Trader End. Invent. Begin. Invent. Contract date Ent./changed
Category Status Currency Amount Start of term Rollover start Interest rate Valid since Currency
3 1000 Bank of America 1 1 09/06/YYYY 09/06/YYYY
contract active UNI 100.000,00 09/06/YYYY 2.6 09/06/YYYY BAUERT
© SAP AG 2006
The Money Market journal enables you to call up an overview of the money market transactions
stored in the system using flexible selection criteria. For each selection criteria you can define
selection options (single values or interval, incl./excl.).
This enables you to use the journal to select transactions, for example, that were concluded with
certain traders or with certain business partners.
Using Journal: Money Market, Forex, Derivatives, Securities, you can call up an overview list of
the transactions saved in the system according to flexible selection criteria.

Payment Schedule
Area-
Area-specific payment schedule Cross-
Cross-area payment schedule
Payment schedule: Money Market Payment schedule: Money Market,

Forex, Derivatives, Securities
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 bank
account
...
© SAP AG 2003
You can use the payment schedule to call up incoming and outgoing payments within a user-defined
time period.
Considerable enhancements have been made to the payment schedule functions. You can output lists
flexibly using the SAP List Viewer. The following options are available:
- Define and save your own layouts

- Sort using any fields
- Further filter using user-defined values
- Create control totals
© SAP AG FSC010 4-100

Money Market: Position List
CoCd Trans. PCat TCat PTypeTtype Partner Tcrcy Amount Int. Rate Term Start Term End
1000 1 510 100 51A 100 Deuba UNI 100.000,00 2.5 06.09.JJJJ 06.11.JJJJ
1000 3 520 100 52A 100 Deuba UNI 100.000,00 2.5 06.09.JJJJ
1000 4 510 100 51A 100 Deuba UNI 100.000,00 2.7 07.09.JJJJ 07.11.JJJJ
Link to the SAP List Viewer
© SAP AG 2003
Furthermore, you can execute results controls using the position list for traders or business
partners. The transaction types are sorted and listed according to conditions. In the position list,
the positions for Money Market transactions are displayed by key date.
You can also select Money Market transactions that have a certain term start or due date.
The connection to the SAP List Viewer provides you with a range of display options. You can
determine the columns or rows to be displayed, sorted and summed as you wish. You can save these
settings as a layout to use them again.
© SAP AG FSC010 4-101

Facility: Reporting
Current utilization profile of a facility
Integration of the facilities in Money Market Collective

Processing
Key date overview of facility utilization
Overview of facility charges
© SAP AG 2003
© SAP AG FSC010 4-102

Derivatives: Maturity Schedule OTC options
Maturity Schedule OTC Options
Type Start Term
Put DD.MM.YY
Call DD.MM.YY
© SAP AG 2003
You can use flexible selection criteria (product type, transaction type, put, call, due date, etc.) to call
up the option maturity schedule for transactions in a particular company code.
You can exercise individual option transactions or allow them to expire by positioning your cursor
on the option.
© SAP AG FSC010 4-103

Alert Monitor
The alert monitor collects error messages

from the various CFM areas to be assigned
to processing.
Content areas:
Settlement
Release
Payment + Posting
Correspondence
Interest rate
adjustment
© SAP AG 2003
© SAP AG FSC010 4-104

Principles of Drilldown Reporting
z as a drilldown report
BOND zas a list (list viewer)

Data
Portfolio
Ter m Basic MMk t/Sec. / For ex / ope n

Fr om To bus in ess Loa ns Ma na g. Der ivativ es Par tly
output
MM zas a graphic
FX
JPY
USD
FLOOR EUR
CAP Currency
FRA
Product type
© SAP AG 2003
The drilldown reporting tool enables you to set up your own reports and process them interactively.
Drilldown reporting is highly flexible: You can analyze the results graphically, transfer them to PC
applications, link reports, and assign them to a hierarchical tree structure.
Drilldown reports allow you to generate different views of your existing data. You do this by
selecting the appropriate combination of characteristics and key figures.
The idea behind drilldown reporting is to make the information available in a cube with n-
dimensions. Each sub-cube is specified by characteristics. The characteristics correspond to the
dimensions (for example, 3 characteristics: portfolio, product type, and currency).
Each sub-cube contains n key figures (example: 2 key figures: investment/purchase, borrowing/sale).
By linking characteristics and key figures, you can generate different views according to the
combinations of values you enter.
© SAP AG FSC010 4-105

Architecture of Drilldown Reporting
Key figures Characteristics

Form
Report
( Create
( Change
Report Save ( Execute
index Batch
list
Lists
Save Graphics
Navigation/
Drilldown
Winword Mail Excel ...
© SAP AG 2003
You can use characteristics, key figures, and forms to define reports. A report compiles a number of
lists that you can access interactively and display on your screen. You can also print reports, export
them to MS Word or Excel, or enter them in a file.
Forms describe the content and format of reports. Forms provide the basis for reports, which you
complete later when you define the reports.
Characteristics define the different ways in which the dataset can be classified, for example,
company code, business partner, or portfolio. You can include characteristics in the form and also in
the report.
Key figures are amounts and quantities: you can use a key figure transaction to define additional key
figures from existing key figures (key figure tree).
You can select the key figures either in the form or in the report.
Note: For more detailed information, see the general documentation on Drilldown Reporting.
© SAP AG FSC010 4-106

Functions of Drilldown Reporting
z Navigation to all levels (characteristics)

z Exception reporting provides a visual warning when critical
values deviate from expectations
z Hierarchy processing shows external hierarchies
(such as flow type hierarchy)
z Graphics improve visualization of the figures
z Analysis functions allow you to classify your data
z Data mining allows you to identify conspicuous values in
the dataset
z Currency translation determines currency influences
© SAP AG 2003
© SAP AG FSC010 4-107

Form Report
z Form Report
For reports prepared individually with
form-
form-oriented layout
specific formatting (colors, etc.)
integration of variables
complex selection
© SAP AG 2003
The general maxim for creating reports is that simple tools are available for generating simple
reports, while more sophisticated tools are available when you need to generate more complex
reports.
In the CFM area, you create form reports. These are reports based on forms and are suitable for
printing reports.
Drilldown reporting is always related to the business objects of an application.
Reports
- are complex structures, which comprise many subcomponents
- are language-dependent and can therefore be translated
- can be transported and delivered
- contain authorization checks and can therefore be blocked for a specific user.
It is now possible to define "Basic reports". When you use these types of reports, you do not need to
create forms.
© SAP AG FSC010 4-108

Overview of Drilldown Reporting
Treasury Management:
z Create form Application; Customizing
z Create reports Transaction Management:

Customizing; Application
z Include report in Treasury Management;

report tree Customizing
z Execute report Transaction Management;

Application
© SAP AG 2003
© SAP AG FSC010 4-109

Transaction Manager: Securities Management
Overview Diagram

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

© SAP AG 2003

Unit 5 Transaction Manager: Securities
1 Overview of Securities Management
2 Master Data
3 Trading and Back Office
4 Accounting and Closing Operations
5 Position Management
© SAP AG 2003

Overview of Securities Management
Standard Reports in the Information System
Transaction Position Management

Master Data Management
z Business Partner
z Class Master Data y Purchases/sales z Valuation
z Securities Account z Exercising rights z Corporate actions
Master
Master DataData z ... z Transfers
z Position Indicator
z ...
z Exchange rates
z Securities prices
z Other
Integrating SAP Financial Accounting
© SAP AG 2003
Securities Management enables you to manage securities transactions and positions. The resulting
posting activities are transferred to the Financial Accounting module automatically.
To use the management processes, you must first enter master data. For example, before you can
represent the purchase (or sale) of a security in the system, you first have to enter it as a class with
the relevant structure and condition characteristics.
You can use master data as well as transactions and positions to create reports in the information
system.

Overview of Transaction and Position Management
Company code ?
ID number ?
Securities purchase Trans. type ? Securities sale
Partner ?
Securities account
z Stocks Evaluations using
z Bonds
z Warrants - Standard Reports
... - Drilldown reporting
Position Management tool
Valuations
Accounts in Financial Accounting (FI)

Position Bank Revenue Expenses ...
© SAP AG 2003
You conclude transactions (purchases and sales) for a particular security (ID number) with a
particular business partner in a company code.
You use existing securities positions in your securities accounts as a basis for position-managing
activities, such as corporate actions or valuations.

Transaction and Position Management Process
Approval
Create new order/contract Settlement/Control Postings

Exercise/expiration Interest rate adjustment Pmnt. transactions
Exercising rights Netting Reversals
Referencing Accrual/Deferral
Confirmation Letters Valuations
Securities transfer postings

Corporate actions
User authorization
Limit management
© SAP AG 2003
In transaction and position management, the following areas are differentiated:

y In the Trading area, you create transactions and exercise rights.
y In the Back Office area, you settle and check the transactions you entered. Here, you also manage
processes relating to position management such as securities account transfer.
y In the Accounting area, you perform accounting activities. These include posting transactions,
incoming payments (such as interest earned or dividends), or write-downs that result from a
position valuation.

Securities Management – Financial Accounting
Securities SAP – Financial Accounting

Management (FI) – General ledger –
Interface
3rd-party
financial
accounting
system
© SAP AG 2003
You always transfer securities data that is relevant for posting to the SAP general ledger, even if you
do not use the SAP System for your financial accounting processes.
Users who do not have the SAP FI module import the posting data from the SAP general ledger to
their own financial accounting system through a customer-specific interface (extract program).

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
processed through the position management.
© SAP AG 2003

2 Master Data
© SAP AG 2003

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

Master Data
Partner Master Data
Class Master Data
Basic data Conditions Other Data
Securities Account Master Data
Position indicator per ID number and per securities account
Transaction Management
Position Management
© SAP AG 2003
You create master data for the following areas:

Business partner:
In addition to the minimum data entries (name and address) in the master record, you have to define
the role of the business partner.
Class:
You have to enter master data for each security managed in the position. This is a prerequisite for
any position changes in the trading and back office areas. Class master data contains the product-
specific conditions and all the general structure characteristics for securities. Other entries include,
for example, the exchanges for this security.
Securities account:
You manage and administer securities positions in securities accounts.
Position indicator:
You define the parameters for position management and valuation in the company code for each
security by securities account.

Classes
Securities Account 1 Securities Account 2
113495 7.5% Government 519000 BMW

bond 94/04 555750 Telekom
270144 Federal 716460 SAP
Bond R44
113501 6.25% Government
bond 96/06
© SAP AG 2003
Each security traded on the capital market is described specifically by its class. Class master data
contains all the characteristic security data that remains the same irrespective of the transaction.
y For example, the stock type (preference stock) or the stock form (old stock) are defined for class
SAP Common Stock.
y The issue start, the due date, and the interest structure are defined for class 6% Government bond
96II/2006.
Each class is entered under an ID number that uniquely identifies the security.
We recommend that you use the official ID number.

Class Master Data and Product Types
Product type Class ID number

- Fully paid stock SAP St 716 460
- Partly paid stock
- Floating rate ... ...
bond
- Fixed-interest
security . . . Government 113500
bond
USER LEVEL
© SAP AG 2003
You create each traded security with a unique ID number as a class master record by assigning it to a
product type.
You can use the product type settings in Customizing for the corresponding classes.

Create Class: Initial Screen
ID number 731400
Search crit. Basic data Conditions Exchanges User data
Create a class
New class
Status
ID number 731400 active
Product type 01A inactive
Name
Short HEIDELDRUCK
Long Heidelberger Druckmaschinen AG
Create
with reference without reference
© SAP AG 2003
To create complex financial instruments as well, the class information is generally categorized into
various areas such as Basic Data or Condition Information.
The initial screen for defining master data of a security never depends on the class or product type.
Entering the ID number of a security uniquely defines the security you are creating. When you assign
a corresponding product type, the system adopts all the settings made for this product type. For
example, you can set the control parameters for entering class master data according to the product
type.
You can enter class data in various statuses: inactive, active and obsolete. You can use the "inactive"
status if some of the class data you require is not yet available. You use the "obsolete" status to
indicate classes that are no longer available for new transactions, but that still need to be available in
the system in order to trace the history, for example.
The following usually applies:
y A short name for the security is displayed in evaluation reports.
y You can delete class master data if no position indicators exist, if neither planned nor actual
records exist/have existed, and if no transactions exist/have existed.

Create Class: Basic Data
ID number 731400 Heideldruck
Basic data
Issue
Issuer HEIDRUCK Heidelberger Druckmaschinen AG
Issue start 12/08/1997

Nominal value
Issue currency EUR Issue price
Structure
Security type Bearer security Quotation Unit-quoted

Stock category Common stock Stock form Old stock
© SAP AG 2003
The class master data for stocks consists of basic data, conditions, and other data. References (for
example, between the subscription right and new stock) are generated automatically when you enter
the data.
Selected fields in the basic data for stocks are explained below:
Issuer: Partner ID of the business partner (issuer role)
Security type: For example, Bearer Security
Registered Security
Registered Security with limited transferability
Quotation: Percentage-quoted
Unit-quoted
Stock category: Common stock
Preferred stock
Stock form: Old stock
New stock
Newest stock

Create Class: Conditions
Conditions
Condition items
Condition Type Amount Crcy Due Date Freq.
Dividends 1,15 EUR 09/14/YY
Bonus
© SAP AG 2003
You use the data entered in the conditions screen as a basis for structuring flow records in the cash
flow.
In Customizing, you can configure your system settings in such a way that you can create only those
condition items that are assigned to this product type through the conditions group.
The dividend entered for the stock simply represents an estimated item. We recommend that you
enter the estimated dividend without the frequency only for the coming payment date.*
If the company informs you of the current amount of the dividend payment you have to change the
amount in the class master data and start the planned record with the updated information. Once the
dividend amount has been entered, it can be processed using the automatic debit position function.
* When you enter a frequency, the system calculates the dividend planned records for the following
periods in the cash flow. If the actual dividend amount varies from the updated estimated amount,
you have to make adjustment postings manually when you post the incoming amount.

Exchange
ID number 731 400 Heideldruck
Exchanges
Assignment of Exchanges
Exchange Crcy Home Exch ...
FFM EUR
© SAP AG 2003
The entries for the exchange tell you at which exchange the class is traded.
Entering an exchange in the class master data is a prerequisite for importing market prices for
account-based valuations.

Create Class: Stock swap
Stock Swap
Stock Swap
O l d ID Ne w ID N u m e r a to r D e n o mi n at or S e ttl m nt . Am o u nt C r cy
© SAP AG 2003
In the case of a takeover bid, for example, you can enter swap bids in the class data and also include
a clearing payment.

Create Class Master Data: Subscription right
ID number 222222
Basic data
Issue
Deuba
Issuer Deutsche Bank
EUR 67
Issue currency Issue price
Subscription periods
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/YYYY
© SAP AG 2003
Class master data for subscription rights consists of basic data and other entries (for example for the
exchange).
Selected fields in the basic data screen for subscription rights are explained below:
Subscription price: The price that has to be paid for a new stock when the subscription
right is exercised.
Sub.ratio numerator /
Sub.ratio denominator: The number of subscription rights that are needed to receive the
number of new stocks entered in Subscription ratio denominator
(such as 5 subscription rights for 1 new stock).
Subscription period
from/to: Period in which you can exercise the subscription right.

Create Class: Bonds – Basic Data
ID number 113500 Fixed-interest bonds
Basic data
Issue
Issuer BUND Federal Republic of Germany
Issue currency EUR

Nominal value Nominal per TU 0.01
Issue start 10/21/YYYY Term end 10/21/YY+10
Issue rate 99.5000
Structure
Quotation Percentage-quoted
Security type Bearer security
© SAP AG 2003
The class master data for bonds consists of basic data, conditions, and other data.
Selected fields in the basic data screen for bonds are described below:
Nominal value: Nominal value per individual security.
Nominal per trading unit: The minimum nominal value that can be traded.
Notation: Percentage-quoted
Unit-quoted
Security type: For example, Bearer Security
Registered Security
Registered Security with limited transferability

Create Class: Conditions
Conditions
Interest calculation
Int.calc.meth. Act/ActP
Repayment
Repayment type Maturity
Condition items
Condition Type Eff. as of Crcy Percent Calc.Date Due Date Cl Freq.
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
© SAP AG 2003
A condition item consists of several entries for a condition type.

Selected fields in the conditions screen for bonds are explained below:
- Effective from: Date from which the condition is valid
- Percent: Nominal interest rate
- Calculation date: Last day on which interest is calculated in the current interest period
- Due date: Day when the interest payment is due
- Frequency (Frq): Number of months in the interest-paying period
- Calendar rule (CR): Enables you to shift a date
to a working day, if required.
Examples: 0 : No shift
1 : Next working day
3 : Previous working day
Shifting the due date to a working day makes it easier to reconcile accounts when interest
payments are made. The calculation date is the basis for the calculating the financial
mathematical transactions. It is fixed and is usually managed by calendar rule "0".

Create Class: Bonds – Condition Details View
Per condition type
100 Interest 263 Final repayment and so on
Details view
Dates
Calendar 01
Calendar 2
Calculation date
1. Date 10/20/YY+1 ( Inclusive No shift
Due date
1. Date 10/21/YY+1 Next working day
© SAP AG 2003
You can enter detailed data for each condition item.

If the shift mode has been specified for a calendar rule, you have to specify in the condition details
which calendar you want to use for the validations.

Class Master Data – Create Bond: Cash Flow

Product type 04I
Calculation Date Paymnt Date Description Amount NomCrcyFtype

10/20/YY+1 10/21/YY+1 Purchase 99.500,00 EUR 1000
10/20/YY+2 C 21/10/YY+2 Nominal int. 6.000,00 EUR 5000
10/20/YY+3 10/23/YY+3 Nominal int. 6.000,00 EUR 5000
© SAP AG 2003
You can calculate the cash flow for bonds as soon as you enter the class master data. We start with a
fictional purchase of EUR 100,000.00 as a nominal amount.
You can use the cash flow to check wither the conditions have been provided correctly, for example.

Create Class: Notice
Notice
Notice Periods of Issuer

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 Bondholder

Bond ID Notice Per from Notice Per to Notice Rate Decription
© SAP AG 2003
If a bond has been assigned a notice right for the issuer or the bondholder, you enter the relevant
data.
Conversion period from/until: Period in which you can give notice on the bond.
Notice rate: Price (unit-quoted stocks) or rate (percentage-quoted stocks), this is paid when the bond
is called.

Class Master Data – Bond: Step-up
214600 Bond step-up
Conditions
Condition Items
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 6
Interest 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/YYYYEUR 0 01/11/YY+10 01/12/YY+10 1 0
Calculation Date Utype Utype Amount Crcy Days

01/11/YYYY SE1000 Purchase 100,000.00 EUR 0
07/11/YYYY SAM5000 Nominal int. 2,000.00 EUR 180
01/11/YY+1 SAM5000 Nominal int. 2,250.00 EUR 360
Cash Flow 01/11/YY+2 SAM5000 Nominal int. 5,000.00 EUR 360
© SAP AG 2003
For bonds with fixed interest rates that are subject to change (such as step-up bonds) you maintain
condition items for each interest period with a different rate.
Condition item entries are replaced by the entries for the next (similar) condition item depending on
the "effective from" date.
Example: step-up bond with bi-annual interest payment in the first year, followed by annual interest
payments:
01/12/YYYY – 07/11/YYYY 4.0 % EUR 4,000/yr. EUR 2,000 on the interest date
07/12/YYYY – 01/11/YY+1 4.5 % EUR 4,500/yr. EUR 2,250 on the interest date
12/01/YY+1– end 5.0 % EUR 5,000/yr. EUR 5,000 on the interest dates
In this example, the frequency entered (6) does not affect the first condition item since this interest
item (on frequency date 07/12/YYYY) is replaced by a new interest item (on 07/12/YYYY).

Class Master Data – Bond: Variable Interest
214600 Variable Bond

Conditions
Condition Items
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 6
Int. Rate Adj. 01/15/YYYY EUR 3 6
Final Repmnt 01/15/YYYYEUR 01/14/YY+7 01/15/YY+71
D
e
t
a
i
l Interest Rate Adj.
Eff. as of Int. Fx. Dte PerDueDtePercent
At start of period
01/15/YYYY 01/13/YYYY 01/01/YYYY3,8523
Interest rate fixing date 07/15/YYYY 07/13/YYYY 06/14/YYYY4,1964
Relative 01/15/YY+1 01/13/YY+1 10/23/YYYY3,4239
07/15/YY+1 07/11/YY+1 10/23/YYYY3,4239
Interest rate adjustment date - 2 Working days
Calendar 1 01
Dates
Calendar 2 EU
© SAP AG 2003
Variable-interest bonds have the condition types Variable interest and Interest rate adjustment.
You have to enter a reference interest rate in the condition items area. Here, you may also be
required to enter a markup or markdown on the reference interest rate in the percent field.
You enter a minus sign (-) in field "+/-" for a reverse floater.
The interest adjustment date is the date from which the condition entered is valid for the first time.
You have to make specific settings in the details view for the interest adjustment dates.
You can define a preferred fixing date for the interest fixing date.
The following dates are valid:
Effective from: Date from which the calculated interest is valid.

