Money Market Foreign Exchange Derivatives

FSC112 Money Market, Foreign Exchange and
Derivatives
FSC112
Money Market, Foreign Exchange and
Derivatives
THE BEST-RUN BUSINESSES RUN SAP
 SAP AG©2003
SAP AG 2003
SAP R/3 Enterprise 1.10

2003/Q3
Materialnummer: 50067690
Copyright
Copyright 2003 S AP AG. All rights re served.

No part of thi s publication may be reproducedor transmitted in
any form or for any purpose without the express permi ssion of
SAP AG. The information contained herein may be changed
without prior notice.
All rights reserved.
 SAP AG 2003
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mySAP Financials
Corporate Finance Management
SAP01 3 days AC010 5 days AC200 5 days AC201 2 days
Financial Accounting Payment and dunning
mySAP.com Customizing 1: General
Overview Accounting and program,
ledger, Customers,
Reporting 33 Vendors correspondence,
33 33 interest 33
SAPFIN 2 days FSC100 3 days AC805 3 days FSC111 5 days

Overv iew of the Cash Management Securitie s
Overv iew of S AP
solution m yS AP Financial Supply 33 Management
33 33 33
Financials Chain Management
FSC110 3 days
CR590 2 days FSC112 4 days
Bas ic functions of Money Market,
BDT - Busine ss Da ta SAP Trea sury and Forex and
Toolset Risk Management 33 Derivatives
33
23
FS230 5 days FSC120 2 days WDE BC 1 Day
Bank Custome r SAP In-House Ca sh SAP Biller

Accounts Consolidator
32 33
SCM600 5 days
FSC130 2 days
Processes in S&D
SAP Biller Direct
32 33
IUT240 5 days
FSC140 2 days
Contract Accounts
Receivable and SAP Dispute
Payable Management
34
 SAP AG 2003
Course Prerequisites
z Recommended:
FSC100 - Corporate Finance Management (CFM) Overview
FSC110 - Basic Functions in CFM
 SAP AG 2003
The FSC112 training course (formerly CFM825) will provide you with detailed knowledge and
procedures, and also the corresponding system configuration settings.
The training course CFM030 has been replaced by training course FSC100 Corporate Finance
Management (CFM) Overview.
The training course CFM810 has been replaced by training course FSC110 Basic Functions in CFM.
Target Audience
z Participants:
Project team members
Project leaders
Organization employees
z Duration: 4 days
 SAP AG 2001
User notes
The training materials are not intended for self-study but rather as a supplement to the information
provided by the trainer. Therefore, space is made available for your own notes.
The exercises are a supplement to the examples used in this course. There may not be sufficient time to
complete all the exercises during the course. In this case, you can use the materials afterwards to
enhance your understanding.
Course Overview
Contents:
z Course Goal s
z Course Objective s
z Course Content
z Course Overview Diagram
z Main Busine ss Scenario
 SAP AG 2001
© SAP AG FSC112 1-1

Course Goals
This course will prepare you to:

z Conclude and manage transactions in the Money
Market, Foreign Exchange and Derivatives areas and
to
z Configure and carry out the typical busine ss
proce sse s in the se areas
 SAP AG 2001

Course Objectives
At the conclusion of thi s course, you will be able to:

z Enter transactions in the Money Market, Foreign
Exchange, and Derivatives areas
z Use the support tool s for back-office proce ssing
z Ensure the integration to Accounting in all areas
z Explain the valuation functionality
z Use the information system in all areas
z Make the appropriate Customizing settings
 SAP AG 2001

Course Content
Preface
Unit 1 Course Overview

Unit 2 Overview of Corporate Finance Management
Unit 3 Ba sics
Unit 4 Money Market
Unit 5 Foreign Exchange
Unit 6 Derivatives
Unit 7 FAS133
Unit 8 Parallel Position Management
Unit 9 Transaction Currency Changeover
 SAP AG 2001

Course Overview Diagram
Overview of Corporate Finance Management

Basic Principles
Money Market
Foreign Exchange
Derivatives
FAS 133
Parallel Position Management

Transaction Currency Changeover
 SAP AG 2001

Main Business Scenario
z You wish to get an overview of the components of

Corporate Finance Management (CFM).
z As preparation, you must first make the Basic
Settings in CFM.
z You now wish to use Money Market, Foreign
Exchange and Derivatives.
 SAP AG 2002
You are a member of a project team that will make both the basic settings and all settings necessary for
displaying financial transactions in Corporate Finance Management.

1 Overview of Corporate Finance Management
2 Selection of financial instruments
3 Identification of the processe s
4 Overview of functionality
 SAP AG 2002
The FS112 training course shows how transactions in the areas of money market, foreign exchange and
derivatives are concluded and managed. The main focus is on typical transaction processes and their
implementation using appropriate Customizing settings.

Overview of Corporate Finance Management:
Course Objectives
At the conclusion of thi s uni t, you will be able to:
z Provide an overview of Corporate Finance

Management
z Identify the various product type s
z Explain the various proce sse s and the standard
functionality in CFM
 SAP AG 2001


Basic Principles
Money Market
Foreign Exchange
Derivatives
FAS 133
 SAP AG 2002

Business Scenario
z Before you begin your work in the project team, you

wish to gain an overview of Corporate Finance
Management.
z Which basic settings form the basi s for representing
financial transactions?
z Which products and proce sse s can be represented
with the new Corporate Finance Management solution,
and which functions are available?
 SAP AG 2002

“Corporate Finance Management enables

treasurers and finance managers to
analyze, optimize and control
their business decisions on
the global level of an enterprise”
1 Liquidity Planner 2 In-House Ca sh
3 Transaction Manager 4 Portfolio Analyzer
5 Market Risk Analyzer 6 Credit Ri sk Analyzer
 SAP AG 2002

In-House Cash
Group
Head Office
Com pany03 In-House Cash Finan cial

Center accounting
Com pany02
Com pany01 Account
m anagement
Payt program OP
Payment Account statement
Objective
z Support of different and changeable group structures
z Control of payment transactions at regional and global level
z Cost-efficient processing of internal and external payment transactions
z Automation and standardization of business processes
z Reduction in number of external bank accounts / Reduction in number of
cross-border payments
 SAP AG 2001

Transaction Manager
Transaction
Manager
Asset Management
Organization
Money Market
Treasury
Organization
Front
Foreign Exchange Off ice
Middle
Off ice
Securities
Back
Off ice
Derivatives
 SAP AG 2001

Market Risk Analyzer
Risk areas & measurement
Currency risk Interest rate risk Stock risk
Market Risk Procedure Organizational Elements

Cash-flow analysis Reporting characteristics
Value at risk Structured products
Sensitivities Flexible portfolio hierarchies
Mark-to-m arket Business areas
Interest rate/currency exposure
Decision Support and Simulation

Fictitious transactions
Market data scenarios
 SAP AG 2001

Credit Risk Analyzer
CFM Transaction Manager
Conclusion of
Limit OK transaction,
Characteristics check Updating of limits
z Integrated online limit check Credit Ri sk

z Analysis, measurement and Analyzer
control of credit and settlement
risks
z Group-wide limit attribution
z Determination of the attributable Reporting
amounts using flexible formulas Partner Exposure Limit Free Limit Util. in %
z Netting & collaterals Euro Bank 8.5 10.5 2.0 80.9%
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 2001

Liquidity Planner
Characteristics
z Group-wide planning environment based on Value Value Value
templates: Centralized &
Center 1 Center 2 Center y
decentralized
data entry
Planning categories & master data
... Version x
Period monitor
Planning framework ... Version 2
z Planning sheet for centralized and Cash flow-related planning
decentralized data management per planning category
per period
Mapping & per currency
z Aggregation mechanisms for planning data in assignment
a group environment (for example, exposure)
z Aggregation and comparison with current data Operational data R/3 applications
 SAP AG 2001

Portfolio Analyzer
Investment strategy
Establishing the benchmarks

Setting up
organizational structures
Asset allocation
Reporting & auditing
Risk adjustment
Transaction processing
Attribution
Benchmarking
Perform ance measurement
Portfolio Analyzer
 SAP AG 2001

Selection of Financial Instruments
Product types
Investment/borrowing
instruments Hedging tools
Money Market Securities Foreign Exchange Derivatives

Fixed-term Stocks Forex CAP/Floor
deposits Bonds spot FRA
Deposits at Subscription transactions Sw aps
notice rights Forward - Interest rate
Commercial Investment exchange - (Int. Rt.)Currency
Paper certificates transactions OTC Options
Interest rate Bonds Forex swaps - Currency
instrument Convertible - Interest rate
Cash flow bonds - Stocks
transactions Warrant bonds - Sw aption
Facilities Warrants Futures
 SAP AG 2002
In the short-term area, money market transactions and foreign exchange transactions allow you to
bridge liquidity deficits or surpluses. In the mid- to long-term area, investments and borrowings are
represented by securities transactions.
Derivative financial instruments, on the other hand, help you hedge against interest rate and currency
risks.