Int. fx dte: Date on which the reference interest rate was determined (fixing date).
PercFDte: The percentage fixing date is the effective-from date that is valid for
this fixing period. A reference interest rate has been maintained for this date.
Percent: The interest rate that has been defined in the system.
If you have maintained the reference interest rate, the cash flow data is recalculated once the interest
rate has been adjusted and the class master data is changed accordingly.
To update the data to the database, you have to start the planned record update.

Securities Account Master Data
Company code TR##

Sec. acct Acc A##
Sec. acct name
Bank information
Depos.bank DEUBA
Clearing account 445556##
Sec.acct number 22224446
Bank data
House Bank
House Bank DEUBA
House bank acct EUR
Disposition block
Blocking type
Blck flag until
Others
Assignments
Business area
Sec. acct group Portfolio 1
© SAP AG 2003
Securities accounts that you create in the SAP system usually are linked to an existing securities
account at a bank.
Selected fields for securities account master data are explained below:
Depository bank:
Partner ID of the bank where the securities account is kept. You first create the bank as a business
partner in the role of "depository bank".
Security account no.:
Number of the securities account at the depository bank.
Clearing account:
Account number of the cash clearing account at the depository bank.
House bank:
Name of the bank at which the cash clearing account of the new securities account is kept. You can
provide details for multiple house banks for each settlement currency.
House bank account:
Name of the cash clearning account in the SAP system.
Blocking type:
You have to enter the blocking type if a restraint on disposal applies to the entire securities account.
Block flag until:
Date until which restraint on disposal applies for the securities account.
Portfolio:
Assigning the securities account to a portfolio.
Business area:
The business area is taken from the securities account master data when you post a transaction. If the
field is empty, the system takes the entry from the account assignment reference.
You can delete securities account master data if there is no position indicator and no transactions
exist/have existed.

Securities Account and Securities Account Group
Company code
position
Portfolio 1 Portfolio 2
Sec. acct Sec. acct

position 1 position 2
Individual Individual
items items
© SAP AG 2003
Securities accounts are valuation and position management units. They are necessary for all financial
transactions that require position management.
Securities accounts enable functions such as securities account statements, position analysis, and
securities account transfers.
You can assign a securities account to a portfolio as a superior position-managing unit when you
create securities account master data.
Average positions are formed at the portfolio level.

Securities Account Position Indicators
© SAP AG 2003
In the securities account position indicator you can define different information relating to custody
type, grouping of positions, or holding share. You can use this information for evaluation purposes
as well to import characteristics for account assignment reference.

Subledger Position Indicator
© SAP AG 2003
Subledger position indicators enable you to specify, for example, how you want the positions of a
particular ID number to be managed and evaluated.
Key functions of the position indicator include, for example, allocating account assignment
references (automatically if required) and assigning valuation and position management parameters.
You can change the values suggested in the subledger position indicator for processes in account
assignment reference and position management as long as there are no position postings present.
You can create position indicators manually or automatically. The process you want can be set in
Customizing.

Maintain Exchange by Company Code and ID Number
© SAP AG 2003
For each ID number you can enter multiple exchanges in the class master data for which you can
maintain rates for this security.
To value a security, the system uses the price from the price table of the exchange entered in this
table.

2 Master Data
© SAP AG 2003

Transaction and Position Management Process (1)
Approval
Enter order Settlement/Control Postings

Enter contract Confirmation Letters Accrual/Deferral
Reversals Netting Valuations
Transaction history Securities account Reversals
transfers
Corporate actions
Reversals
Transaction history
User authorization
Limit management
© SAP AG 2003
The organizational processes for the CFM transaction management functions can be divided into
several levels:
y You can create a security transaction directly as a contract or create it first as an order.
y The activity sequence to be followed is dependent on the processing category you
selected in Customizing (with/without settlement).
Within transaction management, you can branch from any application to the partner management
functions, in order to create, display, and change business partners, in addition to maintaining their
payment details.
Each activity within transaction management (contract, processing, and others) can be analyzed in
cash management.

Transaction Management: Initial Variants
Order Contract
© SAP AG 2003
The Transaction Management functions enable you to manage transactions as orders, executed
orders and contracts, and settled and posted transactions. You can map potential orders (order),
orders that you conclude (execution/contract) and the securities transactions that you post (purchases
and sales) in the system.
You can create a security transaction initially as an Order or enter it directly as a Contract.

Create Order: Initial Screen
Company code TR00

ID number 113500 Bond 96/06
Partner Deuba Deutsche Bank
Activity
Order O Contract
Transaction
External number assignment
© SAP AG 2003
When you create a securities transaction, you are mapping an order or contract through the purchase
or sale of securities. You specify which class you want each business partner to purchase or sell.

Creating an Order
Company code TR00

ID number 113500
Transaction type 100 Activity Order
Structure
Partner Deuba
Basic Data Limit

Securities acct. Deuba Acc1 Limit Type Dmax,Pmax
Order date 01/20/YY Limit date 01/31/YY
Nominal amount 200T Limit price 105
Trading Close
Traders Maier Contact person Mr. Bauer
© SAP AG 2003
Transaction data includes:

Basic Data:
y Here, you enter the nominal amount for percentage-quoted securities and the number of units for
unit-quoted securities. (You can determine whether a security is "unit-quoted" or "percentage-
quoted" in the class master data of the corresponding ID number).
y Order date: indicates when the order was issued or created.
Limit data: Here you can enter a suitable minimum or maximum price and a date up to which the
order is effective.

Executing an Order
Company code TR00

ID number 113500
Transaction type 100 Activity Contract
Structure
Partner Deuba
Position Date details

Securities acct. Deuba Acc1 Position value date 01/22/JJ
General valuation class Short-term inv. Calculation date -1
Quantity position Payment date 0
Amounts
Nominal amount 200,000.00 EUR
Rate 100 %
Payment amount EUR
Accrued interest calculation
Coupon
Round. rule
© SAP AG 2003
If you want to execute a transaction after you have placed a securities purchase/sales order, you have
to enter this change in the system.
Then the order is executed. You have to add to or change the existing order data by entering the
actual transaction data. For example, you enter the actual execution price.
The general valuation class helps you assign the position in the parallel valuation areas.
Date details (in the sample data, the system assumes you want to execute the order the day the order
is placed):
y The position value date tells you when the position is available in the system (usually order date
plus 2 days).
y Calculation date: relevant for financial mathematics in relation to the conditions. This date enables
you, for example, to calculate the interest accrued for interest-bearing securities and indicates the
last day the vendor is entitled to earn interest (usually order date plus 1 day).
y When you execute an order, the payment date refers to the day you post the payment amount and
the data is updated in Cash Management (usually order date plus 2 days).
The dates can be populated using rules specified in Customizing.
You can use rounding rules defined in Customizing for the accrued interest calculation.

Execute Order: Additional Flows
Company code TR00

ID number 113500
Transaction type 100 Activity Contract
Additional Flows
Main flow
Ftype Description Paymnt Amount Crcy Direction
O100 Purchase 200.000,00 EUR
Net payment amount 208,200.00- EUR
Additional Flows
Flow Desc ription Direction Paymnt Amt Crcy
O87 0 Interest ac crued 7,200.00 EUR
O31 2 Comm. not cap. 1,000.00 EUR
F4
Other selection options
© SAP AG 2003
On the "Other flows" screen, the system automatically calculates the accrued interest for interest-
bearing securities.
For all types of securities, you can also create other flows, such as charges, brokerage, or
commission, which accrue when you buy and sell securities.
In Customizing, you define the other flows you are permitted to use.

Execute Order: Transaction cash flow
Company code TR00

ID number 113500
Securities Acct. Deuba Acc2
Cash Flow
Transaction Cash flow

Paymnt DatFtype 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
© SAP AG 2003
When you execute orders, enter contracts, and settle (new) transactions in transaction management,
the system displays the transaction cash flow.
For example, a purchase leads to an outgoing payment. The accrued interest is calculated on the
basis of the condition entries which were defined (fixed) in the class master data for this ID number,
as well as including the rounding rules, if required.
The transaction cash flow is displayed on the SAP List Viewer. You can set it up flexibly and
therefore adjust it to suit the particular requirements of your company. You can set up your own
display variants.

Overview: Execution/Contract
Suggested Order Data
Order Execute :
created Nominal
Number amnt
of 200,000
Sec. price 100
:
or: Enter data
Company code TR00

ID number 113500
Activity
Create Contract: Contract
© SAP AG 2003
A transaction can be in activity category "Contract" if
- an order that you created earlier (with any necessary changes/additional data) has been executed
or
- a contract has been created directly.

Securities Account Class Cash Flow
© SAP AG 2003
The securities account class cash flow displays all flows of a securities account class position
relevant to cash flow. This can include condition details (such as interest calculation method, number
of days, percentage, and so on).

Flow List
© SAP AG 2003
All flows for a position are shown in the flow list including accounting flows or write-ups and write-
downs. Each flow is shown with its status (planned or actual record).
You can display all valuation areas in the flow list at the same time.

Collective Processing in Securities: Initial Screen
Transaction category
Purchase ( Sale (
Current activity category

Order ( Settlement (
Contract ( Expired Order (
General selections
Company code TR00
Transaction
ID number
Securities acct
:
.
Output Control
Display variant
© SAP AG 2003
The "Collective processing" function enables you to manage transactions efficiently.

You can display information about the individual transactions depending on the criteria you select on
the initial screen.
You can display lists of orders, contracts, settlements, and expired orders and restrict each of your
selections even more (for example, for the company code or securities account).

Collective Processing: List
) Order expiration Settle Reverse Cash Flow History
CoCdTransaction 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
© SAP AG 2003
The collective processing list allows you to branch to the relevant transaction to display the
(position) cash flow of the operative valuation area, or the history. You can also use a number of
important processing functions: For example, you can change, settle, or reverse the transactions you
have selected.
The collective processing function allows you to display lists flexibly using the SAP List Viewer.

2 Master Data

- Post Transactions
- Manual Posting
- Automatic Debit Position
- Position Management
- Closing operations
© SAP AG 2003

Posting Transactions: Transfer Data to Financial
Accounting by Posting Report
Application
Forex
Money market
Derivatives
Securities
General selections
Company code to
Transaction to
Product type to
...
Posting control
Posting date
(Test run
© SAP AG 2003
at the internal level (system level).
Before you post the transactions, you have to select the flows or positions of the transactions you
want to post. You can have the system carry out a test run in order to check the accuracy of the
posting entries in the posting log. When you execute the posting, flows and related documents are
transferred to Financial Accounting.
When you post a transaction, the system generates a posting log. If you double-click a posting line
you can access the corresponding posting document.
You can post all valuation areas at once or just the flows of the operating valuation area (001). If you
post only the operative flows the flows of the parallel valuation areas must be posted or fixed using a
separate posting report.

Post Transaction
Transaction
Post
Post
Posting Log
40 45010 EUR 200,000.00 S
40 273100 EUR 7,200.00 S
50 113105 EUR 207,200.00 C
Accounting document generated in FI
45010 273100 113105

200,000 7,200 207,200
© SAP AG 2003
To transfer your data to Financial Accounting you must ensure that the appropriate accounts and the
required document types already exist there.

Posting a Transaction: Overview
Example: Securities purchase

Posting record (= "Posting specifications") :
(40) Balance sheet account to (50) Bank clearing account ... EUR
Here: by 45000 to 113105 ... EUR

Securities Deutsche Bank—other postings
Fixed assets
Balance Bank clearing account
from from
Position indicator Transaction

via
Account Assignment Reference Account Determination
- Fixed - - Changeable -
© SAP AG 2003
You post the purchase/sales of securities as follows:
You define the balance sheet account in the account assignment reference. This contains other
information (such as the business area) besides the account number for the securities balance sheet
account.
In turn, you enter the account assignment reference in the position indicator. The indicator contains
additional information about the position of the particular security.
You cannot change the balance sheet account in the account determination when you post a
transaction.
The bank clearing account is read from the transaction. You can change this account in account
determination when you post the transaction.

Posting a Transaction: Accounts Control
Posting transactions:
Balance sheet account to Bank clearing account
from from
Account Transaction:
assignment
reference
from
fixed
Standing Instructions
or
Sec. Acct
can be changed via account

determination
© SAP AG 2003
If you want to post transactions from Securities Management, the system automatically proposes the
bank (clearing) account for payment processing. It does this as follows:
y Standing instructions have been entered:
The system takes the appropriate account from the payment details that have been defined in the
standing instructions.
or
y Standing instructions are not used:
Using the entries made for the securities account that are affected by the purchase/sale, the system
determines the account defined (in the entries for the house bank).
In both cases, the default value can be changed in the account determination, if necessary.

Manual Posting
Company code TR00

ID number 113500
Securities Account Deuba Acc2
Update type SE3012

(Commission, not capitalized)
Amount EUR 100
Post
Posting Log
40 479100 EUR 100.00
50 113105 EUR 100.00
© SAP AG 2003
You use Manual Posting for flows that are not entered in Transaction Management and that are
therefore assigned to positions and not to individual transactions.
You can use the manual posting function to enter irregular or subsequent posting activities (such as
one-off commissions) by ID number and securities account. It allows you to include and process
several update types.
The "Post" function generates actual records that are transferred immediately to Financial
Accounting.
The "Save without posting" function creates planned records which are later posted using the manual
debit position function and then transferred to FI.

Manual Posting: For all Security ID Numbers
Posting involving several security ID numbers
For example: Securities acct

charges
G/L accounting
G/L account posting
General ledger only
© SAP AG 2003
You enter postings in the general ledger in Financial Accounting if they do not relate to one security
ID number in a particular securities account (for example, securities account charges).

Automatic Debit Positions I
Alternative I: FI
Dividends Nominal interest P
Automatic debit positions Bank clearing to revenue
Bank clearing account F
Bank statement Bank to bank clearing
Bank account
© SAP AG 2003
The automatic debit position function enables you to automatically process activities that occur
regularly whose dates and amounts are fixed in advance. It can be used, for instance, to post interest,
dividend or repayment flows, in other words, flows that are generated from the conditions.
Planned records must exist (such as planned records for interest received) before you can use the
automatic debit positions function.
To use the automatic debit positions function, you must first post all the activities that affect the
position for the ID numbers and securities accounts you have selected up to the date when you
want to perform automatic posting.
There are two procedures for processing activities that recur regularly:
y Alternative I:
When you use the one-step procedure, you post the flows directly to the bank clearing accounts.
These are cleared in Financial Accounting when the bank statement is imported.
y Alternative II:
In the two-step procedure, you first post the expected payments to receivables accounts.
When the bank statement has been imported, the bank clearing accounts are cleared in the
subledger accounting and the automatic debit positions function is triggered.

Automatic Debit Positions I: Planned Record
Company code TR00

ID Number 514000
Securities acct Deuba Acc2
UType Description Status Nominal amount Crcy Sttlmt 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
... ... ... ... ... ... ...
© SAP AG 2003
The automatic debit position function processes planned records that are generated from the
conditions and that are for regularly occurring payments.

Automatic Debit Positions I: Initial Screen
General selections
Company code TR00 to ...
Product type
to ...
ID number 514000 to ...
Securities acct
to ...
Automatic posting parameters

Up To and Including Due Date
Posting control
Posting date Instead of due date
Document date Instead of current date
( Test run
© SAP AG 2003
For automatic debit positions, you use selection criteria to select the relevant planned records.
Entering a date in the "Up to and including due date" field means that the system only generates
planned records that are due up to this date.

Automatic Debit Positions I: Posting Log
Posting Log
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 514000 Dt. Bank Registered Stock
05/17/YY 5013 Dividend SA 0000648 05/17/YY YYYY

40 EUR 1,600.00 EUR 1,600.00 113105 Dt. Bank interim postings
50 EUR 1,600.00 EUR 1,600.00 272100 Securities revenue
Securities Account (Class) Cash Flow
Pos.vl.dte UpdateType Description Status Nominal amount 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
... ... ... ... ... ... ... ...
© SAP AG 2003
When you use the one-step procedure, the automatic posting function posts the planned records
selected as actual flows in CFM and transfers the corresponding posting records (in this case:
directly via bank clearing) automatically to to Financial Accounting.

Automatic Debit Position II: with Manual Debit
Position
Alternative II: FI
Dividend/Nominal interest P 1
P IP
Automatic debit positions Receivables to revenue
Receivables account F 1
Bank Statement By bank-to-bank clearing
Bank account
Manual debit position By bank clearing

on receivables
Bank clearing account F IP
© SAP AG 2003
Two-step procedure:
In the first step you use the automatic debit function to post the selected planned records in CFM.
The corresponding posting records are transferred automatically to G/L accounting in FI (in this
case, via the interim receivables account).
[In G/L accounting in FI a cash receipt triggers a posting to the bank clearing account.]
In the second step you fix the planned records for the automatic debit function in CFM. The
corresponding posting records are transferred automatically to G/L accounting in FI. There it is
possible to clear both the receivables account and the bank clearing account.
The update types for the manual debit position function are generated in settlement currency and in
position currency. This means, for example, that it is also possible to represent interest payments for
Euro bonds in USD in the system.
You generally use the manual debit position function to post-process and post activities that were
created by the automatic debit position function. Whereas the automatic debit position function posts
several activities at once, the manual debit position function only allows you to process one activity
at a time.

Automatic Debit Position II: Planned Record
Company code TR00

ID Number 113500
Securities Account Deuba Acc2
Pos.vl.dte UType Description Status Nominal amount Crcy Sttlmt amnt Settlmt curr.
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
© SAP AG 2003
The relevant planned records are selected in the automatic debit position. Activities that have been
posted are shown in the "fixed" status, and the interest is shown in "planned".

Automatic Debit Position II: with IP Records
Posting log (operative):

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
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
© SAP AG 2003
When you use the two-step procedure, the automatic posting function posts the planned records
selected as actual flows in CFM and transfers the corresponding posting records (in this case: via the
interim receivables account) automatically to G/L accounting in Financial Accounting.
You can configure your system (in Customizing) so that when you post the nominal interest the
system posts the related tax flows automatically.
The two-step process then collects all the related flows. This means that when tax flows are
generated the system also generates the actual records for incoming payments.

Automatic Debit Position II: Planned Record IP
Company code TR00

ID Number 113500
Securities acct Deuba Acc2
Pos.vl.dte UpdateType Description Status Nominal amount Crcy Sttlmt amnt Settlmt.curr.
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
... ... ... ... ... ... ... ...
© SAP AG 2003
After automatic debit position, posting is carried out and the corresponding activity is displayed as
actual records.

Position Management Options
Company Code Position
at portfolio level
at security account
group level
at security
account level
at single position level
© SAP AG 2003
It is very important that you decide at which level you want to manage your securities positions. The
main purpose of position management is to provide the basis for valuing your positions and
determining price gains/losses.

Position Management: Portfolio-related
Transaction 1+2 Transaction 3+4 Transaction 5+6 Transaction 7
113500 113500 113500 113500
716460 716460 716460
Portfolio 1
Portfolio 2
© SAP AG 2003
For position management regarding portfolios, the system defines portfolios that each have
individual transactions assigned to them when the transactions are entered. Each securities account
group represents a position-managing unit.
Each portfolio is defined in Customizing and represent an organizational unit that enables financial
transactions to be summarized to perform aggregated position analysis.

Position Management: at Security Account Group
Level
Sec. acct group 1 Sec. acct group 2
Sec. Acct 1 Sec. Acct 2 Sec. Acct 3 Sec. Acct 4
113500 113500 113500 113500
716460 716460 716460
© SAP AG 2003
To manage positions at securities account group level, you define portfolios to which you assign
several securities accounts (with their respective positions). A securities account group is a superior
unit for managing positions. This means that securities account positions belonging to a securities
account group are seen as a single unit.
A securities account group is an organizational unit within a company code that allows you to group
certain financial transactions and positions and to perform aggregated position evaluations.
You can also define the securities account groups you have created as a basis for valuation.
You define security account groups in Customizing. You assign securities accounts to a securities
account group when you create master data for the securities account.

Position Management: at Securities Account Level
Sec. Acct 1 Sec. Acct 2 Sec. Acct 3 Sec. Acct 4
113500 113500 113500 113500
716460 716460 716460
© SAP AG 2003
Position management at the securities account level means that you consider each securities account
and its respective positions as a single unit.
Securities accounts are valuation and position management units. They are needed for all financial
transactions that require position management.
You can use securities accounts to display securities account statements, evaluate positions, and
transfer securities accounts. The securities accounts created in the system are usually related to real
securities accounts managed at a bank.

Closing Operations: Accrual/Deferral
Interest accrual/deferral:
1 Difference procedure*
2 Reset procedures
Reverse accrual/deferral
Reset accrual/deferral
Amortized cost
*currently not supported for securities
© SAP AG 2003
You perform accruals/deferrals to assign receipts and expenditures to the accounting period to which
they belong.
The accrual/deferral procedure describes how the expense and revenue accounts used are updated.
The accrual/deferral activity is based on flows from selected business transactions that are relevant
for accrual/deferral up to the specified key date. The system determines the accrual/deferral amount
for each flow and generates the corresponding accrual/deferral flows.
You can execute the accrual/deferral run as a test run (accrual/deferral log) or you can post the
accruals/deferrals immediately (accrual/deferral log and posting log).
You can use the "Reverse accrual/deferral" function to reverse accruals/deferrals that have been
posted or reset.
If you used the reset procedure to perform accruals/deferrals, use the "Reset accrual/deferral"
function to write back the accruals/deferrals.
The amortized cost method is available in the Securities area as a special procedure for
accruals/deferrals, in particular for discounted bonds.
Customizing:
Defining the accrual/deferral:
- Specify the linear accrual/deferral method
- Assign the accrual/deferral flow types you want to generate as reference flows for the flows to be
accrued/deferred.

Closing Operations: Valuation: Position Valuation
Position Valuation
Maintain security price

z Posting Log
z Valuation Log
© SAP AG 2003
You can value securities positions on any key date. This key date valuation is the valuation of
positions for accounting purposes and uses the prices on a particular key date.
To value your positions, you first have to maintain the related security prices. If you want to value
different positions, you use the classification according to price types (such as valuation, spot,
middle, bid, ask or closing price) in the price table.
You set up valuation parameters in Customizing.

Closing Operations: Position Valuation
© SAP AG 2003
The key date valuation can be done with or without reset. The valuation is controlled by the
"Valuation category".
The following valuation categories are available:
y Year-end valuation
y Manual valuation with reset
y Manual valuation without reset

Closing Operations: Valuation - Posting
© SAP AG 2003
For key date valuation, all relevant valuation steps defined in the position management procedure are
performed – for example, amortization, security and forex valuation.

Closing Operations: Foreign Currency Valuation
A. Two-step: Securities first, B. Two-step: Forex first,

C. One-step
then forex then securities
Sec. write-up/write-down (PC): Foreign currency write-up/write-down: Sec. write-up/write-down (PC):
Compares unit * sec. prices Compares old book value (PC) * Compares unit * sec. price
exchange rate (depending on valu- (depending on valuation rule:
1 (depending on valuation rule:
ation rule: acqui-sition price, price acquisition rate, rate on key date,
acquisition price, price on key
date, and so on) on key date, and so on) and so on)
Sec. write-up/write-down (PC): Sec. write-up/write-down (LC):

Sec. write-up/write-down (LC): Compares unit * sec. price
2 Sec. write-up/write-down (PC) * (depending on valuation rule:
Sec. write-up/write-down (PC) *
book exchange rate, old Book exchange rate, old
acquisition price, price on key
date, and so on)
Foreign currency write-up/write-down: Total write-up/write-down (LC):
Sec. write-up/write-down (LC):
3 New book value (PC) * exchange
rates (depending on valuation rule: Sec. write-up/write-down (PC) * Old book value (LC) -
book exchange rate, new New book value (LC)
acquisition price, price on key date,
and so on)
4 Foreign currency write-up/write-

down:
Total write-up/write-down (LC) -
Sec. write-up/write-down (LC)
© SAP AG 2003
You can choose among three methods for valuing the performance of foreign currency securities.
These differ in the way in which they calculate the profit/loss for the security and foreign currency
components:
y A two-step procedure that first calculates the profit/loss for the security component, and then for
the foreign currency component.
y A two-step procedure that first calculates the profit/loss for the foreign currency component, and
then for the security component.
y A one-step procedure that calculates the total profit/loss in the local currency.
PC: Position currency
LC: Local currency

Foreign Currency Valuation: Example
Example: Two-
Two-step method (first security, then foreign currency)
Foreign currency rate
1.80 Security profit/loss
1.70 Foreign currency

profit/loss
1.50
Security price
32 36 39
© SAP AG 2003
Example: Two-step method (first security, then foreign currency)
Security price Foreign currency rate

Purchase (1,000 units) 39 1.80
Preperiod valuation 32 1.50
Current valuation 36 1.70
In the preperiod, both the security and the foreign currency were written down. As a result of the
underlying valuation rules, you have to write-up the current foreign currency rate and security price
for the current valuation. In doing this, you first calculate the profit/loss in the security, then in the
foreign currency.

Securities: Recording an Impairment
© SAP AG 2003
To record an impairment you must maintain the rate that is to be depreciated in a table.
The VALV_SP_VAL_SEC table is maintained with transaction TPM73.
The following fields can be entered:
y For bonds (percentage-quoted securities): Valuation area, valuation class, company code, ID
number, relevant category (securities account, lot, securities account group, portfolio) security
price type (defined in the customized impairment procedure) key date, type (3=Impairment), and
security price.
y For stocks (unit-quoted stocks): The same as for percentage-quoted securities but with the security
currency included.
y For loans: Valuation area, valuation class, company code, contract, net present value type (defined
in the customized impairment procedure) key date, type (3=impairment), net present value, and
currency of the net present value.

© SAP AG 2003
You use transaction TPM70 to post the impairment.

© SAP AG 2003
Possible valuations (new valuation retained earnings title) are turned back and then the impairment
is recorded.
After the impairment is recorded the amortizations are set for other valuations. Write-ups and write-
downs after the impairment continue running normally within the key date valuation.

Securities: Reversing an Impairment
© SAP AG 2003
You use transaction TPM71 to reverse recorded impairments.

2 Master Data
© SAP AG 2003

Corporate Actions: Overview
Prerequisites
Create corporate action

across all company codes
Save
Activate
Post corporate action

per company code or PI for security to be posted
© SAP AG 2003
You can represent the following activities in the Corporate Actions area:
Stock splits, stock swaps, capital reductions, capital increases from retained earnings, transferring
new stock, posting subscription rights, converting issue currency, other corporate actions.
You first define corporate actions centrally for all company codes.
When you have activated the corporate actions, you can perform posting in every company code in
which you manage positions belonging to the securities affected. From there, you update the
securities positions and generate FI documents, if required.
You must also create the position indicators for all securities/securities accounts affected.

Position Management: References Overview
Subscription
right Equity
warrants
ty
Wa
ui
rra
Eq
nt
Su r i
bo cum
bs ght
nd
cr
ipt
Warrant bond
new Stock
io
n
e EUR 50
Convertible bond Warrant bond
nd i b l
bo e rt
v
on
C
Convertible Warrant bond

bond
EUR 100,000.00 ex
EUR 100,000.00
© SAP AG 2003
For position-changing activities that affect several securities the relationship between the securities is
represented by the corresponding references, if required.
Example:
A reference is assigned to a subscription right: This entitles you to new stocks.
You link convertible bonds and warrants to the respective underlying transaction.
You create a reference for warrant bond cum both to warrant bond ex and the warrant.

Position Management: References
( Warrant: stocks
( Warrant: interest
( Warrant: index
( Warrant: currency
( Subscription right
( Convertible bond
( Warrant bonds
( Callable bond
( Putable bond
© SAP AG 2003
Relationships between individual securities or particular rights are displayed as a reference. This is
generated automatically when you enter the class master data once you have specified the ID number
of the related security or the data for the right displayed.

(Regular) Capital Increase: Overview
Prerequisites
(Old) stocks in position
Subscription right class
PI subscription right
New stock class
Post subscription rights (CorpAct)
Purchase/sell subscription rights,

if required
PI new stock
Exercise subscription rights
New stocks in position
Transfer new stocks (CorpAct)
New stock position

© SAP AG 2003
You have to satisfy the above prerequisites if you want to represent a capital increase in the system
and execute the resulting transactions.
PI: Position indicator
CorpAct: Corporate Actions

Capital Increase
Stock
Stock
Subscr.
UNI
UNI 50
50 Old stock
Right
Stock
Stock
Subscr.
UNI
UNI 50
50 Old stock
Right
New
Stock
Stock
UNI
UNI 50
50 Old stock
Subscr. Stock
Right
Stock
Stock
Subscr.
UNI
UNI 50
50 Old stock
Right
Stock
Stock
Subscr.
UNI
UNI 50
50 Old stock
Right
Subscr. right ratio 1:1

Subscription ratio 5:1
© SAP AG 2003
In the case of a capital increase, existing stockholders have the right (in Germany) to obtain new
stocks in proportion to the number of stocks they currently hold. This enables existing stockholders
to maintain their share of voting rights and compensates for any negative price trend resulting from
the capital increase.
The subscription right ratio indicates how many subscription rights are attached to an old stock. One
old stock usually has one subscription right (ratio 1:1)
The subscription ratio indicates how many subscription rights you need to obtain one new stock.
Example:
Capital increase from 50M EUR 60M EUR. OK corresponds to a ratio of 50:10 or 5:1.
5 existing stocks to 5 subscription rights to 1 new stock.

Capital Increase: Posting Subscription Rights
Book value
Old position
post Subscr.
rights
Value + acctg.
Value
Old stocks Subscr.
rights
- Sub. rts
markdown
© SAP AG 2003
The subscription price of the new stock is lower than the exchange price of the old stocks. As a result
of this difference, the subscription right has a theoretical value equivalent to the difference between
these two prices, taking into account the subscription right ratio.
The total value of a securities account position is not affected by the capital increase. The resulting
subscription rights simply shift the value amounts in the position.
The value of the subscription right for accounting purposes differs from the theoretical value if the
book value of the old stock is lower than its market value. In this case, you have to determine the
accounting value of the subscription right and, in doing so, bring the theoretical value into line with
the book value of the old stock.
The book value of the old stocks is, on the one hand, reduced by the amount of the accounting value
of the subscription right. On the other hand, the subscription right is posted in the position such that
the total position value is identical before and after the capital increase.
The system makes adjustment postings to the old stock position required for book value markdowns
automatically.
Subscription right markdown occurs on the first day of the subscription period. The old stocks are
traded as Subscription rights ex.

Capital Increase: (Theoretical) Value of
Subscription Rights
You determine the theoretical value of the subscription right automatically using
the following formula:
+ Dividend disadvantage
Ka - Kn
- Dividend advantage
Subscr. =
m +1
right n
value
350 - 100
= EUR 41.67
Here: 5
+ 1
1
The old stocks in the position are marked down by the value of the subscription right
used for accounting purposes:
Markdown = Subscription right value x Old stock book value = value of sub.right for
Old stock market price accounting purposes
Here: 41.67 x 300 = EUR 35.71
350
© SAP AG 2003
The theoretical value of the subscription right is determined using the above formula:
Ka: current exchange price of the old stock
Kn: subscription price of the new stock
m: old capital
n: amount of capital increase
m/n: subscription ratio
You convert the theoretical value of subscription rights for the subscription right markdown to the
book value of the position in old stocks (value for accounting purposes).
Example:
Old stocks position: purchased 200 units at EUR 300
Capital increase at a ratio of 5:1; (subscription right ratio 1:1)
Subscription price EUR 100
Current exchange price for old stock: EUR 350

Capital Increase: Posting Subscription Rights
Posting subscription rights
Postings
PK Account
111 111 40 194200 7,142.86 EUR D
50 133020 7,142.86 EUR C
222 222 40 133000 7,142.86 EUR D

50 194200 7,142.86 EUR C
© SAP AG 2003
The old stocks position (ID number 111111) is marked down and
the subscription rights position (ID number 222222) is posted, in both cases at an amount of
200 (subscription rights) x EUR 35.71* (value for accounting purposes per subscription right) =
EUR 7,142.86*
*Rounding difference; the system uses exact values for calculation.

Capital Increase: Exercising Subscription Rights
Subscription rights posted
SubR – purchases
SubR – sales: 50 units
Exercise subscription rights : 150 units at EUR 35.72 at a

subscription price of EUR 100 per
new stock
Postings
222 222: 194200 to 133000 5,357.15
333 333: 133020 8,357.15
to 194200 5,357.15
to 113105 3,000.00
© SAP AG 2003
You exercise subscription rights for all securities accounts in a company code. To follow selective
strategies for individual securities accounts, you can first perform transfers, make additional
purchases or sell subscription rights.
When you exercise subscription rights, new stock is added to your position.
You post new stocks at the value of the corresponding subscription rights and the subscription price
paid.
Example:
- Sale of 50 subscription rights. Subscription rights position: 150 units at EUR 35.71*.
- Exercise 150 subscription rights to obtain 30 new stocks (subscription ratio 5:1)
with payment of EUR 3,000 (subscription price of EUR 100 per new stock).
Exercise and post subscription rights (ID number 222222) at [150 x 35.71]*
= EUR 5,357.15*.
Post new stocks (ID number 333333) at [5,357.15 + 30 x 100] =
EUR 8,357.15*.
*Rounding difference; the system uses exact values for calculation.

Capital Increase: Transferring New Stocks
New Post Old

Stock Stock
A B
ID no. xx xx ID no.
333 333 111 111
Postings
PK Account Amount
111 111 40 133020 EUR 8,357.15
D
50 194200 EUR 8,357.15 C
333 333 40 194200 EUR 8,357.15 D

50 133020 EUR 8,357.15 C
© SAP AG 2003
As soon as new stocks are aligned with old stocks, new stocks lose their status and are assigned to
the old stocks position.
When new stocks are transferred they are automatically assigned the ID number of the old stocks.
After you select the new stocks at company code level, all positions of this class are displayed in all
the securities accounts of the company code. The posting transfer then takes place within the
outgoing payments securities account. A securities account transfer is recorded in a posting log.
Example:
30 new stocks (ID number 333333) are transferred at a book value of EUR 8,357.15 to the old stocks
position (ID number 111111).

Securities Account Transfer: Process
Company code TR00

ID number 444444
Product type 01A
Securities Account Transfer

Source sec. account Deuba Acc1
Number of units 1000
Target sec. account Deuba Acc2
Values
Calculation date XX/XX/XXXX

No. of units to be 700
transferred
© SAP AG 2003
After you enter the data for the source securities account, the system displays an overview of the
securities account position from which you can select any number of units to transfer to the target
securities account. The system generates the flows required for the transfer and updates the position
of the respective securities account.

Securities Account Transfer: Post
© SAP AG 2003
A securities account transfer is recorded in a posting log.

Account Assignment Reference Transfer: Execute
© SAP AG 2003
The account assignment reference postings of a class are selected by identity numbers.
The positions of the postings concerned are displayed by position management.
The new account assignment reference and posting day are provided on the selection screen.
Postings can be carried out for one particular area or all valuation areas.

Account Assignment Reference Transfer: Post
© SAP AG 2003
The balance sheet transfer is recorded in a posting log.

Valuation Class Transfer: Execute
© SAP AG 2003
A valuation class must be transferred to transfer an asset class or position management of a position.
For this transfer, you must select a valuation area and the specific valuation classes on the initial
screen.
Valuation classes are transferred on the general valuation class level and are valid for all valuation
areas.

Valuation Class Transfer: Post
© SAP AG 2003
A securities account transfer is recorded in a posting log.

Market Risk Analyzer: Course Overview Diagram

Unit 4 Transaction Manager: Forex, Derivatives

© SAP AG 2003

1 Course Overview
2 Price parameters
3 Analysis structure and basic settings
4 NPV/Sensitivity analysis
5 Value-at-risk evaluations
© SAP AG 2003

Unit Objectives
This unit provides knowledge on the

following topics:
z Price parameters
z Basic configuration of market risk analysis
z Use of functions and tools of component risk
analysis
z NPV Analysis
z Value-at-risk evaluations
© SAP AG 2003

What is Market Risk?
Risks
Risks
Area
Areaof
ofOperations
Operations Value/Finance
Value/FinanceArea
Area
Personnel...
Personnel...
Revenue
Revenuerisks
risks Liquidity
Liquidityrisks
risks
Technical...
Technical...
Refinancing
Refinancing
Market
Marketrisks
risks Credit
Creditrisks
risks Date...
Date...
Interest
Interestrate
rate Default
Defaultrisks
risks
Currencies
Currencies Country
Countryrisks
risks
Stock
Stockprices...
prices... Settlement...
Settlement...
© SAP AG 2003
Risk is the probability of loss from a financial transaction.

The risk of a financial transaction is called a market risk when it results solely from changes in
market parameters (interest rates, stock prices, currency exchange rates, volatilities, and so on).

Risk Controlling Process
I. Identifying risks
¾ Risk factors
IV. Controlling in the

narrower sense of
inspecting management
Risk
Controlling
II. Quantifying risks
¾ Key risk figures
III. Risk Management

¾ Hedging
¾ Diversification
¾ Cumulation
¾ Limiting
© SAP AG 2003
In identifying risks, the next topic is which risks exist and which risks should be included in risk
management. In identifying risks it helps to understand that risks have a cause and an effect (such as
changes in value and revenue) on a certain object.
After you identify the risks, the next step is to decide which of the identified risks to analyze and
which key risk figures to calculate.
Risk management focuses on limiting taking undue risks and distributing the sum of risks taken
optimally among the individual sources of risk.

1 Course Overview
2 Price parameters
© SAP AG 2003

Price Parameters: Business Scenario
z To evaluate transactions in risk analysis,

you must fill out market data tables in the
SAP system.
z You can do this in the following ways:
Manually
Excel interface
File interface
Datafeed
z FTP access (Internet)
z Datafeed server
© SAP AG 2003

Reference Interest Rates
z Yield type
Reference
Referenceinterest
interestrates
rates z Intraday indicator
(EUR,
(EUR, USD,GBP,
USD, GBP,etc)
etc) z Interest calculation method
(360/360, actual/360, ...)
GBP
z Quotation type (bid, ask, middle)
USD
EUR z Currency
3 m onths 6 m onths 1 year
11/29/04
z (Interest) term (days, months, years)
11/30/04 z Calendar ID
12/01/04
12/02/04
z Exchange
z Type of curve for forward
calculation
z Fixing period
z Working day rule
© SAP AG 2003
To store market interest rates in the system, you first have to create Reference interest rates.
You can define reference interest rates in the system that correspond to the parameters above. You
can define as many reference interest rates in as many currencies as you like.
The reference interest rates are defined by currency, interest calculation method (such as 360E/360,
Act/360), quotation type (such as bid or ask), term, and yield type.
The definition of the forward calculation of the curve type is especially significant for risk analysis.
When you assign an interest rate to a yield curve, you define what interest rate structure is used to
calculate forward interest rates in case that interest rate is used as the reference interest rate in
products such as floating rate bonds, swaps, or caps. Then you can decouple the calculation of the
forward interest rates from the curve that is used as a basis to calculate the zero bond discounting
factors.
The reference interest rates compose the supporting points of the yield curves of various currencies.
The reference interest rates also are assigned to Yield curve types.

Yield Types
Yields of coupon bonds vs. Zero bond yields
Interest (%) 5
4 Yields of Coupon Bonds
Zero Bond Yields
3
1 2 3 4 5 6 7 8 9 10
Years
© SAP AG 2003
You can define par yield curves from securities with all-year coupon payment (securities having this
coupon yield are quoted at par). Zero bond yields are derived with finance mathematics from the par
yield curves (bootstrapping). Zero bond discount factors are calculated from the zero bond yield
curves and are used to discount the payment flows.

Yield Curve Maintenance
Interest Rate
interpolated values
Support points (reference interest rates)
Reference interest rates are transferred

Remaining values are interpolated by the system
© SAP AG 2003
You need the relevant yield curves to determine the net present values. You can adjust the reference
interest values to the support points daily. The SAP system uses the support points to calculated all
the necessary values according to the type of interpolation for the yield curve by using linear or cubic
spline interpolation.
Linear interpolation uses two known values to determine a value on a line between the two known
values.
The annual support values are interpolated for curves of the par rate yield type up to the last
reference interest rate (support point) defined in the yield curve for a maximum of 30 years. If the
term of a calculated interest rate is outside the support points on a yield curve, the interest rate
present at the upper or lower end is used instead.
Yield curves that are similar on a business level can be grouped into yield curve types. Then you can
set the interest rate calculation method for each currency. You can define the valuation rule for
transactions regardless of currency, since the system uses the yield curve needed when specifying the
yield curve type in relation to the currency of a single transaction.
A yield curve type can indicate a market segment (swap market, government bond market) or the
determination of the opportunity interest (in the sense of an internal market of the central fund
manager).