Identifying the Processes
Revenue /
risk goals Feedback
Revision of planned Corrective

targets measures
Analysi s
Deci sion
(planning)
Financial
Analysis and
trading process transactions
Transaction and position

management process
Documentation and control functions

 SAP AG 2002
From a strategic point of view, the analysis and trading process is the starting point for the various CFM
processes. At this stage, for example, you identify and analyze the liquidity and risk positions on the
basis of the risk and revenue targets you have defined.
Once you have decided to complete certain financial transactions, you enter the trading processes for
these transactions in the Transaction Manager. The Transaction Manager also contains functions for the
subsequent management of these transactions and the related financial positions.
A range of documentation and control functions are available for all CFM activities. These allow you to
perform evaluations for specific instruments or across the whole system and ensure that the various tasks
are documented and controlled properly for Corporate Finance Management and Financial Accounting.

Transaction and Position Management Process
Release
Trading Back office Accounting
Create offer/order/contract Settlement/control Postings

Exercise/Expiration Interest rate adjustment Payment
Terminations Netting transactions
Rollovers Referencing Reverse
Exercise of rights Confirm ation letters Accrual/deferral

Account transfer postings Valuation
Corporate actions
User authorization
Limit management
 SAP AG 2001
As part of the processes for transaction and position management, we distinguish between the following
areas:
In the trading area, you create transactions and exercise rights.
In the back office, you settle the transactions, that is, you check the entered transactions and carry out
position management-related processes such as securities account transfers.
Accounting covers the accounting treatment of the relevant activities in the subledger and the transfer of
the posting information to the FI General Ledger.

Overview of Functionality: Transaction Manager
z Complete management of financial transactions and

positions
Support of trading and back office functions
Functions to track, check and release transactions
Data transfer to Financial Accounting
(including accruals/deferrals and valuations)
z Flexible settings to accommodate company-
specific transactions and position management
proce sse s
z Assignment of financial transactions to portfolios
or transaction management in securities accounts
z Flexible reporting and portfolio analysi s
z Datafeed interface
 SAP AG 2001

Summary
Corporate Headquarters – Treasury
Analyzer
Credit
Credit Market
Market Portfolio
Portfolio
Risk
Risk Risk
Risk
Analyzer
Analyzer Analyzer
Analyzer Analyzer
Analyzer
Financial Money Foreign Information

Money Securities
Securities Foreign Derivatives
Market s
Market Exchange Derivatives System
Market Exchange
Transaction Manager
In-House Cash Liquidit y Planner

Financial
Banks Cash Manag ement Accounting
IHC CM LP IHC CM LP IHC CM LP
Data from Bank

operational Subsidiary 2 data Subsidiary 3
Subsidiary 1 syste ms
 SAP AG 2001

Unit Summary
z Corporate Finance Management consi sts of the

components Liquidity Planner, In-House Ca sh,
Transaction Manager, Portfolio Analyzer, Market Risk
Analyzer and Credit Risk Analyzer.
z As far as short-term financial instruments are concerned,
the system differentiates between Money Market and
Foreign Exchange.
z Derivative financial instruments are used to hedge
exchange rate and interest rate risks.
z The CFM functions incorporate managing transactions,
assigning financial transactions to portfolios, and also
reporting, analysis and the datafeed interface.
 SAP AG 2001

Basic Principles
1 Ba sic settings for financial transactions
2 Busine ss partner
 SAP AG 2001

Basic Principles: Unit Objectives
z Explain the most important term s and basic

settings for financial transactions in Money Market,
Foreign Exchange and Derivatives
z Explain the data structure setup for busi ness
partners
 SAP AG 2001

Basic Principles
Money Market
Foreign Exchange
Derivatives
FAS 133
 SAP AG 2001

Basic Principles: Business Scenario
z Before you can create your financial transactions, you

must define your products in the system settings and
manage these according to the circum stance s in your
company.
z You must also make entries in the system concerning
your busine ss partners.
z What are the available options for having busine ss
partner-specific settings proposed automatically when
you create transactions?
 SAP AG 2002

Basic Settings for Financial Transactions
1 Product type s/categories
2 Financial transaction type s/categories
3 Activity categories
4 Proce ssing categories
5 Flow types/categories
6 Condition type s/categories
7 Update type s
(see Parallel Position Managem ent)
 SAP AG 2001

Customizing Structure: Money Market, Foreign
Exchange and Derivatives
Prod. cat. Transaction cat. Flow category/ Calculation cat.

(Activity cat.) condition cat.
Processing cat.
SYSTEM LEVEL
Product type Trans. type Condition type Flow type
USER LEVEL Update type
 SAP AG 2002

Product Categories - Product Types
Product category
510 Fixed-term deposit 010 Stock
600 Foreign exchange :
610 C AP/FLOOR
620 SW AP 040 Bond
: :
SYSTEM LEVEL
Product type
- Fixed-term deposits - Fully paid stock
(overnight) - Partly paid stock
- Fixed-term deposits - Floating rate
(term) bond
: - Fixed-interest
- Interest rate swap security . . .
- Currency swap
:
USER LEVEL
 SAP AG 2002
Product categories cover the basic categories of the various financial investment or borrowing
transactions and also serve to classify financial instruments. Product categories are relevant in all
company codes and are determined by the system, that is, they cannot be changed by the user.
Product types serve to further refine the product categories at the user level and, unlike product
categories, they can be defined by the user. The product type definition contains the business framework
that applies to financial transactions involving this product type. A product type is assigned to one
product category only. Multiple product types may refer to a single product category. The user creates
and processes individual financial transactions on the basis of product types.
Using the product type,
- various back office practices can be assigned
- selections can be made in Reporting
- various structure characteristics can be assigned

Product Categories - Product Types - Examples
Financial instruments Product categories Product types

Money market 510 Fixed-term
Festgeld deposit Fixed-term
Festgeld (Tagegeld)
deposit (overnight)
520 Kündigungsgeld
Deposit at notice Festgeld (Termingeld)
Fixed-term deposit (term)
530 Comm. Paper
540 Finanzstrom-Geschäft
Cash flow transaction
550 Interest rate tran.
560 Facility
Foreign exchange 600 Foreign exchange External

Internal
 SAP AG 2002
The product categories are predefined by the system. The user can define product types for each of the
product categories.

Product Type Customizing: Fixed-Term Deposit
Product type 51A

Text Fixed-term deposit EXT ERNAL
Prod. category 510 Fixed-term deposit
Default value for transactions

Int. calc. method act/360 +
Effective interest calculation

Eff. int. meth. AIBD/ISMA +
 SAP AG 2002
Product types represent the typical financial transactions that are carried out in your company. Examples
of product types in the Money Market area include fixed-term deposits or deposits at notice. If the
standard product types delivered with the system are not used, you can define other product types. This
allows differentiated evaluations or different processing rules for external and internal transactions. The
product types contain information about structure characteristics.
The product type definition contains a description of the business framework that applies to financial
transactions of this product type.
You create and manage financial transactions and manage positions on the basis of these product types.