Yield Curve Type
Defining Yield Curve Types

Yield
YieldCurve
CurveType
Type
z Yield type valid for the
yield curve
GBP z Quotation Type type
USD
EUR z Intraday indicator
%
z Read procedure
z Interpolation procedure
z Basis of interpolation
Years
identified
z Currencies yield curve
z Interest calculation method by
currency
z Reference interest rates by currency
© SAP AG 2003
Yield curve types are described by attribute yield type, read and interpolation procedure, and many
currencies. For each yield curve, the yield curve types have a support point structure that the yield
curves are formed upon.
A yield curve is constructed from the reference interest rates and support points that exhibit the
following commonalities:
y Reference interest rates are assigned to the same yield curve type
y Reference interest rates are defined for the same currency.
On the basis of this information, the expanded yield curve/interest table is constructed and contains
the following values:
y The interest rates of the support points
y The interpolated interest rates of the annual support values (for par rate yield type only)
y Zero coupon rates and zero coupon discounting factors of the support points and the annual
support values for par rate yield type.
The interest calculation methods of the yield curves and the reference interest rates may be different.
When the set interest rates in the expanded interest table are saved, the conversion to the interest
calculation methods of the yield curves occurs.
For enabled continuous compounding zero interpolation, zero rates with continuous interest
calculation and the Act/365 interest calculation method are calculated from the zero bond
discounting factors regardless of yield type.

Searching for Interest Rates Through Read
Procedures
Example: "Read back" 1 Month 1 year 2 years 3 years

read procedure
Today's yield curve 4.3% 5% 5.7% 7%

(9/14)
maintained reference
interest rates
9/14 4.3% 5.7%
9/13
9/12 4.2% 5%
9/11 4.2% 5% 5.6% 7%
9/10 5.5%
© SAP AG 2003
If not all the reference interest rates are adjusted daily, you can define in the SAP system which
previous interest rates to use as a reference. You can use the following alternative procedures:
y Read back: The last maintained interest rate is used for each support point.
y Read directly: The present values for the condition date are used. Missing support points are
interpolated.
y Read back directly: All support points are read to a date. The system reads far enough into the
past until all support points have interest rates for a condition date.
Example:
y 9/14 Read directly returns interest rates of 4.3% (<1 yr) and 5.7% (2 yrs) and
interpolates the interest rate for the 1-year support point and
creates a flat yield curve for support points with a term of over
two years (3 years).
y 9/14 Read back returns interest rates of 4.3% (<1 yr), 5% (1 yr), 5.7% (2 yrs)
and 7% (3 yrs)
y 9/14 Read back directly returns interest rates of 4.2% (<1 yr), 5% (1 yr), 5.6% (2 yrs)
and 7% (3 yrs).

Volatilities
Volatilities
Volatilities(reference
(referenceint.
int.rates,
rates, For evaluating optional
(Currencies, securities, ...)
(Currencies, securities, ...) financial transactions
Interest rate volatilities
EUR Exchange rate volatilities
Volty Security price volatilities
Stock index volatilities
Option
30 60 360 term
© SAP AG 2003
The system enables you to define types of volatility. Each option type is assigned a certain type of
volatility (such as the currency volatility for a currency option). If you expand this concept, you also
can define volatilities independently from their defined assignments (see the following pages).
In addition, the system can define and calculate volatilities that are used for determining
variance/covariance for value-at-risk evaluations.

Statistics Calculator
Time series
Volatility type
Volatilities
Correlation type
Statistics-
Holding period calculator
Risk hierarchy Correlations
Calendar
© SAP AG 2003
You can use the statistics calculator to calculate volatilities and correlations that are needed in
calculating variance/covariance. You also can enter these values externally.
When you start the statistics calculator, you need the parameters above. You also can define whether
it will calculate only volatilities or only correlations. After you start the statistics calculator, you can
exclude certain volatilities and/or correlations.
Volatilities for zero coupon values are calculated in the interest area (the net present value always is
calculated using the zero coupon values/curves). If you base calculations on par coupon curves, the
assigned yield curve is used to transform the corresponding zero rates that the volatilities are
intended for. The volatilities are saved in the Interest volatility curve table. Historical volatilities
calculated this way are different from the par rate volatilities (usually implicit volatilities) that are
defined in the Interest volatilities table. Interest volatilities from par rates are necessary for
calculating interest options. There is no transformation to zero coupon volatilities for these
calculations.
If interest volatilities are calculated using the statistics calculator based on original zero coupon
curves, no transformation is necessary. You can save the calculated values directly to the Interest
Volatilities table since you do not have to assign them to a yield curve (which is used to calculated
the corresponding zero rates for par rates).

Market Data Shifts
Bond
EUR 99.5 million
5,0 Loss of
Market Data Shift EUR 5 million
99.5 Interest + 1% 94.5 due to rise in interest
1 factor shift
100
shares of X 1,000 Profit of
EUR 1,000 due to
Market Data Shift rise in stock price
100,000 Rise in Price + 1% 100,000
Ex.: 2 factor shifts
US dollars
Deadline item
23 Loss from
Market Data Shifts
rise in USD interest
100 USD – 1 cent
77 and reduction in USD
USD – interst + 3%
© SAP AG 2003
Market data shifts enable you to check the NPV changes of items under conditions with simple
changes. Market data shifts are used only in NPV reports and to define scenario paths in asset
liability management.

Scenarios
Loss from
interest, volatility,
Bond option and dollar exch. rt.
Long Call changes
in USD
Individual 1.5 million

Scenario, for example:
10 million • Turn in the yield curve 8.5 million

• Reduction of volatility
• Reduction of the USD/EUR
exchange rate
Int. Vola- USD

USD
tility
© SAP AG 2003
Market scenarios provide the opportunity to alter the underlying market parameters. Then you can
model the yield curves with graphic aides. In addition, you can define changes in volatility, exchange
rates, or securities prices in the market data scenario.
You can put historical market data into scenarios and manipulate it.
If a certain price parameter cannot be found in a scenario analysis, the missing parameter is replaced
by the current market parameter when available in the SAP system (Replacement logic of the
scenarios).
You can use scenarios in almost all evaluations of risk analysis instead of the current market prices.

Price parameters: Summary
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 price
information into the SAP system: Exchange rates,
security prices, reference interest rates, indexes,
forward rates, as well as volatilities for currencies,
securities, reference interest rates, and indexes.
z Quality of the market data is the decisive factor for
the analysis.
© SAP AG 2003

1 Course Overview
2 Price Parameters
© SAP AG 2003

Analysis Structure & Financial Object:
Business Scenario
z To evaluate transactions in the risk analysis

you have to provide financial objects with
characteristics that allow for reporting along
openly defined portfolio 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.
© SAP AG 2003

Analysis Structure
z The analysis structure contains all attributes that can be used as

characteristics 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.
© SAP AG 2003
The analysis structure is the technical basis for all activities in the Market Risk and Credit Risk
components. They act as groupings of all characteristics that are utilized for reporting and analysis
purposes and for structuring drilldown hierarchies.

Creating an Analysis Structure
Create
Createand
andmaintain
maintain Derive
Derivecharacteristics
characteristics
characteristics
characteristics
1
3
Create
Createand
andmaintain
maintain Define
Define
2
analysis structure
analysis structure values of characteristics
values of characteristics
© SAP AG 2003
The analysis structure is the technical vehicle for all characteristics in risk management. You can
define multiple analysis structures and assign multiple characteristics to them. Each client has
exactly one analysis structure enabled.
The analysis structure forms the basis for the summarization levels that can be analyzed as part of the
NPV, value-at-risk, gap, and ALM procedures. Each data pool transaction contains a finance object
that allows assignments to the relevant portfolios of the summarization levels (views). Before the
data interfaces are implemented, you must derive the analysis structure from the internal
requirements. Otherwise you may have to adjust the transfer of the characteristics if they are not
transferred completely.
You can redefine characteristics or copy them from the risk management field catalog or the
profitability analysis field catalog. You can also use characteristics that are already present in the
SAP system in reference tables. This procedure always is preferred from an integration perspective
(copying criteria and entities) over creating new characteristics. For characteristics that you define,
you must also define values of those characteristics.
Each transaction in the data pool has a finance object assigned to it. The finance object contains the
corresponding transaction values for all characteristics of the analysis structure. The derivation of
characteristics can be used to find the values of characteristics automatically.

Characteristics and Analysis Structure
Characteristics
Characteristics Analysis
AnalysisStructure
Structure
Business
Businessarea
area
Company
Companycode
code Analysis
AnalysisStructure
Structure11
Product
Producttype
type
Balance
Balancesheet
sheetitem
item Analysis
AnalysisStructure
Structure22
Trader
Trader
Portfolio
Portfolio Analysis
AnalysisStructure
Structure33
...
...
Any
Any
assignment
assignment
possible
possible
© SAP AG 2003
You create characteristics independently of the data structures of the analysis structure.
To create characteristics, you have the following methods available:
- Copy from a reference table
- Define your own characteristics (with your own value maintenance, without value maintenance,
related to a data element)
- Copy from the field catalog of bank profitability analysis
You define the analysis structure by selecting some of the characteristics from previously defined
characteristics.
Groups of characteristics also are supported (dependent characteristics such as trader and company
code). You can define the grouping for your own defined fields or copy it from the properties of a
table field. Grouped characteristics always must be placed in a common analysis structure.
You also can use currencies as characteristics and refer to the TCURC table. Previously this was
possible only by manually maintaining the corresponding values.

Characteristics, Analysis Structure and Views
Characteristics
strc. Characteristics
Product
Producttype
type Bal.
Bal.sheet
sheetitem
item Profit
ProfitCenter
Center Traders
Traders Trade
Tradegroup
group
Analysis
Analysisstrc.
Analysis Analysis
AnalysisStructure
Structure11 Structure
Analysis
AnalysisStructure
Structure33
Structure22
Analysis
© SAP AG 2003
Analysis structures are defined across all clients. Each client has only one analysis structure enabled.
Characteristics are assigned to the analysis structures that represent the underlying data structure.
The investment structure is used to place portfolio hierarchies that make it possible in reporting to
drill down on the analyzed results of an investment structure by values of the characteristics.
Attention: There is only one view in Corporate Finance Management that remains hidden. It is
generated when the analysis structure is generated.

Example of a Balance Sheet Reporting View
Total
off balance sheet

Derivatives
Assets
Receivables
in banks
Money Market
on the balance sheet Securities

Zero bond
Floating rate bond

Liabilities
Bond
Payables
to banks
Loans
© SAP AG 2003
For overall bank control, you can create a structure that makes it possible to differentiate between
assets and liabilities in relation to the transactions on the balance sheet. In addition, transactions off
the balance sheet can be managed in their own portfolios.

Deriving Characteristics
Derivations of Characteristics
Derivation rules Access to tables
Enhancements Allocations
© SAP AG 2003
The derivation of characteristics in risk analysis allows for characteristics with values to be provided
automatically and controlled with rules.
For Release 4.0 and higher in SAP Accounting, you use a uniform tool for deriving characteristics in
risk analysis and in bank profitability analysis.
In risk analysis, the derivation of characteristics for copying finance objects runs and effects the
analysis parameters of the finance object.
You must enable derivation for an analysis structure. Derivation of characters used for the results
area can be executed during the data transfer to the risk management data pool. The field contents
are transferred that are present in the analysis structure as well as the results area.

Evaluation Types
• Evaluation types collect and contain evaluation-specific information related to using

market data.
• You can define evaluation types generally so that one and the same basis for
evaluation applies to all financial products.
• Evaluation types also can be defined specifically for individual 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
The valuation rule represents a central control instrument for evaluations. In the finance object, the
valuation rule is an optional field. If it is not defined directly in the finance object, you can find it
through other identities defined in Customizing.
The valuation rule is relevant for controlling the evaluation. As part of the general settings, defaults
are set for market segment assignments or stocks are mapped to stock indexes. The valuation rule
also influences the datafeed control and the summarized display of cashflow transactions by
evaluation type. Depending on the valuation rule, it can override the general evaluation settings in
the evaluation type for certain transactions. The valuation rule gains significance only when this
function is used. If there are no settings defined for the valuation rule in the evaluation type, there is
no reason to define different valuation rules. All transactions are analyzed according to the settings
of the evaluation type.

Maturity Bands
z You can predefine maturity bands to generate certain cash

flow views or due date view as part of reporting.
© SAP AG 2003

Maturity Bands
relative, from the valuation key date
Evaluation
key date
1/15 2/15 3/15 ... ... 9/15 ... 9/15
Applicable in NPV and

gap analysis
absolute, from the evaluation key date
Evaluation
key date
1/15 1/31 2/28 ... 8/31 ... 8/31 ... 8/31
© SAP AG 2003

1 Course Overview
2 Price parameters
© SAP AG 2003

NPV Calculation
Mark-to-Market Valuation
Deterministic instruments Optional instruments
Fixed
FixedCash
CashFlows
Flows Variable
VariableCash
CashFlows
Flows Uncertain
UncertainCash
CashFlows
Flows
Discounting with zero 1. Determining the forward Option price formulas
bond discounting rates from the relevant - Black & Scholes
factors for the yield curve - Binomial
relevant yield curves 2. Calculation of the - Garman/Kolhagen
future cash flows
3. Discounting
Standard
Standardbonds
bonds Floating
Floatingrate
ratenotes
notes Caps/Floors
Caps/Floors
Fixed-rate
Fixed-rateloans
loans Swap/FRA
Swap/FRA Variable-rate loans
Variable-rate loans FX
FXoptions
options
Money Market
Money Market Swaptions
Swaptions
Structured products
© SAP AG 2003
Marking to market means valuing a position at the price that can currently be attained on the
market. "What price will I achieve if I close out the position?" For long positions this means
determining the achievable disposal price. For short positions it means determining the repurchase
value.

Date Terminology Used
Cashflows before
the horizon are not
evaluated Discounting
Date of analysis
Horizon
= today
Outgoing cashflows
z Determining the z Calculating the yield
current market data curve valid at the
horizon as the forward
z Selection of the current curve from the current
transactions/positions market data
z Discounting of the
cashflows after the
horizon
© SAP AG 2003
Date of analysis
This is the day that market data are read. Forward data are calculated starting from this date.
This is the date for which transactions are selected (status of the transactions on this date).
If the evaluation date is before the current date(today), the market data are read from the historical
tables and are observed from the historical status of the transactions.
If the evaluation date is after today, the latest market data found is interpreted as valid for the
evaluation date and the forward data is calculated from this date.
Horizon
Date when the results are calculated (evaluation date). All cashflows after this date are included in
the calculation. Example: Evaluation date today, horizon in the future: The forward data is based on
today's market data and is used to evaluate a transaction on a horizon date.
Time when the scenarios used are assumed to be valid.

NPV Analysis Example (1)
Total
TotalCash
CashFlow
Flow(millions
(millionsof
ofEUR)
EUR) Current
Currentinterest
interestrate
ratestructure
structurein
in%
%
500 10.0
0 8.0
12/93
06/94
12/94
06/96
12/98
-500
6.0
-1000
4.0
-1500
-2000 2.0
-2500 1M 2Y 4Y 6Y 8Y 10 Y
NPV=EUR
NPV=EUR618.1
618.1million
million
© SAP AG 2003
In this example, the valuation of a payment flow leads to a net present value of EUR 618.1 million.

NPV Analysis Example (2)
Parallel
ParallelShift
Shift NPV
NPVrisk
risk
IntSc 1 (+1%) Curr. IntSc. IntSc 2 (–1%)
10.0
9.0 Int. scenario NPV Risk
8.0
7.0 IntSc 1 (+1%) 521.7 -96.4
6.0
5.0 Current IntSc. 618.1 0.0
4.0
3.0 IntSc 2 (–1%) 720.1 102.0
2.0
1M 2Y 4Y 6Y 8Y 10 Y
© SAP AG 2003
For a parallel shift of +1% of the yield curve, the net present value (NPV) is EUR 521.7 million in
scenario 1. There is a risk of EUR 96.4 million. If the interest decreases by 1%, the same cashflow
has an NPV of EUR 720.1 million and an opportunity of EUR 102.0 million.

Key Sensitivity Figures
Duration
Exhibit 2
Macaulay Duration: The Macaulay Duration describes the 10%
term of the investment after which both inverse effects from 5%
P/P
rate changes and reinvestment success balance out exactly. 0%
This point in time is used as a planning horizon, and the
-5%
investor is therefore immune to changes in interest.
-10%
Modified Duration: The modified duration indicates how much -2% -1% 0% 1% 2%
of a percentage change in the value of an interest instrument Y
occurs when the interest level changes by one percentage
point. The modified duration therefore describes the elasticity
of the NPV to changes in interest.
Convexity
Convexity: Convexity describes the sensitivity of the NPV to Exhibit 3
the square of the changes in yield (description of the bend in 10%
the price curve). Convexity is therefore more precise than 5%
P/P
modified duration.
0%
Basis Point Value: Basis Point Value provides the change in -5%
market value in all term areas when the market interest rates -10%
increase by one basis point (0.01%). Absolute changes are -2% -1% 0% 1% 2%
described here. Y
© SAP AG 2003
The risk of a fixed-interest security–apart from borrower's credit rating and market efficiency–is the
change in the market interest rate during the term (Interest rate risk). The interest rate risk can be
divided into two basic components: the reinvestment risk and the price risk.
All repayments of an investment (repayment flows, interest, and compound interest) are subject to
reinvestment risk when the repayments are before the investor's planning horizon. For example,
when market interest rates are decreasing, coupon payments are reinvested only at a lower interest
rate. If the due date of the investment passes the planning horizon, there is also a price risk, since
the price during the term is determined by the market interest rate.
Changes in market interest rates effect both of these revenue components of an investment inversely:
Rising interest means price losses on one hand, rising reinvestment revenue on the other. The key
sensitivity figures support quantification and simple management of the risks and opportunities due
to changes in interest rates.
For optional products, the Macaulay Duration, Modified Duration, and Convexity key figures are not
calculated because it does not make business sense.

Key sensitivity figures
• The sensitivity analysis returns key figures such as Modified Duration,

Macauly Duration, Convexity, Base Point Value based on pre-defined
portfolio hierarchies.
• Reporting is based on a portfolio hierarchy that is a path for disclosing
evaluation results.
• This is how the corresponding key figures are presented at various
summarization levels down to single transactions.
• Key sensitivity figures can be calculated in comparison with scenarios.
Key figures are disclosed in parallel as key figures based on current
market data and key figures based on data based on scenarios.
© SAP AG 2003

Matrix Analysis
z Combination of two risk factors or risk

Evaluation Matrix types
z Specifying the range and grid spacing
Risk factors: Change in interest rate and volatility z Generating grid points and simulating
worst changes in net present value
Parallel shift in interest rates
+10 BP case
+5 BP
z Determining the least favorable factor
combinations
0 BP
–5 BP
–10% –5% +/–0% +5% +10%

Change in Volatility
© SAP AG 2003
You can combine any two risk factors in the evaluation matrix. You then have the option of spacing
the grid as you like so that you can determine which constellation of changes in underlying
transactions and volatility for complex option portfolios can be determined that results in the highest
portfolio risk.
The evaluation matrix represents a possible procedure for determining back-up collateral of equity
capital for option price risks and is formulated accordingly in the Basel market risk paper and the
European Capital Adequacy Directive (in Germany, Basic Rule I).

1 Course Overview
2 Price parameters
© SAP AG 2003

Risk Factors
Exchange Security
Security
Exchange price
rate
ratevolatility
volatility price
Abstract
Abstract
risk
riskfactors
factors
Yield
Yieldcurve
curve
Risk
Risk
factors Stock
Stockindex
index
factors
Interest
Interestrate
rate
volatility
volatility
Stock
Stockindex
index
volatility
volatility
Currency
Currency
exchange Security
Security
exchangerate
rate volatility
volatility
© SAP AG 2003
Risk factors are the fundamental influence factors on the risk position of the bank.
The system allows you to arrange the risk factors named above as nodes in a risk hierarchy. Note
however that you can include the volatility risks only in the historical simulation.

Risk Hierarchy
Definition of the risk hierarchy and analysis scheme

Consolidation Consolidation Consolidation ...
LEVEL Risk Factors LEVEL 1 LEVEL 2
3 mo. EURIBOR EUR
6 mo. EURIBOR EUR Money market EUR
12 mo. EURIBOR EUR
2 yrs. EURIBOR EUR

Capital market EUR
3 yrs. EURIBOR EUR Interest
3 mo. LIBOR GBP
Interest GBP
6 mo. LIBOR GBP
1 yr. Swap USD

Swap USD
2 yr. Swap USD
SAP Stock Stocks Stocks
ITL SPOT Total risk
Currency Currency
GBP SPOT
© SAP AG 2003
You can create risk hierarchies for value-at-risk evaluations. The risk hierarchy can have an
unlimited number of market price parameters (risk factors) that can be grouped through the
consolidation levels into a total risk.
You can define the issue of risk calculation in consolidation levels for each node individually. There
are basic default aggregation types for the risks in the hierarchy that can be changed for individual
nodes. It then makes sense to count on a correlated risk, but for stocks you must perform an addition
of the risk aspects with the correct plus/minus signs.
You can account for volatility risks in the risk hierarchy by grouping the volatility risks of individual
risk factors into as many risk nodes as necessary. For example, you can group the interest volatility
risks by curve into an overall interest volatility risk, or the volatility risk of various exchange rates,
security prices, stocks, or stock indexes. The volatility aspects are aggregated into an overall market
risk.
Volatility risks are calculated only within the historical simulation since the underlying assumption
of normal distribution for determining variance and covariance is not valid for volatilities.