Financial Transaction Types
Product Trans. cat.

category
510 Fixed-term dep. 100 Investment
600 Forex 200 Borrowing
610 C AP/FLOOR :
620 SW AP
:
SYSTEM LEVEL
Product type Trans. type

- Fixed-term dep. - Investment
(overnight) - Borrowing
- Fixed-term dep. - Spot
(term) - Forward
: - Purchase
- Interest rate swap - Sale
- Currency swap - Swap
: :
USER LEVEL
 SAP AG 2002
The financial transaction type determines what type of transactions can be carried out with a certain
product type and, at the same time, controls the transaction and position management process.
Examples of financial transaction types include the investment or borrowing of fixed-term deposits, and
both spot and forward transactions with foreign exchange.
You can use the basic transaction types provided by SAP or you can modify these to suit the financial
transaction categories specific to your company.
You can set up user-specific versions of the transaction types for each of the Money Market, Foreign
Exchange and Derivatives areas.

Customizing: Financial Transaction Types
Product type 51A Fixed-term dep. EXTERNAL

Transactn type 100 Investment
Trans. category 100
Number ranges
Transactions 01
Offers 02 Simulations 03
Back office
Processing cat. 00002
! Autom atic posting release
Lim it management
Lim it group
Status management ...
Commercial Paper ...
Deposit at notice ...
 SAP AG 2001
The combination of a product type with a financial transaction type - for example, product type - "fixed-
term deposit (overnight deposit)" with the transaction type, "investment", - uniquely determines a
financial transaction.
This financial transaction undergoes various activities in the company. You determine how the
transaction is processed, that is, you establish the sequence of these activities, when you choose a
processing category as part of the definition of the transaction type.

Number Ranges for Transaction Types
Number range obj. Fin. transaction

Company code 1000 IDES AG
Intervals
No From number To number Number status Ext.
01 0000000000001 0000000099999 13
02 0000000100000 0000000JJJJ99 100000
03 0000000200000 0000000299999 200001
04 0000000300000 0000000399999 300028
05 0000000400000 0000000499999 400014
 SAP AG 2001
Each transaction entered in the application is recorded in the system with a transaction number. When
you are defining transaction types in Customizing, you maintain a number range interval. The system
assigns the numbers in the application according to this interval. You must define this interval in
advance and you also determine whether the number allocation is carried out internally (by the system)
or externally (by the user).

Activity Category
Product cat. Transaction cat. Activity cat.

510 Fixed-term dep. 100 Investment 10 Contract
600 Forex 200 Borrowing
610 C AP/FLOOR : 11 Rollover
620 SW AP :
:
SYSTEM LEVEL
Product type Transaction type

(term) - Forward
: - Purchase
: :
USER LEVEL
 SAP AG 2002
Activity categories in the Money Market, Foreign Exchange and Derivatives component areas control
which activities are possible for a particular financial transaction category.
Example:Product category Transaction category Activity category
510 Fixed-term deposit 100 Investment 10 Contract

11 Rollover
20 Contract settlement
21 Rollover settlement
600 Foreign exchange 101 Spot exchange transaction 10 Order

15 Order expiration
18 Fixing
30 Settlement
The activity categories are displayed in the financial transaction - under status - for information
purposes.
The activity category provides the basis for the history, and it also controls the correspondence.

Transaction - Activity Categories: History

Transaction type 100 Investment
Transaction 1501
Acty Activity category Status Transition function

0001 Contract Replaced New contract
0002 Contract settlement Active Activity transition
0003
0004
0005
 SAP AG 2002
When processed by your company, a financial transaction goes through various activities. These
activities, in turn, have different statuses.
y Example: When the "contract" activity has been completed, a transaction is identified as legally
binding.
Completing the "settlement" activity is a sign that the recorded transaction data has been checked.

Processing Categories
Product cat. Transaction cat. Activity category Processing cat.

510 Fixed-term dep. 100 Investment 10 Contract 1 With settlement
600 Forex 200 Borrowing activities
610 C AP/FLOOR : 11 Rollover
620 SW AP : 2 Without settlement
: activities
SYSTEM LEVEL
Product type Trans. type

(term) - Forward
: - Purchase
: :
USER LEVEL
 SAP AG 2002
The processing sequence of a financial transaction is determined by processing categories (Money

market, Foreign exchange, Derivatives, Securities).
Processing categories establish the sequence of the individual activities in a financial transaction. They
describe the processing steps that are carried out in the respective company areas from the order entry in
trading, via processing, right up to the transfer of the data to Financial Accounting.
In this way, you determine the company-specific chain of activities that must be gone through for a
financial transaction of a certain product type.

Customizing Transaction Types - Processing
Categories
Product type 51A Fixed-term deposit EXTERNAL

Transactn type 100 Investment
Trans. category 100
Number ranges
Transactions 01
Offers 02 Simulations 03
Back office Processing category
Processing cat. 00002 00001 = without settlement activities
! Autom atic posting release 00002 = with settlement activities
...
 SAP AG 2002
Processing categories are predefined by the system on basis of the product category and transaction
category. You choose a processing category for each individual financial transaction from a predefined
range of processing categories in the system.
Example:
Fixed-term deposit Product category Processing category

510 00001 Without settlement rules
00002 With settlement rules
Foreign exchange
600 00101 Order – contract – settlement
00102 Order – contract
The Status Management synchronizes the transaction statuses that exist as a result of the processing
category, the product category or the option category. You can also define a user status that affects the
transaction process. This way you can use the status management to ensure that a transaction can only be
settled after it has been confirmed. Status management also enables a link to the Business Workflow.

Flow Types
Product Condition cat. Flow cat. Calculation cat.

category AA - Inflow AA - Inflow
Interest
TD - Dividend TD - Dividend
Trans. cat. Repayment
:
SYSTEM LEVEL
Product type Condition type Flow type

- Expected dividend 1000 - Security purch.
Trans. type - Bonus paid 5013 - Dividend
- Variable interest
- Repayment 1100 - Principal
- Interest rate adj. increase
- Repayment rate
:
USER LEVEL
 SAP AG 2002
Flow types describe various changes in cash flows. The total number of flows involved in a transaction
constitute the basis for generating the cash flow in financial mathematics and also further processing
such as posting. The cash flow contains all flow records in chronological order and is used as the basis
for updating transaction data in FI, Cash Management and Market Risk Management. Typical flow types
are fixed or variable interest, increases in principal, and commissions.
Each flow type is assigned to a single flow category. However, several flow types can belong to one
flow category. For example, both fixed and variable interest are assigned to the "interest" flow category.
The payment flows for both the Cash flow and Accounting are controlled by two indicators that must be
assigned to each flow type. The calculation category controls the financial-mathematical processing of
the flow for the cash flow. The flow category controls the accounting treatment of the flow.
Flows can result from conditions (e.g. interest rate flows), from manual entries (e.g. charges), from
accrual/deferral runs (e.g. interest accruals/deferrals) or from valuation runs (e.g. depreciation). Flow
types include accounting flows such as inflow (e.g. purchase of securities), outflow (e.g. repayment),
expenditure, or earnings. Cash flow-related flows include purchase/sale of securities, interest, repayment
or charges.

Customizing Flow Types
Flow type 1100

Name Principal increase
Control
Classification Structure characteristics
Flow category 10 Principal increase
Calculat. cat. AA Inflow (generic)
! Relevant to CM ! Relevant to position ! Rel. to valuation

! Relevant to posting Rel. to P/L Rel. to acc./defer.
Payment m anagement ...

Effective interest calculation ...
 SAP AG 2002
Flow types are defined in Customizing:

y The classifications are fixed in the system and distinguish the flow types according to business criteria
such as structure characteristics, accrual/deferral, valuation, etc.
y Relevant to Cash Management: indicates whether the flow is to be updated in Cash Management.
y Relevant to posting: indicates whether the flow is transferred to FI.
y Relevant to position/relevant to profit/loss: refers to selection for display in drilldown reporting.
y Relevant to valuation/relevant to accrual/deferral: indicates whether the flow is included in a
valuation run/accrual/deferral run.
y Effective interest rate calculation: indicates whether this flow is included in the effective interest rate
calculation.
y Payment request: indicates whether this flow is permitted for the generation of a payment request.
y Individual payment: indicates whether this flow may only be settled individually in a payment request.

Assigning Flow Types to Transaction Types
Product type 51A Fixed-term deposit EXTERNAL

Flow type 1100 Principal increase
 SAP AG 2001

Condition Types
Product cat. Condition cat.
Transaction Nominal interest

cat. Final repayment
:
SYSTEM LEVEL
Product type Condition type

- Expected dividend
Transaction - Bonus paid
type - Variable interest
- Nominal interest
- Repayment
- Interest rate
adjustment.
- Repayment rate
:
USER LEVEL
 SAP AG 2002
Financial transactions are represented within Corporate Finance Management on the basis of the flow
and condition concept. Conditions are contractually agreed components of a financial transaction. You
can define various interest rate, dividend or repayment provisions as condition types, for example. By
assigning condition types to product/transaction types, you ensure that each product type has its specific
structure characteristics assigned to it. This way you can define different conditions for a condition type
(for example, interest) over a time period.
Condition categories are the basis for processing the condition types and they further refine the
classification of flows and conditions. Examples of condition categories are principal increases, final
repayments or nominal interest.
The user defines condition types on the basis of condition categories and assigns them to the respective
product/transaction type.

Customizing Condition Types
Condition type 1200

Name (short) Nom . interest
Name of condition type Nom inal interest
Name (long) Nom inal interest
Control
Classification Structure characteristics
Condition type 20 Nominal interest
Calculation category TZ Nom inal interest
Profile category
Generated flow type 1200 Nom inal interest
 SAP AG 2002
The main task of conditions is the automatic generation of flows. The flow types that you assign to the
condition types are elements of the cash flow and, therefore, of accounting.
Note: There are condition types that do not produce flow types (for example, interest rate adjustments,
repayment settlement).

Assignment of Condition Types to Transaction
Types

Condition type 1200 Nom inal interest
Direction 0 Incoming and outgoing
 SAP AG 2001
By assigning condition types (and flow types) to product/transaction types, you can structure them very
flexibly.

Update Types - Definition
z Update types are similar to flow types. They describe and classify flows.
z The new term has been created because the existing flow type is not used
and interpreted uniformly. Ð Objective: uniform view of the flows
z The update types are no longer dependent on the modules.
z The update types have an implicit direction. This means, for example, that
incoming and outgoing charges must be represented as two different update
types.
z The new update types consist of the definition itself and a language-
dependent text. No further indicators are defined directly with the update
types.
 SAP AG 2001

Connection Between Flow Types and Update Types
Defineupdate
updatetypes
types
1 Define
3 Assign update types to usage
2 Assign transaction flow types to update types
 SAP AG 2002
Transaction flow types are assigned to update types for updating transaction data in the parallel
valuation areas.

Basic Principles: Exercise - Basic Settings
Exercise
Basic Settings
 SAP AG 2001

Business Partner
1 Busine ss Partner - General
2 Roles of a busine ss partner
3 Standing instructions
Transaction authorizations
Payment details
Correspondence
Derived flows
 SAP AG 2002
Conversion to the SAP Business Partner (extended): With release CFM2.0, the previously used Treasury
Business Partner has finally been replaced by the SAP Business Partner.

... for SAP Solutions
Corporate IBU Insurance

Finance
Management
CFM IBU Banking
Customer Business
Relationship
Management
partner IBU Utilities
CRM
Contract accounts . ..
receivable and payable
FI-CA
 SAP AG 2002
The SAP Business Partner

- enables you to easily implement industry and customer-specific enhancements
- reduces maintenance and memory requirements and prevents inconsistent data by storing the data in a
central master record
- contains key data such as names, addresses, communication and bank details.
The business partner is the focal point of the transaction (central view of the business partner)
=> Business partner exists only once in the system
The business partner is involved in various business processes
=> Business partner – Role principle
The business partner has different relationships with the other business partner
=> Business partner – Relationships
Group-specific information on a business partner => Enhanceability (supported in later releases)
Group-specific configuration of the dialog maintenance => Configurability (supported in later releases)
The SAP business partner has been developed using the Business Data Toolset (BDT). The applications
(for example, CFM) implement the other attributes, roles, and relationships that they require in the
dialog maintenance of the BDT.

Business Partners: Standing Instructions
Transaction Payment
authorizations details
Busine ss partner A
Derived
Corre spondence
flows
 SAP AG 2002
Standing instructions are general agreements made with a business partner for processing similar types
of transactions. You can access the business partner standing instructions for payment details,
correspondence, authorizations and derived flows using the tabs on the business partner maintenance
screen. Since the standing instructions are integrated with the business partner data, the release
workflow for business partners can also be applied to the standing instructions. You can also access the
standing instructions using a separate menu path.
Agreements can cover:
y Authorizations
Which financial transactions may be concluded with this partner?
y Payment details
For transactions with business partner A ==> The system proposes the payment details for
business partner A in the transaction
y Correspondence
For transactions with business partner A ==> Fixed setting: Which correspondence is generated
for which transactions?
y Derived flows
For transactions with business partner A ==> Fixed setting: If the transaction with business
partner A contains flow X, add taxes/commission amounting to y% of X.

Basic Principles: Unit Summary
z The definition and creation of basic settings i s an

important prerequisite for the proce ssing of Money
Market, Foreign Exchange and Derivatives
transactions.
z You can assign different roles to the business
partner.
z By means of the transaction authorization, you
determine which financial transactions can be
carried out with a business partner.
z You can create standing instructions for specific
business partners. These include payment details,
different methods of corre spondence, and derived
flows.
 SAP AG 2001

Data for the Exercises
Explanation of the symbols used in the exercises and solutions
Exercises
Solutions
Course objectives
Business scenario
Tips & tricks
Warning or caution
Data in the exercises

Data Data in the training system Data in the IDES system
Company codes TR00 to TR20 1000
G/L accounts 113100, 113105, 113113 113100, 113105, 113113
113200, 113205, 113213 113200, 113205, 113213
Business partner DEUBA – Deutsche Bank 1000 – Deutsche Bank
CITI – Citibank
Grouping (CM) BANKS, BANK-ACTUAL, BANKS, BANK-ACTUAL,
PERSONS, TOTAL PERSONS, TOTAL
Note:
Create transactions in UNI, EUR or USD. Exchange rates are maintained only in these
currencies.
Do not delete/change existing entries in Customizing. You must make new entries in
each case.

Exercises
Unit: Basic Principles

Topic: Basic settings for financial transactions
At the conclusion of these exercises, you will be able to:

• Set up a forward exchange product in SAP Transaction Manager
Customizing.
You would like to trade a new product in your Treasury department. To

do this, you need to introduce the product to your system.
1-1 Create your own product type - FOREX TRANSACTION.
The product category Foreign Exchange is to have the following ID: DXX (XX = your
group number), text and short text: FOREXXX
The new product type is assigned to the product category 600 - Forex.
This new product category may only be exercised physically. Therefore, you choose
physical exercise (1) as the settlement indicator.

1-2 Based on your new product type, define a new transaction type for a forward exchange
transaction under the ID, GXX (XX = your group ID) FORWARDXX.
• Transaction category is 100 - Forex transaction.
• The back office processing category is order contract (00102).
• The number range for the forward exchange transaction is 01.