VaR – Theoretical Calculations
Historical simulation Time

Timeseries
series Calculation of Variance
and Covariance
Monte Carlo simulation
Portofolio calculation Derivation of volatilities and
∆ BW covariances of risk factors
Variance/covariance matrix
of risk factors
Derivation
Derivationof
ofVaR
VaR
© SAP AG 2003
The Historical Simulation, Variance/Covariance calculation, and Monte Carlo simulation can
be mapped to the risk analysis for the calculation of Value-at-Risk.
The Historical Simulation provides various procedures for determining Value-at-Risk. You can use
the Historical Simulation to arrange the Gains and Losses and the corresponding confidence level is
used to determine the Value-at-Risk key figure. For example, to calculate a drift into the risk aspect,
you also can choose Doubling of the gains and losses as a base, so that the determination of the
Value-at-Risk is based on an even distribution. Another procedure for determining Value-at-Risk is
using the assumption of a normal distribution as a basis for the gains and losses calculated.
The variance/covariance calculation is based on the method suggested by J.P. Morgan/RiskMetrics.
You can determine volatilities and correlations in the risk analysis from SAP Banking or read them
in as data records such as those values from J.P. Morgan.

Historical Simulation (1)
CHANGE IN MARKET PRICE

1 2 3 4 5 6 7 8 9 10 11 12 13
}
}
}
}
}
}
}
}
∆MP1 ∆MP2 ∆MP3 ... ... ... ... ∆MPn
Calculation
Calculationof of
portfolio changes
portfolio changes
due
dueto
tohistorical
historical
changes
changesin in
market
marketprices
prices
∆P1 ∆P2 ∆P3 ... ... ... ... ∆Pn
CHANGE IN PORTFOLIO
© SAP AG 2003
For all combinations of risk hierarchy nodes and portfolio hierarchy nodes, the Historical Simulation
determines the gains and losses in the existing portfolio that for the future are based on the historical
changes in market price:
y The historical changes in market price are determined with regard to the holding period.
y For the calculated changes in market price, the system simulates how net present values would
change for the portfolio.

Historical Simulation (2)
Value
Valueat
atRisk
Risk––Overall
Overallportfolio
portfolio
Value at Risk in millions of EUR
2.5
2.0
1.5 Value atRisk
Valueat Risk
1.5MEUR
1.5M EUR
1.0
for95%
for confidence
95%confide nce
0.5
0.0
–0.5
– 1.0 Sorting
Sortingofofportfolio
portfolio
– 1.5 changes and "counting"
changes and "counting"
the
theValue
Valueat
atRisk
Risk
– 2.0
– 2.5
5% 15% 25% 35% 45% 55% 65% 75% 85% 95%
Confidence interval
© SAP AG 2003
There are different procedures for determining the Value at Risk:

y The relevant values are counted according to the confidence interval.
y Before being counted according to the level of confidence, the time series of portfolio gains and
losses is doubled by counterpositioning each loss with a corresponding gain and each gain with a
corresponding loss. This doubling ensures that the expected value of the change to the portfolio is
zero and that the distribution on each side is even.
y Instead of counting the discrete gains and losses, you can assume that they are distributed
normally. The Value at Risk is then determined accordingly.

VaR Methods for Product-Dependent Evaluation
Delta
Delta
Floating rate
Bonds
Procedure
Procedure
Precision
Historical
Historical
Option
Term
Simulation
Simulation
Delta-Gamma
Delta-Gamma
Portfolio
Portfolio based
basedonon
Procedure
Procedure gains
gainsand
and
losses
losses
Exotic
Option Complete
Complete
evaluation
evaluation
Calculation
Calculation
of
of gainsand
gains andlosses
losses
© SAP AG 2003
In Complete Evaluation changes in NPV are simulated by applying the historical changes in market
price based on the real price functions. The benefit of this procedure is the high calculation accuracy.
The disadvantage is the calculation intensity of the procedure.
In Delta evaluation NPV changes are simulated by applying the historical changes in market price
to a standardized change in NPV. The advantage of this approximation is that this procedures is less
calculation-intensive. However, the assumption that the NPV function is linear leads to inaccuracies
especially in the range of option transactions.
The Delta/Gamma calculation returns more accurate calculation results than the Delta evaluation at
a significantly higher calculation speed than Complete Evaluation. You can calculate the gamma
add-on specifically by product or single transactions.
You can define these methods by product through the valuation rule in the Combination procedure
as well. To prevent the settings specific to the valuation rule from being ignored, you must enter the
combination procedure in the VaR type in Customizing.

Deviation Between Overall and Delta Values in the
VaR (Value at Risk)
NPV
NPV NPV
NPVfunction
function
Error
Error
opprty
opprty
NPV
NPV
NPV
NPV
opprty
opprty
∆∆value Approximation
Approximation
value
risk
NPVrisk
NPV
NPVrisk
risk
calc
calc
NPV
Error
Error
Current
Current Market
Marketprice
price
market
marketprice
price Market
Marketprice
price Market
Marketprice
price
decrease
decrease increase
increase
© SAP AG 2003
The graph shows the calculation error for an increase or decrease in market price with regard to the
delta value. For an increase in market price, the risk for a long position is overestimated, and for a
decrease in market price the NPV opportunity is underestimated. However, note that for a short
position, risks are underestimated and opportunities are overestimated.
It is unrealistic to assume a linear relation between NPV and change in market price, especially for
optional instruments. You must evaluate portfolios with a large portion of optional instruments using
a full analysis.

Calculation of Variance and Covariance
Confidence Confidence
level factor
99.90% 3.09
99.00% 2.33
Frequency
Frequency
95.00% 1.65 Normal
90.00% 1.28
NormalDistribution
Distribution
84.13% 1.00
69.15% 0.50
50.00% 0.00
VaR
»»95%
95%
»»5%
5%
22xx1.65
1.65xxstd
stddeviation
deviation
Change
Changeininvalue
value
[millions
[millions ofDEM]
of DEM]
–0.235
–0.235 00
ItItisis95%
95%probable
probablethat
thatthe
theloss
lossisisnot
notgreater
greaterthan
thanDEM
DEM0.235
0.235million.
million.
And
And it is 5% probable that the loss is greater than DEM 0.235million.
it is 5% probable that the loss is greater than DEM 0.235 million.
© SAP AG 2003
The essential advantage of the variance/covariance calculation is the great scalability of the
confidence level using the confidence factor (under the assumption that changes in market price are
distributed normally). For example, one standard deviation has a confidence level of 84.13%. If the
confidence level is increased to 95% you multiply the calculated value-at-risk by 1.65 for a
confidence level of 84.13%.
Because you cannot assume that volatilities are distributed normally, the calculation of
variance/covariance values do not provide any volatility risks.

Monte Carlo Simulation
Creating a
time series of VaR
standard, calculation
normally based on
distributed, Simulated a discrete
independent changes in distribution
random market price for similar to the
numbers for each risk factor Historical
each risk Simulation
factor
Covariance Cholesky
matrix breakdown
© SAP AG 2003
The Monte Carlo simulation, like the historical simulation, is a simulation method used to determine
a frequency distribution of potential value changes. However, in contrast to the historical simulation
which uses historical data to create changes in portfolio value from the changes in market price, the
Monte Carlo simulation uses a stochastic process. The random numbers needed are created with a
random number generator.
The SAP system assumes that the changes in risk factors are distributed normally with an expected
value of zero and positive variance. The distribution parameters are determined from historical data
(Structurized Monte Carlo).

Value-at-Risk Evaluations: Summary
By the end of this unit, you should be

familiar 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
© SAP AG 2003

Backtesting
t1 t2
Market data P1 P2
Unchanged
Unchanged
Portfolio
Portfolioin
int1t1 Portfolio
Portfoliofrom
fromt1t1
Original
Original NPV
NPVfrom
from
NPV
NPVfor
formarket
market changed
changed
data int1t1
datain market
marketdata int2t2
datain
Value-at-Risk
Value-at-Risk
Difference
Difference
Comparison
Comparison
© SAP AG 2003
Backtesting is a procedure required by oversight law to check internal models. In backtesting, the
value at risk calculated in t1 is compared to the change to the portfolio from time t1 when the real
change in market price is considered.

Backtesting: Reporting
Drill-Down through
the portfolio
hierarchies
Determining the differences Graphical Representation
© SAP AG 2003
Backtesting is available as its own key figure in the Results Database. In the Results Database
overview, the calculated VaR values are displayed with the backtesting values, and the delta values
for each individual day are given.
The Results Database provides the opportunity for an outlier analysis according to the guidelines of
the Basel committee. You can perform this analysis for the entire portfolio and for each node of the
portfolio hierarchy. The outliers are highlighted in red in the list.
The following graphic representations are also available:
y Value-at-Risk and distribution of gains and losses
y QQ plot
y PP plot
Backtesting is the ex-post check of the Value-at-Risk values against the actual changes in portfolio
value. Backtesting checks how adequately the calculated Value-at-Risk predicted the risk.
The Basel Committee for Banking Supervision requires an ex-post comparison for internal models of
capital adequacy. The sum of the exceptions (realized gains/losses > VaR) of the last 250 days of
trading (1 day as a holding period, 99% confidence level) is compared to the specifications.
Basel backtesting judges internal models based on a traffic light method dependent on the number of
outliers. The method is supported as part of backtesting of the Results Database in the desired form
for the selected nodes:
y Green traffic light range 0–4
y Yellow traffic light range 5 – 8
y Red traffic light range 9 and higher

Results Database: Highlights
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)
© SAP AG 2003
You use the results database to calculate, save, evaluate, and analyze key figures defined within end-
of-day processing. This is an expansion of previous options for saving and presenting evaluation
results.
The results database is distinct from the techniques used until now to create and save evaluation
results in that the creation of results and their reporting are now separate. This has the following
benefits:
• You can report results data created once as often as necessary in various ways (different
compilation of key figures, different layout) without you having to recalculate everything again.
• The evaluation results are available for the long term, even for different releases, and can be
archived.
• You can add to and correct the results at a later time. This is necessary for a change in transaction
position or for errors in evaluation.

Architecture of the Results Database
Market data
Data pool
Filter
&
Key figures
Procedure for single records
Archive
Reporting Procedure for final results
© SAP AG 2003
1. You must define the Key figures that you want to have calculated.
2. The key figures are assigned to Procedure for Single Records and Procedure for Final Results.
3. The key figures for single records for the selected finance objects are created and are saved to the
database.
4. The key figures for the final results are determined based on existing individual records and are
saved to the database.
5. The key figures posted in the database of final results are displayed via the Analyzer Infosystem.

Reporting in the Results Database
Default Key Figures in the Results Database
Aggregate
display
Display of single
items
© SAP AG 2003
You can display the values saved in the Results Database through the Analyzer Infosystem as an
overview. You use the selected layout and the portfolio hierarchy to define how the calculated key
figures are displayed.
You can use the portfolio hierarchy to display the values of the key figures for partial portfolios.
You can use a drilldown into the basic finance transactions to display the calculated key figures for
single items.
You can compare periods of key figures ("historical development").
You can display the saved calculation bases that are not effected by changes made later to the market
data tables.
The functionalities of the SAP List Viewer are available for single items. All characteristics of the
analysis structure can be shown and used for further analyses.

Reporting in the Results Database
VaR key figures in the Results Database
Aggregate
display
Display of the risk

hierarchy
© SAP AG 2003
You can analyze the Value-at-Risk values further based on the risk hierarchy. You can display the
Value-at-Risk values on the nodes of the risk hierarchy.
It is also possible to display the underlying distribution of profit and loss as a list of values and a
graph.
You can use the Results Database to evaluate the VaR of a Portfolio for various confidence levels,
holding periods, and VaR procedures (such as historical simulations, variance/covariance, or Monte
Carlo simulations).

Results Database: Procedure for Single Records
z Filter
z Set of values for characteristics
z Selection criterion 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 these
transactions to be re-created
© SAP AG 2003
All key figures defined in an evaluation procedure are calculated even if they refer to basic key
figures that are not defined in the procedure for single records.
Procedures for single records cannot be changed that already have data that was created for them.
You must use the following conventions:
y Key figures can be assigned only to procedures for single records or procedures for final results.
y Key figures only for final results can be assigned only to procedures for final results.
y If data were created in the update run or if there are associated procedures for final results, no
changes may be made to the procedures for single records.
y You cannot assign the NPV basic key figure to a procedure for single records.
y Key figures of type Symmetrical Shift in Interest may not be added to the procedure for final
results.
y Key figures that are not in the associated procedure for single records cannot be used in the
procedure for final records.

Results Database: Procedure for Final Results
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
© SAP AG 2003

Credit Risk Analyzer: Course Overview Diagram


Derivatives
© SAP AG 2003

Unit 7 Credit Risk Analyzer (CRA)
1 CRA functional approach
2 CRA basic terms
3 Limit Management
4 CRA process (Limit Process)
5 Additional functions of Limit Management
© SAP AG 2003

CRA 1: CRA Functional Approach
Concept of SAP Credit Risk Analyzer
Basic configuration knowledge

– Determination procedure
– Default risk rules
– Formula structure
© SAP AG 2003

Who Needs to Use a Limit System?
z Traders or credit analysts are supported in the
Operative control
assessment of existing limit specifications.
z Customer advisers can create, release, or block limit
specifications, if necessary, for their customers.
Customer advisers can call up a current status of the
limits, utilization, and collateral at any time.
z Credit risk controllers can use a range of flexible
Global Control
methods to measure and report on credit risk in a
portfolio.
z Credit portfolio managers can assign and monitor limits
for individual portfolio segments or for entire portfolios
and analyze portfolios according to various criteria.
© SAP AG 2003
CFM: The tightening of regulations (Supervision and Transparency in the Area of Enterprise Act)
regarding risk controlling underlines the increasing significance of analyzing and limiting the risk of
insolvency. It also makes business sense to have system support for measuring, analyzing and
managing or limiting counterparty default risks.
SAP's Credit Risk Analyzer incorporates central limit management functions, enabling you to set
limits for counterparty default risk and monitor them online. You can then let the system calculate
the settlement and default risks arising from your activities on the financial and capital markets, as
well as classical credit risks. By defining differentiated upper risk limits, you can restrict potential
losses on financial transactions as a result of business partner insolvency. In the same way you are
able to have control over traders by using a system of limits.
The default risk and limit system contains an extensive range of standard reports for evaluation and
analysis purposes. This system is linked to the SAP drilldown tool and SAP query. You can display
all the existing utilizations in aggregated form for any given key date and, with the appropriated
system settings, take business partner relationships into account. This allows you to track limit
utilization over time and see exactly which transactions affect it. You can monitor all trading
activities, thus providing you with a high level of security.

What are the Subdivisions of Types of Risk?
Counterparty/Issuer Risk
Credit risk subdivided into

z Classic credit risk (Counterparty risk/issuer risk)
z Counterparty risk from the trading book

from trading transactions plus a term-related and risk-related addon
for covering potential positive changes in market value
Settlement risk subdivided into

z Direct settlement risk
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
© SAP AG 2003

Risk Types
Exposure
Credit Risk Settlement

risk
Without clearing
house
With clearing
house
t1 t2 t3 End of transaction Time
Settlement period
© SAP AG 2003

SAP Solution: The Default Risk and Limit System
mySAP
CFM Banking
SS
ii Query End-of-Day Processing
TT
rr nn
aa gg
Limit
nn ll Attributable
Check:
ss ee Amount
aa TT O.K.
cc rr
tt aa
ii nn Limit
Transaction
oo ss
closing
nn aa
cc
M tt
M
aa ii Reporting
nn oo
Partner Exposure Limit Avail. Limit Util. in %
aa nn
Euro Bank 8.5 10.5 2.0 80.9%
gg CC United Bank 632.3 700.7 68.4 90.3%
hh
ee Carlton 688.1 716.7 28.6 96.0%
ee
rr cc Brightline 12.3 4.8 –7.5 256.3%
kk
© SAP AG 2003
The default risk and limit system support the quantification of various risk positions and default risks
in line with the current market position. The risk exposures (attributable amounts) from the
individual transactions then are compared with the centrally-defined limits.
The exposures are calculated as part of end-of-day processing, and can be updated during the day
using the integrated default risk limit check. This means that traders can use the integrated limit
check before concluding each transaction to determine online the exposure linked to the financial
transaction. They then can let the system check this exposure against limits stored centrally in Limit
Management. Once the transaction has been concluded, the exposure automatically increases the
utilization of the affected limits. As a basis for the integrated limit check, all the financial positions
must be valued consistently. The system displays the result of the limit check and generates a log for
later evaluations.

Requirements for Limit Management
What requirements are placed on limit management?

• Multiple views definitely could exist in credit risk analysis. Possible views might be, for
example, internal/external views or different exposure views into which one transaction can
flow with different attributable amounts. That would make it possible to determine
attributable amounts for the same transaction in the different risk views via different
formulas.
Summary: Flexibility in relation to the definition of viewing options
• For similar transaction types (such as fixed-term deposits and deposits at notice), it must
be possible to make a flexible decision on whether completed transactions can be included
in a credit risk analysis flow together with similarly generated attributable amounts or
differentially.
Summary: Flexibility in relation to determining attributable amounts related to products
• In one view, the analyses, specifically, the comparison of an attributable amount from a
transaction and the defined limit specification should occur flexibly at different levels and
in various dimensions. The dimensions are determined by characteristics such as company
code, business partner, traders, and others.
Summary: Flexibility in relation to the depth of evaluations
© SAP AG 2003

Addendum: Requirements for Limit Management

flow with different attributable amounts. That would make it possible to determine
attributable amounts for the same transaction in the different risk views via different
formulas.
Solution approach of the SAP Credit Risk Analyzer
=> Determination procedure
• For similar transaction types (such as fixed-term deposits and deposits at notice), it must be
possible to make a flexible decision on whether completed transactions can be included in a
credit risk analysis flow together with similarly generated attributable amounts or
differentially.
transaction and the defined limit specification should occur flexibly at different levels and in
various dimensions. The dimensions are determined by characteristics such as company
© 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 of all transactions, and so on.
• The determination procedure forms the basis for looking at a transaction from
different points of view.
• The combination of a determination procedure (of a risk perspective) and the
default risk rule of a transaction yield a formula that is used on the transaction(s)
having the corresponding DRR. This results in each perspective on risk and each
transaction having one single attributable amount.
• Of course the same default risk rule can be assigned to multiple determination
procedures. The assignment logic is always 1:n. That means that a transaction can
return various (n) attributable amounts.
© SAP AG 2003
A determination procedure encompasses all rules and definitions that are necessary, in relation to
transactions with default risk, to determine
y risks related to a certain risk type
y from a certain business perspective.
This definition is explained as follows:
If credit and settlement risks are determined for a transaction, two determination procedures must be
defined (one determination procedure per risk type).
y If you want to evaluate a transaction by different methods, you do so using different
determination procedures. You can evaluate a transaction from the perspective of supervisory
law as well as internal risk in parallel.
y Within a determination procedure you can evaluate various transactions having different risk
properties.

Attributable Amount Determination
© SAP AG 2003


flow with different attributable amounts. That would make it possible to determine attributable
amounts for the same transaction in the different risk views via different formulas.
• For similar transaction types (such as fixed-term deposits and deposits at notice), it must
be possible to make a flexible decision on whether completed transactions can be included
in a credit risk analysis flow together with similarly generated attributable amounts or
differentially.
=> Default risk rules
transaction and the defined limit specification should occur flexibly at different levels and in
various dimensions. The dimensions are determined by characteristics such as company
© SAP AG 2003

Default Risk Rules
• You define default risk rules in Customizing.

• Default risk rules automatically are assigned to single transactions using a
derivation tool.
• Each transaction then receives just ONE single default risk rule.
• This single default risk rule serves as an ID for risk attribution
• Default risk rules can be used in general for a group of financial products
(such as general money markets) or be assigned explicitly to single
transactions (such as fixed-term deposit, borrowing = DRR 1 / fixed-term
deposit, investment = DRR 2).
© SAP AG 2003
The default risk rule supports grouping transactions into groups whose contents are evaluated in the
next step according to uniform methods and procedures.
The definition of default risk rules is set in Customizing. The rules can be derived from product
types or individually.
y The default risk rule is used to determine whether to calculate settlement risks (in addition to
credit risks) for transactions assigned to the rule.
y This is also when you specify how to define the relevant transactions terms (risk commitment
period, market value change period) uniformly.
Transactions that are evaluated according to different methods within a uniform business perspective
(such as for supervisory law) must be assigned to different default risk rules.