Choose number range '02' for offers and number range '03' for simulations.
• Posting release should be automatic - this means that the transaction does not have to be
released by a second user.
• Do not make an entry for Status Management.
1-3 Check the predefined flow types for Forex transactions. You do not need to create any new
flow types. Use the existing ones.
Note in particular charges, purchase and sale.

Double click on a line to see the relevant detail screen.
1-4 Assign the following existing flow types to your transaction type GXX (in combination
with your product type DXX):
• Charges - Forex transaction (Incoming and outgoing)
• Purchase - Forex (Incoming)
• Sale - Forex (Outgoing)
Note: F8 takes you to the next entry.
Take account of the following points in connection with parallel position management:
1-5 As we are using existing flow types, you do not need to define update types, assign these to
the usage or assign transaction flow types to update types. Take a look, nonetheless, at the
update types in Customizing.
1-6 Maintain the update types OPEN/CLOSE for the position update for your new product
type.
• Update type for OPEN: OTC001
• Update type for CLOSE: OTC002

1-7 Create a forward exchange transaction on the basis of your new product type/transaction
type with the business partner DEUBA.
• Purchase: 1,000,000 USD
• Sales currency: UNI
• Forward rate: e.g. 2.20
• Value date: in 3 months.

Solutions
Unit: Basic Principles

Topic: Basic settings for financial transactions
1-1 Solution: Defining your own foreign exchange transaction - product type.
Customizing:
⇒ Corporate Finance Management

⇒ Transaction Manager
⇒ Foreign Exchange
⇒ Transaction Management
⇒ Product Types
⇒ Define Product Types
Button: New entries
Field name or data type Values

Product type DXX
(XX = Your group number)
Text FOREXXX.
Short text FOREXXX.
Product category 600
Settlement 1 (Physical exercise)
Note: We will not use the Cash Settlement function here, and will therefore not have to
assign a corresponding flow type later.
⇒ Save

1-2 Solution: Defining your own forward exchange transaction - transaction type.
Customizing:

⇒ Transaction Types
⇒ Define Transaction Types
Button: New entries

Product type DXX
Transaction type GXX
Transaction category 100
Number ranges - Transactions 01
Number ranges - Offers 02
Number ranges - Underlyings No entry
Number ranges - Simulations 03
Processing category 00102
Automatic posting release Set the flag
Limit group FX (see Credit Risk Analyzer)
⇒ Save

1-3 Solution: Checking the predefined flow types.
Customizing:

⇒ Flow Types
⇒ Define Flow Types
Note in particular charges, purchase and sale.

Double click on a line to see the relevant details screen.

1-4 Solution: Assigning flow types to the new transaction type.
Customizing:

⇒ Flow Types
⇒ Assign Flow Types to Transaction Type
Button: New entries

Product type DXX
Charges:
Flow type 0010
Direction 0
Purchase:
Flow type 1000
Direction 2
Sale:
Flow type 2000
Direction 1
F8 takes you to the next entry.

⇒ Save

1-5 Solution: Checking the existing update types.
Customizing:

⇒ Update Types
⇒ Define Update Types
⇒ Assign Update Types to Usages
⇒ Assign Transaction Flow Types to Update Types
1-6 Solution to the step: Assigning update types for position update.
Customizing:

⇒ Update Types
⇒ Assign Update Types for Position Update

Product type DXX
Update type for OPEN OTC001
Update type for CLOSE OTC002

1-7 Solution to the step: Creating a forward exchange transaction.
⇒ Trading
⇒ Spot/Forward Transactions
⇒ Create

Company code TRXX
Product type DXX
Business partner Deuba
Purchase currency USD
Purchase amount 1,000,000
Sales currency UNI
Forward rate 2.20

Money Market
Contents:
Topic 1 Introduction to Money Market
Topic 2 Trading functions
- Fixed-term deposits
- Deposits at notice
- Commercial Paper
- Interest rate instruments
- Ca sh flow transactions
- Facilities
Topic 3 Back-office functions
(for example, fixed-term deposits)
Topic 4 Accounting functions
(for example, fixed-term deposits)
Topic 5 Special functions
Topic 6 Information system overview
 SAP AG 2001

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

activities.
Use the tool s that support proce ssing and
Carry out the integration with Accounting.
 SAP AG 2002


Basic Principles
Money Market
Foreign Exchange
Derivatives
FAS 133
 SAP AG 2002

Money Market: Business Scenario
After you have made the necessary Customizing

settings and created the business partners in the
system, you would like to get an overview of the
functions in Money Market.
As a user, what must you enter in the trading area in
order to create a financial transaction?
How can you map your back office department in the
SAP System?
What additional functions exist?
How can you ensure integration of the transactions to
Financial Accounting and Cash Management?
 SAP AG 2001

Introduction to Money Market (Topic 1)
1 Product type s in Money Market
2 Definition/Characteristics
 SAP AG 2001

Money Market Product Types
Product types
instruments Hedging instruments

Fixed-term
deposits
Deposits at
notice
Commercial
Paper
Interest Rate
Instrument
Cash flow
transactions
Facilities
 SAP AG 2001
Money Market transactions are used to invest or borrow liquid funds in the short to medium term. On the
basis of surpluses or deficits determined in Cash Management, you can implement the planning
decisions in Money Market. The effects of these transactions on liquidity (with the appropriate value
date at the time of investment/borrowing and due date) are then shown directly in Cash Management.
Interest rate instruments are used to map Money Market transactions that use different interest rate
forms and repayment schedules.
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 drawings on a credit facility.

Time 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 time period
Due date depends on the period of notice
 SAP AG 2001
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 carry out investment and borrowing without defined due dates.
The period of notice, the payment date, and the interest payment pattern are entered in addition to the
amounts and conditions.

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 directly into a business relations hip 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 2001
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 yield to be achieved, the payment amount that the investor has to pay to the
debtor at the start of the term is determined via discounting. The interest calculation can alternatively 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 shown. As a
second variant, you can show the discounted principal increase at the start of the term, and then the
repayment of the cash value and the interest rate flow at the end of the term .

Trading Functions (Topic 2)
1 Fixed-Term Deposit
2 Deposit at Notice
3 Commercial Paper/Master Agreement
4 Interest Rate Instrument
5 Ca sh Flow Transactions
6 Facilities
 SAP AG 2001

Transaction and Position Management Process:
Fixed-Term Deposit
Release
Trading Back Office Accounting
Create order/contract Settlement/checking Postings

Rollovers Netting Payment
Reversals Confirm ation letters transactions
Transaction history Reversals Accrual/deferral
Transaction history Valuation
Reversals
User authorization
Limit management
 SAP AG 2002
The organizational procedures of transaction management can be split up into several steps:
You can create a Money Market transaction either as an offer (fixed-term deposit) or directly as a
contract.
The activity sequence to be followed is dependent on the processing category you selected in
Customizing (with/without settlement).
i The Status Management synchronizes the transaction statuses that exist as a result of the processing
category, the product category or the option category. You can also define a user status that affects the
transaction process.

Trading: Entering a Fixed-Term Deposit
Financial transactions
are allocated to the related organizational unit
(company code) within your company.
various organizational structures possible for corporate groups
are concluded with a business partner

internal and external (banks) business partners
are concluded for a specific product/transaction type

product type and transaction type can be defined to suit the company
may be created with different processing methods
 SAP AG 2002
In the Trading area, the main functions for entering and changing financial transaction data are grouped
together. To organize your financial transactions more efficiently, you first need to enter the following
basic data:
Which organizational entity (company code) is carrying out the financial transaction? Especially in
more complex organizational structures - such as central Treasury management - this assignment allows
you to distinguish between different corporate areas.
Which financial transaction is being carried out? This determines the product type and transaction
type as well as relevant processing rules.
Who are you concluding the financial transaction with? 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 business partner always uses the same bank and payment details, these details can be
automatically linked to the financial transactions. You can also restrict the product types that may be
traded with a particular business partner.

Trading Support
Partner Standing instructions Market data
Transaction authorizations
Payment details
Correspondence
Business partner Derived flows
management Market
database
optional: Offer Contract
Entry and processing aids Autom atic checks

- Standing instructions - Working day check
- Copying functions - Trader and partner
- Abbreviations authorization
- Fast entry Valuation tools
- Collective/fast processing - NPV calculator
- Option price calculator etc.
Field selection control Dealing slip
Change document
 SAP AG 2001
Within transaction management, there are various support tools available.

Using the Field selection control, you can control many of the visible fields. You can adapt the "look" of
the Corporate Finanace 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. This then determines how the screen appears for the user.
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

Product type 51 A Fixed-term deposit EXTERNAL
Trans. type 100 Investment
Partner Deuba Deutsche Bank
Specifications
Currency instead of currency of company code
Master Agreemt
Portfolio
External number assignment

Transaction
 SAP AG 2002
To get to the Money Market start menu, choose Corporate Finance Management -- Transaction
Manager -- Money Market.
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.

Trader Authorization in the Company
As with trader authorizations for business partners

(external), you must assign trader authorizations
(internal) at the following levels:
Contract type
Product category
Product type
Trans action type
 SAP AG 2001
By assigning transaction authorizations to traders, you can restrict trading authority to certain financial
instruments (e.g. Money Market), product categories, product types or transaction types. Authorization
for a higher level implies that a trader is authorized to create all transactions below this level. A trader
with authorization for the Money Market area, for example, is automatically authorized to conclude a
fixed-term deposit or deposit at notice. The assignment of an authorization at the product category level,
for example, thus includes the lower levels, product type and transaction type.
To allocate trader authorizations, you must have created the trader in Customizing.
In order to perform evaluations on the transactions or positions of a specific trader, you can either enter
the trader's name manually on conclusion of a transaction or you can have it proposed automatically
depending on the user name. You can assign specific user data to the traders so as to speed up the
creation of transactions. This allows easier data entry and automatic checking of transaction days and
exchange rate entries.
Authorizations are assigned using the same logic as applied with business partner authorizations.

Creating a Fixed-Term Deposit: Structure

Tabs for
Product type 51A Fixed-term dep. EXTERNAL navigation
Structure Admin. Other flo ws Payment details Cash flo w Memos Status
Business partner ...
Investment Term
Flow type 1100 Principal increase Start 08/10/YY
Am ount 1M UNI - End ++2
Interest structure
Percentage rate 2,6
Int. calc. method act/360
...
...
 SAP AG 2001
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. You can use abbreviations for the amount and date entries (for example, m =million, t =
thousand, 0 = today, and ++2 = 2 months)
From here. you can branch to the entry screens of general transaction management. Tab strips help you
navigate between the screens.
Admin: Information on portfolio assignment, account assignment references for position posting,
general valuation classes
Other flows: The flows generated automatically can be added to by other flows (charges,
commissions, etc.).
Status: Information on correspondence, activity, and release status
...
Under payment details, you enter the relevant 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.

Fast Entry: Money Market
Financial transaction
Initial screen
Fast entry
Financial transaction
Ba sic data
 SAP AG 2001
Using fast entry, you can create a financial transaction directly without having to access the initial
screen.
You can still branch to the the details screen as with normal entry.

Interest Structure
360E / 360
act / 360
At end of term
Interest structure :
On last day of month
360 / 360
Percentage level 2,6000 Monthly
Daily
Int. calc. method act/360
Frequency Monthly Every Days/months
Shift due date back to end of term Capitalize interest
WrkgDaysDueDate WorkingDaysCalc
Calculat. period Round
For rollover
Custom izing
 SAP AG 2001
The SAP System contains the most frequently used international interest rate calculation methods for the
trading area.
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 enter "Daily" or "Monthly ", the frequency in days or months must also be stated (for
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.
(Suppression or display of the interest structure)
You can also calculate interest amounts exponentially.
The payment rate describes a percentage rate that is applied to the condition amount that has been
calculated. 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.

Interest Calculation Methods - Examples (1)
Exam ple: 360
03/31 incl. up to 04/02 incl. results in 2 days

03/31 is not taken into account
12/01 incl. up to 12/31 excl. results in 30 days
The 31st is generally not taken into account - that is, the excl. indicator
has no eff ect
Exam ple: 360E
03/31 incl. up to 04/02 incl. results in 3 days

03/31 is treated as the 30th and taken into account due to the incl. indicator
12/01 incl. up to 12/31 excl. results in 29 days
12/31 is treated as the 30th and not taken into account due to the
excl. indicator
 SAP AG 2002
The interest calculation method is defined by the ratio DAYS/DAY BASIS and, as a factor of the
percentage calculation, results in the percentage calculation for the specific period.
The methods for calculating DAYS (number of days for each calculation period) are:
1. ‘act‘
The actual number of days (calendar days) between the two dates is calculated.
2. 'actW'
The number of working days in an interest calendar between the two dates is calculated.
3. ‘360‘
The number of days between the days M1/D1/Y1 and M2/D2/Y2 is provided by
(Y2 - Y1) * 360 + (M2 - M1) * 30 + (D2 - D1).
The month is calculated using 30 days and the 31st of each month is ignored for the purposes of
interest calculation.
4. ‘360E ‘
The number of days between the dates M1/D1/Y1 and M2/D2/Y2 is provided by
(Y2 - Y1) * 360 + (M2 - M1) * 30 + (D2 - D1).
The month is calculated using 30 days, and the 31st of each month is seen as the 30th, that is,
the 31st in D1 and D2 is reset to the 30th. This method is used on the Euromarkets.
5. '365'
The actual number of days (calendar days) between the two dates is calculated, excluding 02/29
of a leap year. This results in a total of 365 days for each year.

Interest Calculation Methods - Examples (2)
Method 3 60 /3 60 a ctu al/36 0 a ctu al/365 actua l/3 66
Cha racteristics
Cou nter 3 0 days/month actual actual a ctu al
(da ys) 360 d ays/ye ar calen da r d ays ca len dar d ays ca len dar da ys
De no minator 3 60 d ays 3 60 da ys 36 5 da ys 36 5 days
(da y ba si s) p er year pe r ye ar pe r ye ar pe r yea r
E xa mple
06 /1 6 - 1 95 d ays 1 98 da ys 19 8 da ys 19 8 days
1 2/31/99
Me tho d 3 60 E /36 0 a ctua l/a ctua lP a ctua l/a ctua lY a ctua lW /25 2
C ha ra cte ristic s
Co u n te r 30 d ays wor kin g d a ys
a ctu al a ctu al
( da ys) pe r m o nth of in te re st
ca le n da r d a ys ca le n da r d a ys
3 1 . - > 30 . cal en d ar
De n om in a to r a ctu al ca le n da r a ctu al cal en d ar
3 60 d ays 25 2 wo rkin g
( da y b as is) d a ys of a d a ys of a
p er yea r d a ys pe r ye a r
pe ri od ca le n da r ye a r
E xa m ple
0 6 /16 – 1 94 d ays 1 9 8 d ays 1 9 8 d a ys 1 4 1 d a ys(*)
1 2/3 1 / 9 9
(*) eg.: Factor y c ale ndar Ger many
 SAP AG 2002
The following are defined as DAY BASIS:1. "360"

Based on a year with 360 days.
2. "365"
3. "366"
4. "252"
Based on a year with 252 days (working days).
5. "actP"
"P" stands for "period" and means that the actual number of days in a period is used to calculate
the interest. The number of days in the period are multiplied by the number of periods in the year
to arrive at the rate for one year.
6. "actY"
"Y" stands for "year" and means that the actual number of days in a calendar year (365 days in a
normal year and 366 in a leap year) is used. If a calculation period comprises two calendar years,
and one of them is a leap year, the calculation is done in two parts.
7. `364´
8. "actE"You can find further information in the notes to the slide.