Default Risk Rules
Default risk rules are determined automatically when a transaction is determined
Automatic Determination – Example:

If product type = 51A (Fixed-term deposit)
AND Transaction type = 100 (investment),
THEN DRR = MM00000001
© SAP AG 2003

Financial
Financialtransaction
transaction
Determination
Determinationprocedure
procedure11
Default (exposure)
Defaultrisk
riskrule
rule Determination
(exposure) procedure22
(trader
(traderlimit)
Determination
limit) procedure
Determination procedure33
(counterparty
(counterpartylimit)
limit)
Probabilities
Probabilitiesof
ofdefault
default
Formula
Formula11
Recovery Formula 22
RecoveryRates
Rates Formula
Formula
Formula33
Addon
Addonfactors
factors
1 : :n
Attributable amount Assigning
Attributable
1 amount
Attributable
2 amount 1 det. proc. to
limit type
Limit specifications
© SAP AG 2003
If a transaction contains multiple risks (counterparty credit risk, issuer credit risk, counterparty
settlement risk), multiple attributable amounts can be generated. This is controlled by the choice of
determination procedure which forms the methodical unit for determining attributable amounts for
the counterparty/issuer default risk for all transactions of a certain risk view. That means: If a
transaction contains a credit risk as well as a settlement risk, at least two determination procedures
are needed to measure the different risks. This methodology enables the attributable amount of a
transaction to be calculated for the same risk type in different ways. You can use two different
determination procedures to evaluate the credit risk of a money market transaction from the
perspective inside the company, for example, as well as from the risk perspective of supervisory law.
From within a determination procedure you can evaluate transactions that possess different risk
properties. This makes it possible to attribute money market transactions with their nominal values
and derivatives with their NPVs to a limit. You can perform this flexibly according to your
individual needs.
Another important factor in determining the attributable amount is the default risk rule. This rule
specifies which criteria to use to determine the market value change period and the risk commitment
period of a transaction. You can choose "Term end of the transaction" or "Fixed rate period of the
transaction" among others. The Recovery Rate determination is also defined in the default risk rule.

Formulas for determining attributable amounts
Possible formulas for determining attributable amounts

= Nominal value
= NPV
= NPV+(Nominal value*AddOn)
= NPV+(NPV*AddOn)
= Nominal value*Probability of 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
External SAP
basic key figures
External
basic key figures
Basic key figures
User Exit y Addon factor

External formulas y Probability of default
y Recovery Rate
Attributable
Amount
© SAP AG 2003
If you cannot use the default formulas to calculate the attributable amount, you can get external
amounts or key figures for formulas and use an available user exit to process them.

1 CRA Functional Approach
2 CRA basic terms
3 Limit Management
© SAP AG 2003

Selection of Financial Instruments
Product Types
Investment/Borrowing
Hedging instruments
instruments
Money Market Securities Foreign Exchange Derivatives

Fixed-term Stocks Forex spot Cap/Floor
deposits Subscription transactions FRA
Deposits at rights Forex Swaps
notice Investment forward - Interest rates
Commercial certificates transactions - Currency
paper Bonds Forex OTC options
Interest rate Convertible swaps - Currencies
instrument bonds - Interest rates
Cash flow Warrant - Securities
transaction bonds - Swaption
Facility Warrants Futures
© SAP AG 2003
Within short-term transactions, money market or foreign exchange transactions provide the
option of bridging liquidity deficits or surpluses. For mid- and long-term, investments and
borrowings are represented by securities transactions.
Derivative financial instruments, on the other hand, help you secure against interest rate and
currency risks

Business Partners
Customizing
Control Relation- General

Roles
data ships information
Prerequisites
for
Creating business partners
Prerequisites
for
Creating financial transactions
© SAP AG 2003
Each financial transaction is recorded as a transaction with a (specific) business partner. For this
reason the business partner data must be present before the transaction is recorded.

2 CRA basic terms
3 Limit Management
© SAP AG 2003


• Multiple views definitely could exist in credit risk analysis. Possible views might be, for example,
internal/external views or different exposure views into which one transaction can flow with different
attributable amounts. That would make it possible to determine attributable amounts for the same
transaction in the different risk views via different formulas.
• For similar transaction types (such as fixed-term deposits and deposits at notice), it must be possible
to make a flexible decision on whether completed transactions can be included in a credit risk
analysis flow together with similarly generated attributable amounts or differentially.
=> Default risk rules
• In one view, the analyses, specifically, the comparison of an attributable amount from a transaction
and the defined limit specification should occur flexibly at different levels and in various dimensions.
The dimensions are determined by characteristics such as company code, business partner, traders,
and others.
=> 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 for a particular risk view
where the attributable amounts are compared against a
limit specification.
• You can define multiple limit types as part of one
determination procedure (the relationship is 1:n).
• One limit type contains one or more characteristics that
form the basis for a limit value (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
The limit type is the key limit management instrument. You must first define limit types in the
system settings before you can create limits and calculate the corresponding limit utilizations.

Limit Types with N Dimensions
Combination of
limit charac- Germany USA
teristics values
EUR 200 million EUR 200 million
LT12:
LT1: Country
Germany/Banks EUR 100 million Land/Industry
Industry
Banks
LT2: Industry EUR 400 million
EUR 500 million
Euro Bank United Bank

LT33: Partners/
Foreign lim. prod. grp./
Money M arket Exchange traders
LT5: Traders Euro Bank/money market/Connor Bauer/Foreign Exchange LT45: (Lim.

EUR 1 million prod. grp./
EUR 300,000 Connor Bauer Trader)
© SAP AG 2003
You can combine multiple limit characteristics to create multidimensional limit types.
You have the option of combining various limit characteristics when you define a limit type, which
provides many opportunities to restrict your default risks and to monitor your trader activities. The
limit specification then is defined in a combination of limit characteristics values. In the example
above, Trader Bauer was allowed to take a maximum default risk of one million Euros in the
Foreign Exchange Transactions product type. It was irrelevant which business partner was involved
in the transaction.
If you define a three-dimensional limit type, you can also take the business partner into
consideration. Then you can ensure that your money market trader does not exceed a certain
exposure with a business partner. You can do this, for example, by defining a limit type with the
characteristics of Trader, Limit Product Group, and Business Partner and by determining an amount
limit for the exposure.

Limit Types: Characteristics
The following characteristics 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 individually for evaluation purposes.
Those characteristics do not have to exist already in other parts of the system.
Client Characteristic 1 Client Characteristic 5 Client Characteristic 9 Client Characteristic 13
Client Characteristic 4 Client Characteristic 8 Client Characteristic 12
Up to 50 characteristics also can be taken directly from tables or from the Market Risk
Analyzer and be made available in the Credit Risk Analyzer.
© SAP AG 2003
The limit characteristics listed above can be assigned to a limit type individually or in any
combination:
y The business partner can be interpreted as the counterparty or the issuer.
y The monitoring unit is a free field in the transaction data and you can enter anything you want in
it. A limit can be assigned to all transactions having the same field assignments.
y You can use a user exit to derive up to 15 customer characteristics from existing limit
characteristics. This enables you, for example, to create a limit for the Latin America country
group, against which every transaction with business partners in this region would be checked.
In this case, Latin America would be a value of the customer characteristic "geographic country
group".
The characteristics, "country for country risk", "internal organizational unit", and "country rating"
characteristics are available in the banking solution only if the country risk is active.
Generated characteristics are characteristics that are generated in the active analysis structure of the
market risk components and are placed and used in Limit Management. These characteristics are
user-defined.

Financial
Financialtransaction
transaction
Determination
procedure11
Default (exposure)
Defaultrisk
riskrule
rule Determination
(exposure) procedure22
(trader
(traderlimit)
limit)
Probabilities Determination
procedure33
Probabilitiesof
ofdefault
default
(counterparty
(counterpartylimit)
limit)
Formula
Formula11
Recovery Formula 22
RecoveryRates
Rates Formula
Formula
Formula33
Addon
Addonfactors
factors
Attributable amount 1 1: :n Assigning det.
Attributable amount proc. to limit type
Attributable
2 amount
3 You can assign a
determination
procedure to
multiple limit types
with various
evaluation
Limit specification 1 hierarchies.
Limit specification 2
Limit specification 3
Limit type 1 – DP1 Exposure

(Co. Code/BP) Limit type 2 –DP2 Trader limit
Limit type 3 – DP3 Counterparty
(Co. Code/Trader)
(Co. Code/BP)
© SAP AG 2003
The limit utilization of a single record or transaction is the risk amount that was defined with the use
of the attributable amount determination for a single financial transaction.
Using limit characteristics and their values, the utilizations of the single records are added to those
of the totals records or the limit.
Hence the utilization of a limit is the total of the attributable amounts of all transactions that were
attributed to the limit on the basis of their characteristic values. This amount is compared to the
corresponding limit amount as part of the integrated default risk limit check and reporting or
drilldown. During this process the attributable amounts from all financial transactions are updated in
the relevant limits.
Newly concluded transactions increase the existing limit utilization either through the single
transaction check (or the integrated default risk limit check) or through the end-of-day processing.
Such transactions are dependent on the selected limit characteristics.

2 CRA basic terms
3 Limit Management
© SAP AG 2003

CRA 4: CRA Process (Limit Process)
Limit specifications
z Limit characteristic values
z Combinations of limit characteristic values
Online Limit Check
End-of-day processing
Limit exposure evaluation
© SAP AG 2003

Limit Types and Limit Specifications
• 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
Combination of characteristics
values that determines the
depth of evaluation.
You can use the Validity Period

to scale and archive limits over
time.
Critical limit utilizations create

warning messages when the
corresponding utilization is
reached.
Max. risk commitment periods

allow you to restrict limit
values related to term.
© SAP AG 2003
You can specify limits for all defined limit types that correspond to your company's willingness to
take risks. The specified limits serve as quantitative test aspect for determining at a later time
whether limits were kept. Each limit specification contains an internal limit that is checked each time
a financial transaction is created.
When you define single- and multi-dimensional limit types, you enable the creation of a hierarchical
limit specification structure.
The number of dimensions in the hierarchy tree increases at lower levels.
Note that each business partner is assigned exactly one country and one industry. It is therefore
unnecessary to combine the business partner with these characteristics.

Example of Determining Exposure
Fixed term deposit

Transaction
Transaction Fixed term deposit
BP = Deutsche Bank
BP = Deutsche Bank
Trader = Müller
Trader = Müller
Deposit EUR 2,000,000
Deposit EUR 2,000,000
Default
Defaultrisk
riskrule
rule
DP
DP0101––internal
internal DP02
DP02––Internal
Internal DP03
DP03––External
External DP04
DP04––Expected
ExpectedLoss
Loss
Net
NetExposure
Exposure Gross
GrossExposure
Exposure Gross
GrossExposure
Exposure
Attibutable amount = EUR 2,000,000 = Nominal value
LT01/DP01
LT01/DP01–– LT02/DP01
LT02/DP01–– LT03/DP01
LT03/DP01–– LT04/DP01
LT04/DP01––
company
companycode
code Company
Companycode/BP
code/BP Company
Companycode/
code/BP/
BP/ Company
Companycode/
code/
Product
Producttype
type Trader/BP/Product
Trader/BP/Producttype
type
EUR
EUR100,000,000
100,000,000 EUR
EUR10,000,000
10,000,000 EUR
EUR2,000,000
2,000,000 EUR
EUR1,000,000
1,000,000
Limit not exceeded Limit not exceeded At the limit Limit exceeded
Avail. limit: 98 million Avail. limit: 8 million Avail. Limit: 0 Avail. limit: –1 million
=> Warning me ssage ⇒Warning me ssage
⇒Message sent to persons
responsible
© SAP AG 2003

Limit Utilizations: Online Check when Creating
Transactions
© SAP AG 2003
The Credit Risk Analyzer supports an integrated default risk limit check. Traders can use this
function to determine the transaction risk and check the transaction against the limits defined in
Limit Management before the transaction is finalized.
Once a transaction has been concluded, the exposure automatically increases the utilization of the
affected limits. As a basis for the integrated limit check, all the financial positions must be valued
consistently. The system displays the result of the limit check. To do this, limit utilizations are
determined from the single transaction exposure calculated on the basis of current market data. They
are then updated in Limit Management. In addition to the utilizations for each specified limit, the
system also generates individual records for each transaction. You can therefore see the impact of
individual transactions on the total utilization and use this information as a basis for changing
financial transactions during the course of the day.
The integrated default risk limit check is an instrument that you can use to monitor risk as early as
possible. This is controlled by means of the limit type. For each limit type you define whether the
limit level is relevant for the integrated default limit check process.
This functionality is available for CFM only.

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 relevant
limit 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 2003
To update limit utilizations start a report in batch mode. Once the limit utilizations have been
determined in this process, they are updated in the corresponding limit.
In addition to end-of-day processing, you can also use single transaction checks that allow you to
update limit utilizations whenever you want.
You can use an evaluation type (see appendix) to determine which market data is used for
calculating NPVs.

Limit Exposures
Breakdown of the total limit utilization at the level of single transactions
Limit exposure at the counterparty level
© SAP AG 2006

2 CRA basic terms
3 Limit Management
© SAP AG 2003

CRA 5: Additional Functions of Limit Management
Interim Limits
Consideration of corporate relationships
Release procedure
Reservations
© SAP AG 2003

Interim Limits
• Interim limits are used for the organizational approval process

• Interim limits are temporary limit adjustments (such as in the Trading area)
• You can create multiple interim limits that overlap chronologically.
• Interim limits can eventually become permanent limits
Limit
amount
Interim limit 2
Interim limit 1
Specified Limit
Time
© SAP AG 2003

Corporate Relationships
• Corporate relationships of the business partner can be taken

into account as part of Credit Risk Management.
• Parent-subsidiary relationships can be represented according
to their share ratios. The financial transactions of the subsidiary
are added proportionally to the limit utilizations of the parent
company.
• Financial transactions of the parent company also can be
attributed as a percentage to limits that are valid for the
subsidiary.
• In Customizing you can define the how deeply you want to
evaluate relationship networks.
• You determine in Customizing the type of attribution by the limit
type.
© SAP AG 2003
Default risks related to a subsidiary can be attributed either solely to the subsidiary or to both the
subsidiary (always at 100%) and to the parent company (at 100%).
In Business Partner Customizing (Transaction BCA0) you can define a relationship type that allows
you to attribute default risks to multiple parent companies. This relationship type is defined in the
business partner master data of the group subsidiary by entering an attribute record (at any
percentage, for example, corresponding to the share proportion).
The country risk in the country of incorporation for the parent group is not affected by transactions
with foreign subsidiaries.

Release Procedure
z Limit release according to the dual control principle

Two different users
Changes move the release back one step
not released (Status 0)
flagged (Status 1)
released (Status 2)
© SAP AG 2003
You can enable the release procedure in Customizing by setting a flag (active release) for each limit
type.
When you specify the initial status, you define whether the release procedure begins with not
released (Status 0) or flagged (Status 1). This setting is dependent on the the organizational
processes at the company.
You can release each specification individually or as a group for certain limit types.
Each change in the limit specification (such as increasing a limit) moves the release step back one
level.

Appendix 1
© SAP AG 2003

Addendum: SAP Navigation
Contents:
z User guide
z Options for help
z User-specific settings
© SAP AG 2003

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
© SAP AG 2003
SAP systems are client systems. Using the client concept, it is possible to operate multiple
companies in one system that are independent of each other operationally. The SAP BW and SAP
KW components are exceptions, only one client is used for each respectively. Each user session only
has access to the data of client selected at logon.
A client is an organizationally independent unit in the system. Each client has its own data
environment and as a consequence, its own master and flow data, assigned user masters, and specific
Customizing parameters.
For users to be able to log on to the system, a user master record must be created for them for the
corresponding client. For reasons of access protection, a password is required to log on. The user
cannot see the password as it is entered (only asterisks are displayed).
SAP systems are multilingually structured. The language for the current session is set with the
Language entry field.
Multiple logons are logged as of SAP R/3 Release 4.6. This has to do with security as well as
licensing Additional logons after the first using the same user cause a message to be displayed that
offers the user three choices:
y End the existing session(s), continue with logon
y Leave the existing session(s) alone, continue with logon (will be logged)
y Terminate logon
You can define your own text to be displayed on the logon screen in different ways. For more, see
SAP note 205487.

Role-Based User Menu
Menu Edit Favorites Extras System Help
SAP Easy Access

Other menu Create role Assign users Documentation
Favorites
URL - SAP Service Marketplace
SM50 - Work Process Overview
SM04 - User List
User-defined favorites
Role SAP_BC_BASIS_ADMIN shorten navigation time
System: Running Operation
System Configuration
Performance Analysis
Problem Analysis
Overview
RZ20 - CCMS Monitoring
Details
A user menu contains the activities that
the user is allowed to perform according
to his or her role in the system
DEV (1) (100) TWDF0670 OVR
© SAP AG 2003
SAP Easy Access is the standard entry point into the system. You navigate the system used a
concise tree structure.
A role describes a usefully defined quantity of activities in the system. They represent the range of
functions that are typically required by the user at the workplace.
Before a user of the SAP system can work with user-specific menus or menus related to the
workplace, roles must be set up with the Profile Generator.
Authorizations for the activities listed in the menus are also assigned to the users with roles.
Predefined user roles for all application areas are included by default.
You can choose between your user menu and the standard SAP menu when assigned to a role.
You can find the roles that are delivered by SAP by default by pressing the Other menu button on the
SAP Easy Access initial screen.
As an end user, you can personalize your initial screen into the system with favorites, in addition to
your role. You can create your own Favorites List and fill it with the transactions, reports, files, and
web addresses that you use most.
You can create favorites either with the Favorites menu option or simply by dragging and dropping
the desired item into your favorites folder with the mouse.

Maintaining Your Own User Profiles
User Edit Goto System Help Menu bar

Standard toolbar
Maintain User Profile Title bar
Command Application toolbar
User field ESCH
Last changed by MENZ EL 08.12.2002 21 : 46 : 37 Status Saved
Tab page
Address Defaults Parameter
StartMenu Input fields

Logon language
Checkboxes
Radio buttons
Output Controller Decimalization
OutputDevice 1.234.567,89
1,234,567.89
1 234 567,89
Output immediately
Delete after output Date format
DD.MM.YYYY
Personal time zone MM/DD/YYYY
CET MM-DD-YYYY
YYYY.MM.DD
CATT YYYY/MM/DD
Test status YYYY-MM-DD
Status bar
DEV (1) (100) TWDF0670 OVR

© SAP AG 2003
Command field: You can access applications directly by entering their transaction codes in the
command field (which is hidden by default). The transaction code of an application can be found
either in the SAP Easy Access menu tree (see the "User-Specific Personalization" page) or in the
respective application under System→ Status.
Standard toolbar: The buttons in the standard toolbar are displayed on every SAP screen. The
buttons that you cannot currently use are grayed out depending on the application. If you hold the
cursor over a button for a moment, a little flag will appear with the name or meaning of the
respective button. Here you can see the corresponding function key setting. The application toolbar
displays the buttons that you can use in the current application.
Checkboxes: With checkboxes, you can select multiple options at the same time within a group.
Radio buttons: You can only choose one option at a time.
A tab displays multiple information screens more clearly.
Status bar: Displays the information about the current system status, such as warnings or errors.
Other elements are:
Menu bar: The menus displayed here depend on the application in which you are currently working.
These menus provide you with submenu options.
Title bar: The title bar names the function that is available to you.

Calling System Functions
Menu Edit Favorites Extras System

Create session
End session
SAP Easy Access User profile

Command field Services
Other menu Utilities

List
Favorites Services for object

Object history
URL - SAP Service Marketplace
Own spool requests
SM50 - Process Overview
Own jobs
SM04 - User List
Short message
Role SAP_BC_BASIS_ADMIN Status...
System: Running Operation Log off
System Configuration
Performance Analysis
Problem Analysis
Overview
RZ20 - CCMS Monitoring
Details
Menu
SAP Easy Access and favorites list
© SAP AG 2003
You can call system functions in the following ways:

y With the mouse, by selecting a
- Menu option
- Favorite
- Entry of the SAP Easy Access
y With the keyboard (ALT + the underlined letter of the desired menu option)
y By entering a transaction code in the command field:
Every function (not every screen) in SAP systems is a assigned a transaction code (T-code). The
assigned transaction code can be called from every screen of the system. For example, to display
the customer master record "/n", you can enter the associated transaction code: "/nsu3". You can
determine the current transaction code with the Status entry in the System menu for the running
processing. Other possible entries:
- "/n" ends the running transaction.
- "/i" deletes the current session.
- "/osm04" opens a new session and branches to the entered transaction (SM04).
You can also reach the command field with the keyboard. With the combination CTRL+TAB, the
cursor jumps from one (input) field group to the next.
You can jump within a field group with TAB.
By entering "search_sap_menu" in the command field, you can display the menu path for desired
SAP transactions. You can also search for text strings.

Field Help: F1, F4
Address Defaults
F1 Help Output Controller

OutputDevice F4 Help StartMenu
Logon language
Meaning of Output immediately Display of
Delete after output
fields and possible Output Controller
OutputDevice
technical Personal time zone entries
CET
Information
CATT
Test status Language (1)
38 Entries found
Restrictions
Performance Assistant
Lang... Language
AF Afrikaans
AR Arabic
BG Bulgarian
Print parameter 2 CS Czech
DA Danish
Indicates whether spool requests are printed immediately. DE German
EL Greek
EN English
Select this field to print your spool requests immediately. ES Spanish
ET Estonian
FI Finish
FR French
Leav the field blank to retain spool requests in the spool HE Hebrew
system until they are released. To release these spool HR Croatian
requests for printing, you can use System -> Services -> HU Hungarian
Output controller. ID Indonesian
© SAP AG 2003
With F1, explanations about fields, menus, functions and messages can be displayed.
With the F1 help you can also view the technical information for the respective field. There you can
also find, for example, the parameter ID that you can use for your user to store defaults on a value
bases for input fields that also refer to this parameter ID.
With F4, information about possible entries can be displayed. You can also access the F4 help by
pressing the button directly to the right of the selected field.
When a field is displayed with a "check" symbol, you cannot continue until you have entered a
permitted value. Many fields of an application can be marked as required or optional, hidden, or
made invisible and filled with default values by the user with transaction or screen variants as well as
with Customizing.

Tools
© SAP AG 2003

User-Specific Personalization
Menu Edit Favorites Extras System Help

Display documentation Shift+F6
Technical details Ctrl+Shift+F10
SAP Easy Access Options
Settings Shift+F9 New Visual Design...
Other menu Set start transaction Create roleShift+F7 Assign users Documentation
Clipboard
Favorites Generate graphic
SAP menu Create shortcut...
Office
Activate GuiXT
Information Systems
Tools Default size
Hardcopy
Quick Cut and Paste
Spelling Check
Sapgui Help
Settings About ...
This is used to specify settings
Display favorites at end of list

Do not display menu, only display favorites A range of settings simplifies
Do not display picture working with the system
Display technical names DEV (1) (100) TWDF0670 OVR
© SAP AG 2003
There are many personalization options available to the end user in the system. A few of these are:
y Under Extras → Settings you can configure the display of your initial screen. For example, you
can turn off the screen in the right part of the window or turn on the technical names (transaction
codes) in the SAP Easy Access menu.
y Under Customizing of local layout, you can activate quick cutting and pasting, for example. Under
Options... you can change the reaction speed of the quick info that is displayed when you "touch"
an icon or button with your cursor.

SAP Library
SAP Library Getting Started Release Notes IMG Glossary Search Help on Help
Show/Hide Tree Business unit
Open all Close all

SAP Library
Previous Next Synchronize
SAP Library
Getting Started
SAP Web Application Server
SAP Know ledge Management
Help on Help
Help on the Web
Copyright
SAP Web Application Server, Release 6.10, June 2001
© Copyright 2001 SA P AG. All rights reserved.
Local intranet
© SAP AG 2003
SAP systems offer detailed online help. You can access help from every screen of the system. You
can always request help with the Help menu or with the corresponding button (yellow question
mark).
You can also access the SAP Library on the SAP Service Market Place quickly and comfortably.
There you will find the SAP online documentation (the SAP Help Portal) under Education and
Training. There you can access the help in HTML format as well as perform efficient full-text
searches. If you have installed the SAP Library, you also have these options within your company, of
course.
You can reach the Help Portal directly under http://help.sap.com.

Appendix 2
© SAP AG 2003

Business Partner: Functions and Roles
Person
Organization
Borrower
Agent/counterparty
Notary
Surveyor Interested party
Counterparty
Beneficiary
Issuer
Depository bank
Trust company
Payer/payee
Assigning institution
Guarantor
© SAP AG 2003
You can assign several roles or functions to one business partner.

A role (= role category) specifies the characteristics a business partner must have before you can
perform certain transaction activities with that partner. The functions of the business partner in
financial transactions are described in business partner roles (categories).
The role category also determines the rights and obligations of the business partner in a given
business transaction.
Example: A business partner can act as a counterparty.

Forex Spot Transactions/Forward Exchange
Transactions
z Spot Transactions
Due immediately, that is, on the second bank workday after
conclusion 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 calculation
basis, especially in international trade
© SAP AG 2003
With spot transactions, internationally traded currencies are bought or sold against other currencies
on the value date.
With forward transactions, however, they are traded at a certain time in the future, and the relevant
markup or markdown to calculate the forward rate is added. The back office processing of foreign
exchange transactions requires that the authorized banks are defined in the system as authorized
business partners with corresponding payment details.

Reporting
; Parallel Position Management

; Reporting
Positions
– SAP list viewer display

– Branch to the position flows
– Branch to the posting journal
– Determine the positions per valuation area at the key date
Flows
– Branch to the posting journal

– Branch to the original business transaction
– All business transaction flows from the TR ledger
Posting journal
© SAP AG 2003

Valuation
Example: 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

© SAP AG 2003
In forex valuation, in the case of valuation at the current forward rate or with swap/swap
comparisons, the term of the swap is no longer determined as the period between the key date and
the due date of the transaction, but rather as the period between the spot date (calculated from the
key date) and the due date of the transaction.
If you select the field Perform posting immediately, the flows generated by the valuation are posted
immediately. Otherwise, the flows must be posted later using the appropriate functions.

Valuation
Example: Forward Exchange Transaction
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 1,700,000

03/31/YY 1.65 1,650,000 – 50,000
04/30/YY 1.72 1,720,000 + 20,000
05/31/YY 1.69 1,690,000 – 10,000
© SAP AG 2003
This is an example for the following scenario:

y Creating and reversing provisions
y Showing realized loss.
In the valuation of 04/30/YY there is an unrealized gain. This, however, does not have to be
disclosed according to German trade and tax law.

Valuation: G/L Accounting
First valuation: 03/31/YY Creation of passive provision and

display of unrealized loss
Balance sheet
Forward rate
on conclusion: 1.70 Provision Assets Provision Liabilities
50 T 1
Forward rate
on market: 1.65 Clearing account
USD bank account
EUR bank account
P&L
Unrealized loss Unrealized profit
1 50 T
Realized loss Realized profit
© SAP AG 2003

Writing-off of passive provisions,

Second valuation: 04/30/YY creation of active provisions, display
Balance sheet of unrealized profit
Forward rate
2 20T 2 50 T 50 T 1
Forward rate
USD bank account
EUR bank account
P&L
1 50 T 50 T 2 20 T 2
© SAP AG 2003
Unrealized profits and active provisions are not disclosed in Germany.

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

derived business transaction)
Balance sheet
Forward rate
2 20 T 20 T 3 2 50 T 50 T 1
Spot rate
1.70M EUR 1M USD
10 T 3
USD bank account
1M USD
EUR bank account

1.70M EUR
P&L
1 50 T 50 T 2 3 20 T 20 T 2

3 10 T
© SAP AG 2003
The final valuation of forward exchange transactions is carried out with the help of a currency
clearing account. The update is carried out based on the forward rate that is fixed in the transaction.
The foreign currency amount is translated at the current rate of exchange.
The difference (realized gain/loss) is determined by the closing valuation, it is held in Treasury as a
valuation flow, and is transferred to Financial Accounting during the posting run.
In order to determine the (profits and/or) losses made, you must first post the transactions.

Currency Options
z The purchaser acquires the right (the seller accepts the obligation) to buy
(seller: supply) or sell (seller: accept)
- at a certain time (European option) or
within a certain time period (American option).
z - a certain foreign currency amount (underlier).
z - at a certain price (strike price).
z For this right, the buyer pays the vendor an option 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 settlement or physical settlement (delivery / take delivery)
© SAP AG 2003
Example of a call:
with a USD/EUR call at the strike price of 1.80, the purchaser has the right to obtain a particular
USD amount at the strike price from the seller. The purchaser will only exercise this right if the
market price is higher than the strike price at the time of exercise or within the exercise period. This
way, the purchaser can acquire the foreign currency amount cheaper using the option than on the
market.
Example of a put:
with a USD/EUR put at the strike price of 1.80, the purchaser acquires the right to sell a particular
USD amount to the seller at the strike price. The purchaser will only exercise this right if the market
price at the time of exercise or within the exercise period is less than the strike price. In this case the
purchaser can obtain a higher price for the foreign currency amount using the option than the price
on the market.
Background:
the purchaser of a call wishes to hedge against rising prices and the purchaser of a put hedges against
falling prices. The vendor reckons with the opposite price development and wants to improve his or
her position by collecting the option premium.
There are two categories of barrier options – knock-in options and knock-out options. With knock-
in options, the option right only arises when the trigger price is touched (Down & In, or Up & In).
With knock-out options, the existing option right expires when the trigger price is touched (Down &
Out, or Up & Out).

Derivatives: Exercise OTC Currency Options 1 and 2

1 and 2
© SAP AG 2003

Derivatives: 4 – Futures
Master Data
Futures account
Transaction entry
Margin Management
© SAP AG 2003

Futures
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 rate
gains with Close transactions
© SAP AG 2003
In principle, the application does not refer to any specific exchange or any specific financial
product. You make the system aware of the exchanges and products by means of Customizing.
The exchange, as the institution that enables the free trade of contracts between partners, collects
insurance payments from the trading parties in the form of additional (initial), premium, spread/non-
spread, and marginal payments. These payments put the exchange in a position to offset all the
contracts of all participants in the market. They payment amounts are the result of different
calculation algorithms depending on the product type. With futures and future-styled options, the
gains and losses are calculated daily as a Variation margin and cleared immediately.

Master Data
Securities
Futures Interest Rate
Index warrants
© SAP AG 2003
Futures are forward exchange transactions with standardized structures. The standardized contract
elements are stored in the class data.
You process the master data for futures using the same transaction as for the class data in the
Securities area. This means that you automatically have the use of functions that were also available
for the Securities class data. These functions include assignment of secondary indexes, integrated
assignment of exchanges and the copying function.

Futures Account
Company code TRXX

Futures account POS_01_DB Management unit
Name Futures account _01_DB
Bank information
Depository bank DEUBA
Clearing account 44555666 Position Management
Futures account no. 22224446
Bank data
House bank
House bank DB
House bank acct. GIRUN
Futures account – class position Information for

margin calculation
© SAP AG 2003
A futures account is a management unit that is used in position management. It is required for futures
because they must be managed just as all other positions. As a rule, the futures accounts defined in
the system correspond to the real futures accounts held at the bank.
Before you can set up a futures account, the futures account bank must be defined as a business
partner in the role of a depository bank.
In the back-office area for listed derivatives, you can see the reports "Futures Account Cash Flow"
and "Position in Futures Account".
In order to manage classes in a futures account, you need the class position in the futures account.
You can find the information for margin calculation in the class position for the futures account. To
enable a position with margin calculation to be managed, you must select future style as the
settlement method when you make product type Customizing settings for futures. You also enter the
exchange and the rate category for the margin calculation. This data does not then have to be entered
in the posting report.
The same account assignment reference is used for a class position in a futures account in the case of
all Open and Close transactions.

Transaction Entry: Open and Close
FUTURE
Open purchase Close sale
Offset by:
Open sale Close purchase
Setting with
consumption follow -up action
(LIFO or FIFO etc. or manually)
© SAP AG 2003
In the context of these transactions, the terms purchase and sale do not describe the increase or
decrease in positions; rather, they define the direction of a forward transaction. Positions are
therefore built up whether you purchase or sell.
Open transactions refer to the build-up of positions whereas Close transactions refer to the reduction
of positions.
The decrease in the position is brought about by a counter-transaction with the same class, and the
counter-transaction is identified as an offsetting transaction (Closing). This facility to leave the
market again at any time without obtaining the consent of the counterparty is one of the two
important characteristics that distinguish listed options and futures from the options and forwards
traded in the OTC area. The second characteristic is the strict standardization of contract contents.
Futures are managed in Single Position Management. Each Open generates a new single position.
This can be closed by one or more (part) Close transactions.

Margin Management
OPEN Variation margin CLOSE

transaction transaction
– Accounting
– Purchase – Daily – Purchase
– Sale – Sale
Price rate
101
+VM
100
–VM
98.5
t1 t2 t3 t4 Days
© SAP AG 2003
Futures are subject to the future-style settlement method. This means that by comparing the current
settlement price with the previous day's price (on the first day with the cost price), the price change
of each position is determined. The difference is converted to the number of ticks. This number
multiplied by the tick value results in an amount that is immediately debited from or credited to the
margin account. The variation margin represents the daily gains and losses in the mark-to-market
valuation method. In this sense, it is not a margin. The variation margin is, therefore, not a valuation
but a settlement method using the daily valuation at market prices. The variation margin method
should prevent unmanageable payables/receivables amounts building up between the counterparties
over a long period of time. The payables/receivables are, therefore, reconciled immediately on the
day they arise. The maximum loss is thus only one day's fluctuation. In the variation margin process,
although the amounts are credited to/debited from the margin account daily, and even discounted,
they are unrealized gains/losses. The position itself is pending. Consequently, in accounting you
must differentiate these amounts clearly from those amounts that have arisen as realized gains/losses
from the closing of positions. As far as the margin management posting is concerned, we distinguish
between the variation margin and the close margin. In the case of a close transaction, the margin
flow is stored as “scheduled” and then updated automatically when changes occur in closing. In
order to fix the flows, you must post the margin flows with report TPM25. This report is for posting
closing flows only. A prerequisite, however, is that all business transactions (Open/Close) are
already posted.

Appendix 3
© SAP AG 2003

Create Class: Create Convertible Bond
ID number 118900 Convertible bond 99/03
Basic Data
Issue
Issuer
Nominal value 100
Conversion
Reference security
Premium Conversion period Conversion ratio

Amount from Numerator 2
Currency EUR to Denominator 1
© SAP AG 2003
Class master data for convertible bonds consists of basic data, conditions, and additional entries.
Selected fields in the basic data screen for convertible bonds are explained below:
Reference security The security that can be used as a reference for the
conversion.
Conversion period from/to: Period in which conversion is possible.
Conversion ratio Numerator /
Conversion ratio Denominator: The Conversion ratio numerator tells you how many
units of nominal value of the bond are required to
convert it into the given number of stocks in
Conversion ratio denominator.
Example: A nominal value of EUR 200 (2 x 100) is converted into 1

stock.
Conversion premium: The amount to be paid for each stock in the case of a
conversion.

Create Class: Create Warrant Bond
ID number 119805 Warrant bond 00/05
Basic Data
Nominal value 1000

...
Option
Cum / Ex cum Number of warrants 5

Bond ex 213200
Equity 548432
© SAP AG 2003
The class master data for warrant bonds consists of basic data, conditions, and other data.
Selected fields in the basic data screen for warrant bonds are explained below:
CUM/EX bond: Indicates whether the bond is traded with a warrant (cum)
or without a warrant (ex)
Number of warrants: Indicates how many warrants are attached to a bond per unit
of nominal value.
Example:
5 warrants are attached to a nominal amount of EUR 1000 of the bond. Warrants.

Class Master Data: Create Warrant
ID number 242385 Warrant ...
Basic Data
Structure Option ratio

Option category Call Numerator
Settlement Delivery Denominator
Exercise
Exercise type European from
Exercise minimum to
Underlying
ID Number
Exercise price Currency
© SAP AG 2003
Class master data for warrants consists of basic data and reference entries, if they are required.
Below is a description of selected fields in the basic data screen for warrants (in this case, equity
warrants):
• Option category: 1: Call
2: Put
• Settlement: 1: Cash settlement
2: Delivery
• Option ratio numerator / The number of warrants that you require
• Option ratio denominator: To trade the number of units of basis values
entered in the "option ratio – denominator" field.
• Exercise type: 1: European
2: American
• Exercise minimum: Number of warrants to be exercised at minimum as stated in the
issuing conditions
• Exercise price: The amount to be paid for the underlying value when you
exercise the warrant.
It is not yet required that you enter the "Option category" and the "Settlement type" in the structure
characteristics when you create the class master data for a warrant. You can add this data later when
you exercise the warrant.

Note: Restraint on Disposal
New Existing
sec. acct sec. acct
Create and Lock Partly

or
lock sec. acct lock
position
In Customizing: Define blocking flags
© SAP AG 2003
You can restrict the disposition for each securities account for
y part of the position of a particular security
y the total position of a particular security
y the whole securities account position.

Closing Operations: Manual Valuation
© SAP AG 2003
For manual valuation, the security prices are not read (maintained for each exchange), but read from
a special table.
Values are specified for each position in the table which the position is to be written up or down to.
(to be maintained with the TRLV_VALV_MANUAL VAL maintenance view or TPM74
transaction). The prices here are not specified for each unit or as a nominal price, but for each
position managed by the Transaction Manager.
Manual evaluation does not support amortizations.

Capital Increase from Retained Earnings
800 stocks ID no. 444 444
Capital increase from retained earnings
Ratio Numerator 4
Ratio Denominator 1
Select position
Sec. acct ID No.units old No.units new
Deuba Acc1 800 1000
Execute
Capital increase for ID no. 444 444 executed
Result: 1000 stocks ID no. 444 444

© SAP AG 2003
For a capital increase from retained earnings, open retained earnings are converted into capital stock.
All stockholders therefore have the right to bonus stocks in proportion to the numbers of stocks they
currently hold.
The ratio indicates how many (old) stocks you need to obtain one bonus stock.
To execute a capital increase from retained earnings, you select the positions of all securities
accounts in a company code. The number of units managed in the securities accounts is adjusted on
the basis of the subscription ratio and the individual book value is corrected accordingly.

Stock Split
1000 stocks ID no. 444 444

Nominal value EUR 50
Rate EUR 560
Stock Split
Split ratio Numerator 1

Split ratio Denominator 10
Select position
Sec. acct ID No. units old No. units new

Deuba Acc1 1000 10,000
Execute
Stock split for ID no. 444 444 executed
Result: 10,000 stocks ID no. 444 444

© SAP AG 2003
A stock split leads to an increase in the number of stocks for fixed stock capital, and reduces the
nominal value per stock.
The split ratio indicates the ratio by which the nominal value is reduced.
You execute a stock split for the relevant ID number in the company code. The system automatically
adjusts the number of stocks and the book price.
You have to maintain the nominal value reduction as well as the dividend adjustment amount
manually in the class master data.
The system recalculates the cash flow automatically on the basis of the changed data.
Since you can enter your own split ratio, you can also represent reverse splits in the system, for
which the split reduces the number of stocks.

Capital Reduction
10,000 stocks ID no. 444 444
Capital Reduction
Ratio Numerator 10
Ratio Denominator 1
Select position
Sec. acct ID No. units old No. units new
Deuba Acc1 10,000 1,000
Execute
Capital reduction for ID no. 444 444 executed
Result: 1000 stocks ID no. 444 444
© SAP AG 2003
You execute a capital reduction to reduce the stock capital (or common stock) to compensate for
losses, repay capital or convert stock capital to reserves.
A capital reduction leads either to a reduction in the nominal value per unit or (more commonly) to a
grouping of stocks.
A capital reduction is represented in the system as a group of stocks.
The ratio indicates the ratio of old stock capital to new stock capital.
You select the positions affected by the reduction for the entire company code and display them for
each securities account. The number of units and the book values are adjusted according to the
subscription ratio entered.