Payment Details
Business Partner - Standing Instructions: Payment Details

Currency Payment House Account Payment Settler Partner- Pmnt ......
details - ID bank ID trans. bank-ID mthd
UNI 01 DB GIRUN ......
USD 01 DB GIRUS ......
Fixed-term deposits: Payment details

Company code
Product ty pe
Transaction ty pe
D Curr. Eff ectiv e FTy pe HBank Account ID Pay ment Pay ment reqt
+ UNI DB GIRUN
- UNI DB GIRUN
 SAP AG 2001
The bank and the bank clearing account to be posted to is determined using the house bank and the
account ID stored in the business partner's payment details.
The system supports multiple level payment methods. By entering a bank chain, you can process
payments via several banks.
There is a Repetitive Code column in the transaction payment details and in the Standing Instructions.
This is used (primarily in the USA) for simplification of recurring payments.

Conditions of a Financial Transaction
Example: Fixed-term deposit:
Nom inal interest 4% Interest / Frequency: 6 months
Final repayment
Changes in conditions:
Payment date Int. Am ount

Nom inal interest 10/31/YY 4% 3,333.33
Nom inal interest 04/30/YY+1 5% 4,166.67
 SAP AG 2001
The representation of financial transactions in SAP Corporate Finance Management is carried out on the
basis of the flow and condition concept. Conditions are contractually agreed components of a financial
transaction. Condition types include different interest, dividend or repayment terms and these ensure that
each product type is allocated 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 recording.
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.

Cash Flow for a Fixed-Term Deposit
Variant Description
1SAP01 Basic view
1SAP02 Due date view
1SAP03 Calculation view
Select layout
1SAP04 Local currency view
1SAP05 Paym ent view
1SAP06 Accounting view
(1SAP07 Int. rate adj. view)
Exam ple:
ple Fixed-term deposit 1m
4% interest
Payment Payment Direc- Curr. Flow type

date am ount tion
10/01/YY 1,000,000.00 - UNI 1100 Principal increase

12/31/YY 225.00 - UNI 1801 Reunification tax
12/31/YY 3,000.00 - UNI 1800 Interest income tax
12/31/YY 10,000.00 + UNI 1200 Nom inal interest
12/31/YY 1,000,000.00 + UNI 1120 Final repayment
 SAP AG 2001
The cash flow provides the basis for

- Postings
- Effective interest rate calculation
- Accrual/deferral of expenses and revenues.
Display of the cash flow:
Direction of the flow
Sorting the flows
According to different criteria
Search and selection functions
Totalling
Export functions
Direct selection of the desired view
Facility to store display layouts
Direct editing of flows in the cash flow

Financial Transactions: Cash Flow
Basis for
Amount
Transaction invested / updating Cash Management
ACTUAL
ACTUAL
borrowed updating Financial Accounting
via flexible account
determination
Condition initiating payment
PLANNED updating items
interest accrual/deferral
foreign currency valuation
Ca sh flow (example)
calculating the yield
Investment 04/01/YY 1m UNI occurred
Interest 07/01/YY 10t UNI expected
Repayment 07/01/YY 1m UNI anticipated
 SAP AG 2002
The cash flow of financial transactions forms the starting point for all trading, transaction and position
management processes as well as evaluation activities within CFM.
Financial mathematics is used to determine cash flows in CFM.
The system provides a range of formulas and you can use these as "building blocks" to organize the
CFM application flexibly.
In the Transaction Manager, application-specific control programs call up centrally-stored financial
mathematics function modules to calculate interest and repayment schedules etc.
On the basis of the conditions applying to a financial transaction, and also for a specified calculation
period, these financial mathematical function modules generate and (if appropriate) calculate a sequence
of flows called a cash flow (payment flow) for a financial transaction in the application (for example, a
stock purchase or SWAP).

Other Flows
Flow type 1901 Charges

1902 Commission
Description
...
Direction
Payment amount
Currency
Payment date
Posting status and description
 SAP AG 2001
The concept of flow types allows you to define additional flows - such as charges and commissions
(absolute or percentage) - for the individual product types. These are then recorded with the individual
transactions.

Derived Flows
1. If applicable: Definition of a calculation procedure and

assignment to a derivation rule
2. Definition of a derivation procedure with corresponding

derivation rule:
• Percentage rate or
• Calculation procedure (see 1)
3. Assignment of the derivation procedure to the business partner:

Standing instructions: Derived flows
 SAP AG 2001
On the basis of the flow types, further derived flows can be generated. In the case of nominal interest, for
example, tax flows can be generated automatically. These can then be shown in the cash flow. In Cash
Management, they lead to the display of the net cash flow.
You can use the definition of calculation procedures to make the amount of the derived flow dependent
on the currency and the amount of the initial flow. This way you can map scenarios that enable different
commissions depending on the amounts (for example, a commission of 15 euro for an amount up to
20,000 euro or a commission of 1.5%. for an amount over 20,000 euro). This can be different for each
currency.
If the derived flow (in a specific currency) is always to be the same percentage of the original flow, then
you do not need to define a calculation procedure and you can enter the percentage when you define the
derivation rule.

Derived Flows: Customizing
1. Define Calculation Procedure for Derived Flows

Description
Currency-dependent rules: Determine whether lim iting amount is upper or
lower limit
Am ount-dependent rules: - Min/max amount
- Calculation (percentage or fixed amount)
- Specify percentage value or amount
2. Define Derivation Procedures and Rules

Derivation procedures: Nam e of procedure
Derivation rules:
Original flow:
- Effective from
- Flow type
- Direction
Derived flow :
- Flow type
- Direction
- Calculation using calculation procedure or percentage
- Specify relevant procedure or percentage
3. Standing Instructions:
Derived flows: - Assignment of the derivation procedure
 SAP AG 2001
In Customizing a calculation procedure is defined as a first step:

In the currency-dependent rules, you must determine for each currency whether limiting values are to
be upper or lower limits.
In the amount-dependent rules the limiting values are defined and an instruction is defined as to
whether a fixed amount or a percentage is to be determined.
This way you can have variable charges depending on the currency, for example.

Collective Processing: Money Market
Overview of money market transactions that corre spond

to the selection criteria entered
Proce ssing the relevant transactions
Create
Change
Displa y
Roll over
Give notice
Settle
Reverse
History
Branch directly to the individual transaction
Link to the SAP List Viewer
 SAP AG 2001
Collective processing facilitates the systematic management of transactions. All business activities that
you select according to common criteria are displayed with a list of short descriptions of each
transaction, and the necessary processing functions are available.
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 summed as you wish.You can save these layouts to use
them again.

Transaction Management:
Worklist and Collective Processing
Process financial transactions across all product

categories
User-specific managing of financial transactions

Selecting and displaying financial transactions
Branching to individual transaction processing

Representing transactions using the SAP List Viewer
 SAP AG 2001
You can save various selection definitions as variants and manage these in a user-specific tree structure
in collective processing.
The layout controls the structure of the list. You can store the following information in a layout:
Column structure
Sorting criteria

Financial Transactions in Cash Management
Assign planning levels

1000 IDES AG
51A Fixed-term depo sits
TB Time depo sits - ban ks

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 depo sits 132,323 Xxx,xxx Xxx,xxx Xxx,xxx Xxx,xxx

.. .. .. .. .. .. . .. ... ... ... ...
OB Currency
OB options Xxx,xxx Xxx,xxx Xxx,xxx Xxx,xxx Xxx,xxx
Currencyoptions
.. .. .. .. .. .. . .. . .. . .. . .. . ..
DB
DB Forex
Forex Xxx,xxx Xxx,xxx Xxx,xxx Xxx,xxx Xxx,xxx
Balance xxx.xxx xxx.xxx xxx.xxx xxx.xxx xxx.xxx
 SAP AG 2001
Each activity within a transaction (contract, settlement, etc.) is displayed in Cash Management. You can
then view and analyze each activity using a separate level.
This way, the cash flows from transactions that have not yet been posted but whose values are known
can also be used for the cash manager's planning.
In Customizing, the planning levels for the G/L and sub-ledger accounts must be maintained for the
relevant product and activity types. These are the levels at which they should be displayed so that, for
example, a contract - corresponding to the respective activity - can be displayed at various levels.