Stock Swap
1,000 stocks ID no. 444 444
Stock Swap
Swap ratio Numerator 10 Denominator 1

Old ID number: 444444 new ID number 111111
Select position
Sec.acct ID 444444 111111
Deuba Acc1 1,000 100
Execute
Stock swap for ID no. 444444 / 111111 executed
Result: 100 (more) stocks ID no. 111111
© SAP AG 2003
When you perform a stock swap, you swap stocks belonging to two issuers or swap different stock
forms of an issuer (such as preference stocks against common stocks).
The position of stocks to be swapped is reduced in the system and the position of stocks to be
received is increased by an identical book value in the same securities account.
The system automatically recalculates the cash flow for the relevant securities on the basis of the
data that has changed.
© SAP AG FSC010 10-10

Exercise Rights
• Exercise convertible bond Header data

• ID Number
• Exercise warrant
• Specific data depending
• Detach warrant bond on right to be exercised
(such as term, exercise
• Exercise subscription right price for warrant)
• Give notice on bonds
Rights Position
For example,
• Nominal amount
• Exercise
warrant • Number of units
• Expiration • Units to be exercised
and so on
© SAP AG 2003
You represent the activities above using the "Exercise security rights" function.
The exercise rights function contains header data, data on the rights and the position.
The header data includes relevant class information for the securities. The rights data lists the various
options you have of exercising the right. The position data includes, for example, the number of units
to be exercised or the nominal amount.
You can use a specific reversal function to reverse these activities.
© SAP AG FSC010 10-11

Convertible Bond: Overview
Prerequisites
Convertible bond in position
Stock class
PI stock
(Partly) exercise convertible bond
Stocks in position
© SAP AG 2003
You can convert convertible bonds to stocks of the issuer concerned within a certain time period.
If you exercise a conversion right, the system determines the number of stocks to be obtained and, if
required, the premium to be paid according to the share you have selected for conversion.
When you convert them, the bond position decreases and the stock position increases according to
the conversion ratio. The book values of the positions are updated on the basis of the book prices at
the time of the conversion (and the premium, if required). The planned flows of the cash flows are
adjusted according to the changed positions.
© SAP AG FSC010 10-12

Equity Warrants: Overview
Prerequisites
Warrant in position
Class underlying
PI underlying
(Partly) exercise warrant
1 Cash settlement
2 Delivery
© SAP AG 2003
Warrants guarantee the right to purchase or sell an underlying transaction against a payment amount
determined at issue at a certain time or within a certain period of time. Within the SAP CFM module,
underlyings are units (e.g. stocks), currencies, or interest transactions.
You can create both traditional warrants within warrant bonds and covered warrants in the equity
warrants function.
When you exercise a warrant, the system displays information on the related underlyings. If the cash
settlement is planned, the cash settlement is calculated per subscription unit on the basis of the
current price of the underlyings to be entered. In the case of delivery, the system generates the flows
for the corresponding principal change.
Warrants that have not been exercised can be exercised as expiration by means of the Exercise rights
function.
© SAP AG FSC010 10-13

Warrant Bonds: Overview
Prerequisites
Warrant bond cum in position

Class bond ex
PI bond ex
Class warrant
PI warrant
(Partly) detach warrant bond
Stock class
PI stock
(Partly) exercise warrant
Warrant bond ex in position

Stocks in position
(Warrant bond cum in position – if required)
© SAP AG 2003
Warrant bonds provide you with an option that enables you to reference stocks belonging to the
issuer.
You can trade bonds and options together (warrant bond cum), or separately (warrant bond ex,
warrant).
You enter warrant bonds cum, warrant bonds ex, and warrants each as a class in the system.
When you detach a warrant, the old position of the warrant bond cum decreases and the position of
the warrant bond ex and the warrants increases. The book values of the positions are updated on the
basis of the book prices when they are detached. The planned flows of the cash flows are adjusted
according to the changed positions.
You exercise warrants as described earlier.
© SAP AG FSC010 10-14

Calculation of Forward Interest Rates
Wanted: An interest rate valid for an interest period beginning in

two months and lasting for three months.
Interest rate 2 months = 3%/year
Interest rate 5 months = 5%/year
Forward Interest Rate 2-5
–100
3% 100.49
1 month 2 months
5%
–100 102.05
1 month 2 months 3 months 4 months 5 months
6.36%
– 100.49 102.05
1 month 2 months 3 months 4 months 5 months
© SAP AG 2003
Forward interest rates reflect the interest calculation of future investments or borrowing transactions,
determined by today's yield structure. For normal yield structure, the forward interest rates
corresponding to the term lie above the coupon yields (and vice versa with an inverse yield
structure).
Forward interest rates are required for the evaluation of
y FRAs
y Swaps
y Caps/floors
y Floaters
y Loans.
© SAP AG FSC010 10-15

Depicting Volatilities
Volatility types Volatility name
Customizing: Customizing:
Define Volatility Type Master Data for Volatilities
z You can individually assign

z Bid/middle/ask classification
volatilities to options
z Characterization as individual or
z Assignment via evaluation-
average volatility for caps/floors
type/valuation rule
© SAP AG 2003
Volatility types represent the previous volatility concept that specifies volatility types depending on
the option type. Volatility types are assigned to transactions in the evaluation type on the Evaluation
type and Valuation-Rule-Specific views.
Volatility names now allow you to define abstract volatility types that can be assigned to the
financing options with the evaluation type and the valuation rule during the valuation. By defining
evaluation types, both volatility procedures can be used on the option price valuation. Volatility
names are assigned to transactions in the evaluation type on the Valuation-Rule-Specific view.
© SAP AG FSC010 10-16

Moneyness
Strike
Strike –– Current
Current rate
rate
Moneyness
Moneyness ==
Current
Current rate
rate
In-the- At-the- Out-of-

money money the-money
Call –1 < 0 0 0<1
Put 0<1 0 –1 < 0
© SAP AG 2003
The moneyness factory describes generally how far an option is out of or in the money.
© SAP AG FSC010 10-17

Graphical Yield Curve Maintenance in the Scenario
SAP Statistics Graphic
Percent Scenario High Interest
E
U
R
0
9 DEM 0990
9
0
SAP Presentation Graphic
Interpolation
EUR 0990
6. Mirror Image
5.
4. Total Shift
3.
2. Rotation
1.
0. Individual Shift
© SAP AG 2003
You can change yield curves graphically in scenario maintenance. In doing so, new values can be
assigned to the curve by changing the interpolation, by rotating it or switching to the mirror image,
as well as with individual or total shifts. The change is carried out by directly editing the graphic.
You can save the changes as numerical values after when you are finished.
© SAP AG FSC010 10-18

Graphical Yield Curve Maintenance: Examples
Rotation
Mirror Image
(with shift)
Interest Interest
Rate Rate
Fixing for mirror Fixing of center of
axis rotation
Shift for
rotation
Grid point Grid point Grid point

Term Term
© SAP AG 2003
The examples listed above show the changes you can make to the yield curves graphically:
y Mirror image: For the mirror image, a grid point is fixed to the yield curve which an (imaginary)
horizontal mirror axis runs through. The original yield curve is reflected over this axis.
y Rotation (with shift): First a grid point is fixed to the yield curve as a center of rotation. Then the
rotation is carried around the previously fixed center of rotation by shifting another grid point.
© SAP AG FSC010 10-19

Market Data Maintenance
Market data can enter the SAP system in the following ways:
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 rates
z 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.
© SAP AG 2003
© SAP AG FSC010 10-20

Portfolio Hierarchy
Corporate group
Cologne
Colognebranch
branch New
NewYork
Yorkbranch
branch
Money
Money Money
Money
Zero
Zerobond
bond Accounts
Accounts Zero
Zerobond
bond Accounts
Accounts
market
market market
market
Floater
Floater Bond Floater
Floater Bond
Bond
Bond
© SAP AG 2003
The figure displays a portfolio hierarchy of the branch and bank product characteristics.
© SAP AG FSC010 10-21

Forex Exposure
z Payment flows from the operating business activity

contain currency and interest rate risks.
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 from
Cash Management
are integrated by the
creation of risk objects.
© SAP AG 2003
The purpose of the Cash Management connection is to transfer future payment flows from the cash
position and to provide the liquidity forecast for risk analysis. The cash position displays the short-
term-oriented view for monitoring the liquidity of the bank accounts. Information about customers
and vendors and about subledgers can be evaluated in mid- and long-term with the liquidity forecast.
These cash flows can be evaluated via their integration with risk analysis and together with existing
hedge transactions, can display open risk positions of individual currencies.
On the side of the risk analysis, the generated cash flows are stored in the transaction form of the risk
object (see the appendix). The only elementary transaction used is transaction form 100 (Fixed Cash
Flow) to which all cash flows with a corresponding due date are assigned. So that the created risk
objects can be used in the evaluations, a financial object is automatically created for each risk object.
With suitable analysis characteristic values, risk objects can be used flexibly in the evaluations and
in reporting.
© SAP AG FSC010 10-22

Absolute, Relative or Logarithmic Changes in
the VaR
Time
t1 t2
Absolute change:
8.5% – 8% = 0.5%
For example:
10 annual Relative change:
8.0 8.5
record 8.5% –1 = 6.25%
8.0%
That raises the
question, for example: Logarithmic change:
Is an interest rate change with a 8.5%
ln = 6.0624%
low interest rate level the same as with a 8.0%
correspondingly higher
interest rate level?
© SAP AG 2003
The user can specify for each evaluation run whether the historical changes are to be transferred
based on absolute, relative, or logarithmic changes to the current marked price parameters.
© SAP AG FSC010 10-23

Financial Objects as Technical Requirements
• Financial objects are created 1:1 for each transaction. They are
AUTOMATICALLY created when saving the transaction.
• Financial objects carry the information that is necessary for evaluations in the
Market and Credit Risk areas.
• You are free to choose the scope of the information that can be collected in a
financial object (Customizing). The scope depends on the depth of later
evaluations.
• This information consists of characteristics (such as company code, portfolio,
business partner ........), that characterize an individual transaction and allow
you to perform evaluations with characteristic hierarchies.
• The characteristics are automatically derived from transactions, related
business partners, or with your own set of rules to fulfill the individual
reporting requirements of a company.
• The user does not need to play an active roll in generating financial objects.
© SAP AG 2003
You must maintain a financial object for each transaction in the data pool that contains information
specific to risk analysis for this transaction. The characteristic values are also stored in the financial
object to ensure the transaction's assignment to views and portfolio hierarchies. You must supply all
characteristics of the analysis structure with values for each transaction. If you do not, the
characteristics will be flagged as "not assigned" in the portfolio hierarchy. Financial objects link
information necessary for reporting (characteristic values) with the information necessary for
valuation (valuation rules, evaluation types),described in the following.
Financial objects can be created manually, by transferring data from remote systems, or
automatically with automatic financial object integration.
With the automatic financial object integration function, the financial object data can either be
entered immediately when entering master data or derived. This function is available for the
following transaction categories: risk objects, BCA accounts, variable transactions, loans, Money
Market/Forex/Derivatives, securities account class positions, class positions in a futures account.
In order to use automatic financial object integration, you must set the indicator FO integration
active in the IMG of the risk analysis for the transaction. The general part of the financial object is
created when the analysis parameters are generated.
© SAP AG FSC010 10-24

Parts of a Financial Object
Financial object for transaction 3

General part RM part Limit part

• Company code • RM area • Counterparty Risk Active
• Object number • Summarization rule
indicator
• Country Risk Active
• Status • Valuation rule
indicator*
• Product type
Single transaction • Default risk rule
• Source system costing part • Limit product group
• Management data •Transaction start/end • Monitoring unit
•Bank product • Country risk information*
•Commission
Additionally for positions:
External key figures • Trader
Additional data • Portfolio
© SAP AG 2003
There is a financial object for each transaction that is relevant for default risk.
The financial object can have up to six parts, each of which contains certain component-specific
data:
- General part
- RM part (market risk analysis and ALM)
- Single transaction costing part
- External key figures
- Additional data
- Limit part (default risk and limit system)
To determine attributable amounts within the CFM, the default risk limit part has to be activated for
the relevant transactions.
To be able to determine an attributable amount for counterparty/issuer risk and/or country risk, the
corresponding indicator must be set (Counterparty Risk Active or Country Risk Active).
The following slide explains the functions of the fields in the limit part.
* The country risk function is only available in mySAP Banking.
© SAP AG FSC010 10-25

Collateral Provisions
z Global collateral provision

Attribution in limit management
(displayed in the single and totals records of the limit utilization)
Possible limit characteristics:
Company code, business partner, limit product group
No attribution from the single transaction check
z Single-transaction-related collateral
Attribution in limit management
(displayed in the single records of the limit utilization)
You can define collateral value as an amount, percentage
or securities (stocks, bonds)
z Collateral agreements
© SAP AG 2003
In the Default Risk and Limit System, certain information about collateral is required to enable the
system to calculate attributable amounts correctly, and record secondary risk appropriately. Only
collateral data that is relevant for these purposes is entered in the SAP system. Seen from a general
business perspective, collateral has far more complex data.
The Default Risk and Limit System distinguishes between the following levels of collateral
• Global collateral (only used in mySAP Banking)
• Single-transaction-related collateral
• Collateral agreements
You need authorization object J_B_KLTCOD in order to process collateral (regardless of the level of
the collateral). This is contained in authorization profiles F_T_FTLM_ALL and J_B_ISB_ALL.
General administration of collateral should be done by an external data processing system. To ensure
consistent datasets, we recommend that you set up an interface between the SAP Limit System and
your collateral management system. You can link the systems by using the RFC-enabled module
KLSI01_SI_SAVE_RFC.
Changes are logged in the form of change documents.
© SAP AG FSC010 10-26

Limit Maintenance Locking Concept
z There are two options for locking limits.

You can lock individual limits for a limit type.
Mass locking by all limit characteristics is possible, that is, all limits
will be locked that are assigned to these limit characteristics.
z With the single transaction check / integrated default risk limit check, a
corresponding message will be displayed for locked limits.
z Locked limits are indicated by a lock in reporting.
z Documentation in change documents.
Lock/Unlock
2
Limit type Descript. Lock CoCd Partner Name Note

Valid from Valid to Internal limit External limit Limit currency ProvDate ProvRec Note(t)
400 CoCd, BP 0001 Euba Euro Bank

01/01/01 12/31/9999 500,000.00 400,000.00 EUR Freiberger released
1
Selecting the limit Result: Lock set!
© SAP AG 2003
You can now lock limits with little effort. A report is available to you with which you can lock all or
individual limit types that contain limit characteristics that have been previously defined. For
example, you can lock or unlock all limits that affect a certain business partner. This places you in
the position to react extremely quickly if changes to the business framework (such as the
downgrading of a business partner's rating) are required.
© SAP AG FSC010 10-27

Reservations
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 limit
characteristic values
Reservation periods of one or more days are possible
Reservations can be changed (for example, extended)
The RFC interface is used to transfer reservations (like the single
transaction check)
Separate entry screens to enter the reservation directly in the
limit system
Reservations are displayed individually directly in reporting to be
able to differentiate them from transactions
© SAP AG 2003
The reservation function enables you to reserve a free limit for a certain period. The attributable
amounts can either be calculated by using basic key figures, or entered with the reservation.
There is an authorization object especially for the maintenance of reservations: F_T_VTBLR.
Reservations are taken into account both during the single transaction check and in end-of-day
processing.
© SAP AG FSC010 10-28

Appendix 4
© SAP AG 2003

Special Topics
Release workflow
Links between market places and BAPIs
Links to external confirmation systems
© SAP AG 2003

Release Workflow: Overview Graphic
Start Workflow
Release
One-step Two-step Three-step
Approval Approval Approval
Inbox
1. Approval 1. Approval 1. Approval
or rejection or rejection or rejection
A R A A R
R
Inbox
2. Approval 2. Approval
or rejection or rejection
A R
R
A 3. Approval Inbox
or rejection
A R
If a transaction is rejected, it can be changed/reversed
© SAP AG 2003
Transaction release includes the following components:
Integration of the organization management into SAP Business Workflow

(structure, task distribution by person responsible and
job descriptions, dynamic task distribution by term from the context
of the workflow and the objects being processed)
Integration of the release management into the SAP Business Workflow
(release process flow, consideration of the release strategies (during the workflow)
that can be customized in CFM)
The release procedure deals with release and checking procedures within the organizational
framework.
If a release is rejected, the previous employee who worked on it is informed by the release area and
the transaction can be changed or reversed. After the changes have been made, the transaction must
be released again.

Release Workflow: Customizing I
.... Release procedures Company code 1000 IDES AG

:....... Release conditions
Release procedure
PType 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 Conditions
ACat Act. Release Release level Trans. processing
crtd..
10 01 ; 1 1
© SAP AG 2003
In Customizing, you can set the dependence of the selected procedure on the company code, the
product type, and the transaction type.
In the release conditions, depending on the activity category and activity, you enter the release step
and an instruction regarding the transaction release.
The release steps define how many people are required to release an object (for example, 1 release
step: 2 employees (1 employee, 1 person responsible for the release).
You use the transaction release to define what the application does while the transaction is in the
release workflow (for example, ongoing transaction during the release workflow is not permitted).

Release Workflow: Customizing II
Display standard role 20000034 (TRTMTR_DEAL)
Creating responsibilities Example:

Description from to
Product Type 51B
Transaction Type 100
Current approval level 1
Release steps 2
Employee assignment Company Code 1000
Treasury Workflow 1st of two steps
Activating event linkage
© SAP AG 2003
Make the standard Customizing settings for the workflow.

Display standard role 20000034 (TRTMTR_DEAL): The standard role describes the responsibilities
for the individual approval steps.
For each individual approval, the employee must be found in the system. To do this, a standard role
has been built into the Workflow definition. However, this is still empty. To
define the employees for an approval step, you have to create a responsibility in the standard role
and assign it to a user/position.
(Change the responsibilities so that the "current approval step" is set to the corresponding value, and
the "release steps" are set to the maximum number).
You have the option of entering several users/positions which are to be notified if deadlines are
exceeded (standard role 20000035).
Since this workflow is triggered by an event, you must activate the event linkage of the workflow
used.
For more information on the release workflow, see the IMG documentation.
A reporting overview is available that enables you to see, for each Treasury transaction, the release
that was processed, when it was processed, and by whom.

BAPIs: Standardized Interfaces for Business Objects
SAP Business Objects (BO) are

central to the SAP system. They hold data
and are a component of business processes
due to their methods:
BAPIs
Business Application
Programming Interface
Application X
BAPI
Financial transaction
BAPI
© SAP AG 2003

BAPIs for Financial Transactions
BAPI
BAPI
Financial
Transactions Products:
•• Spot
Spot exchange
exchange andand
BAPI Forward
Forward Transactions
Transactions
•• Fixed-term
Fixed-term deposits
deposits and
and
deposits at notice
deposits at notice
•• Commercial
Commercial Paper
Paper
•• Security
Security order
order
Processes:
• Support for the principal steps in the processing of financial
transactions
• For example: creating, changing, displaying and reversing
© SAP AG 2003
Note the release information.

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FSC010SAP

THE BEST-RUN BUSINESSES RUN SAP

 mySAP ERP 2004

Copyright 2005 SAP AG. All rights reserved.

No part of this publication may be reproduced or transmitted in

© SAP AG FSC010 1-1

This course will prepare you to:

z Create and manage process-oriented transactions in

© SAP AG FSC010 1-2

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

z Use the support tools for back-office processing

© SAP AG FSC010 1-3

Unit 1 Course Overview

Unit 2 Transaction Manager: Basics

Unit 3 Transaction Manager: Money Market

Unit 4 Transaction Manager: Foreign Exchange,

Unit 6 Market Risk Analyzer

Unit 7 Credit Risk Analyzer

© SAP AG FSC010 1-4

z You want to get an initial overview of the

© SAP AG FSC010 1-5

Unit 1 Course Overview

Unit 2 Transaction Manager: Basics

Unit 4 Transaction Manager: Foreign Exchange,

Unit 6 Market Risk Analyzer

Unit 7 Credit Risk Analyzer

© SAP AG FSC010 2-1

SAP Treasury overview

Identifying processes in Treasury

Overview of financial instruments

© SAP AG FSC010 2-2

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

z Give an overview of SAP Treasury

© SAP AG FSC010 2-3

Corporate Finance Management comprises the

 Transaction Manager supports the management

 You can use Market Risk Analyzer to analyze interest rate,

 Credit Risk Analyzer is used to determine the

© SAP AG FSC010 2-4

Priority Objective Company

© SAP AG FSC010 2-5

Corporate Headquarters – Treasury

Business Transaction Manager

© SAP AG FSC010 2-6

© SAP AG FSC010 2-7

z Comprehensive management of financial transactions and

© SAP AG FSC010 2-8

Financial Transactions Structure

 The central functions of Transaction Manager are:

© SAP AG FSC010 2-9

Money Market Securities Forex Derivatives

© SAP AG FSC010 2-10

Transaction and position

Documentation and control functions

© SAP AG FSC010 2-11

Trading Back Office Accounting

 Create offer/order/  Settlement/Control  Postings

 In transaction and position management, the following areas are differentiated:

© SAP AG FSC010 2-12

Market risk procedure Organizational elements

Decision support and simulation

 In addition to conventional financial management tasks, such as cash management, ensuring

© SAP AG FSC010 2-13

Limit OK Transaction con-

mySAP ERP 2004

Transaction Manager supports the management

You can use Market Risk Analyzer to analyze interest rate,

Credit Risk Analyzer is used to determine the

The central functions of Transaction Manager are:

Create offer/order/ Settlement/Control Postings

In transaction and position management, the following areas are differentiated:

In addition to conventional financial management tasks, such as cash management, ensuring

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

A business partner is a person, organization or group of persons/organizations with which your

In order to make use of a business partner (BP), you must

Correspondence serves to document and match concluded financial transactions.