Cash Flows in Cash Management
Ca sh Flow Transaction Manager

Sept 01 1000- Fixed-term deps inv. 1,000
Oct 01 1120+ Final repayment 1,000
Oct 01 1200+ Nom inal interest 200
Planning groups Business partners / Financial transaction

Payment details and house banks
E2 Domestic customers + UNI DB GIRUN

- UNI DB GIRUN
Subledger accounts Sept 01 Oct 01 Bank accounts

TP F-term dep. Pers. - 1000 + 1200 TB F-term dep. Bank
E2 Domestic customers DBGIRUN
Alternative 1 Alternative 2
Payment details Payment details
not known known
 SAP AG 2001
Even if the payment details of a business partner are still unknown when you create a transaction, and
are only entered in back office, for example, the information relating to the transaction in Cash
Management is not lost.
The prerequisite, however, is an entry in the business partner's master data (financial planning group).
The transaction then appears under the grouping "persons" and not "banks".

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

No.1 No.2 No.3
2.4% 2.7% 2.5%
Sorting by quality
Contract Offer
No.2
2.7%
 SAP AG 2001
Using the activity category Offer, you can group and store quotations from different banks with a
reference.
The offers are sorted according to their quality. You have the option of creating a contract directly from
an offer.
You have to create a separate number range for the transactions with the activity category Offer. In
Customizing for the transaction types, you assign this number range to the relevant transaction type in
the field "number range for offers".
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 to suit your company, tells you how
many offers were submitted, and how many of these resulted in a contract.
You can display offers using the Journal.

Simulation of Fixed-Term Deposits/Forex
Transactions
Creating simulated financial transactions
A busine ss partner i s not required for simulation
You manage simulations using a separate number range
You can create a contract from a simulation
Adding a business partner
 SAP AG 2001
For forex transactions and fixed-term deposits, you can create simulated transactions with the activity
category Simulation.
You can create a contract from a simulated transaction using the change function. To do this, however,
you must add a business partner, since simulated transactions are created without business partners.
You manage simulations using a separate number range.
In Customizing for the transaction types, you assign this number range to the relevant transaction type
in the field "number range for simulations".
You can display simulations using the Journal.

Money Market - Exercises on Fixed-Term Deposits
1 and 2
Fixed-Term Deposits 1
and 2
 SAP AG 2001

2 Deposit at Notice
3 Commercial Paper
5 Ca sh Flow Transaction
6 Facility
 SAP AG 2001

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

Am ount Termination 06/30/YY
Interest structure
...
Contract
...
...
Notice period 3 Days
 SAP AG 2001
With deposits at notice, there are functions available for giving notice or roll over for funds already
invested. Here, rollover means an increase or decrease in the amount of the original deposit at notice
with, if necessary, changed terms under the same transaction number.
With deposits at notice, the cash flow for these transactions can only be generated for a set period since
the end of term is only fixed when notice is given. Therefore, for deposits at notice for which no notice
has been given, it is necessary to periodically update the cash flow.

2 Deposit at Notice
3 Commercial Paper
6 Facility
 SAP AG 2001

Master Agreement
Establishment of agreement and conditions with which each transaction

has to comply
Exam ple: Master agreement
Term of the contract 1/1/YYYY to 12/31/YYYY
Permitted company codes 1000
Permitted busine ss partners IDES AG; Deuba; FUXX
Permitted transaction types Investment
Minimum and maximum UNI

terms of the transactions
1m
Currencie s: 10m
Tranche 500m
Minimum amount Commercial Paper program from 12/31/Y-1

Total volume
 SAP AG 2001
You can store master agreements in the system to define company-specific standards for the conclusion
of Money Market transactions. These contain specific information on company codes, business partners,
terms, as well as minimum and maximum volumes by currency.
Master agreements can be assigned to Commercial Papers, fixed-term deposits, deposits at notice, and
cash flow transactions.
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 several master agreement restrictions including the
following:
Is the amount a multiple of the tranche?
Has the minimum amount been reached?
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 the transactions on the assets and
liabilities sides approach the usage limits.
You can use tab pages to switch between displays of different details concerning the master agreements.
While processing, you can directly call up an overview of the degree of usage of the master agreement
limits.

2 Deposit at Notice
3 Commercial Paper
6 Facility
 SAP AG 2001

Interest Rate Instruments
Interest rate instruments are used to map Money Market

transactions that use different interest rate form s and
repayment schedules.
Interest rate instruments
Interest calculation ty pes Repay ment schedules
Fixed Variable Repay ment in Final

installments repay ment
With interest rate adjustment
 SAP AG 2001
The interest rate instruments support the entry and calculations of fixed and variable interest forms as
well as instalment-based and 'full payment on maturity' repayment schedules.
Besides the entry and processing of these transactions in the Front Office, the subsequent processes in
Back Office and in Accounting are also supported.

Example: Interest Structure - Repayment Structure
Interest structure
Interest form fix Condition type 1200
Percentage rate 4.0
Int.calc.method 360/360
Frequency On last day of month
Every 1 Months
Repayment structure
Repayment form Instalment r epayment Condition type 1130
Repayment amnt 10,000.00 UNI
Frequency On first day of month
Every 1 Months
 SAP AG 2002
You complete the details of the financial-mathematical structure of the interest rate instrument to enable
all the interest and repayment terms to be dealt with. The following details are to be entered:
- Amount and currency of the transaction and also the flow type
- Term
- Interest structure:
Interest form, interest calculation method, frequency, interest period update.
As far as the interest structure is concerned, some of the details to be entered are dependent on the
interest form selected. For example, you enter an interest reference for variable interest and a percentage
for a fixed interest form.
- Repayment structure:
Here also, some of the details to be entered are dependent on the repayment form selected. No additional
details are required in the case of full payment on maturity.

Back Office - Interest Rate Adjustment
Chart Title
Interest rate adjustment
manual automatic
Prerequisite:
Reference interest rate
must be maintained
Int. fix. date Interest ref. Status Interest rate Effect. from
11/30/YY EURIBORD03 3.00 11/30/YY
03/03/YY EURIBORD03 0.00 03/01/YY...
 SAP AG 2001
For financial transactions with variable interest, you carry out an interest rate adjustment periodically.
You fix the interest rate to the current value of a reference interest rate.
The interest rate adjustment can be done either manually or automatically. With manual interest rate
adjustment, you use the reference rate to enter the interest rate value for each transaction. With automatic
adjustment, the system checks if the current value is available for a reference interest rate.
There is an interest rate adjustment tab page and here you have an overview of all the adjustment data
that has been entered for the transaction.
A function is available for reversing interest-fixing.
When entering variable interest, you can enter the interest rate for the first period when you entering the
interest conditions. The interest rate adjustment is, therefore, not necessary for the first interest period.
Within the Information System, there is a Money Market: Interest Rate Adjustment Schedule option for
deadline monitoring.

Back Office - Planned Record Update
Range of Planned Record Update Methods
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 Custom izing: Corporate Finance Management
interest rates Transaction Manager
General Settings
Organization
Define Company Code Additional Data
 SAP AG 2002
You can use any of the following strategies:

- Zero amount update
Flows that are not yet fixed receive the value 0.
- Update with automatically maintained interest rates
The values of the flows that are not yet fixed are calculated based on the interest rates determined by
automatic interest fixing.
- Update with manually maintained interest rates
manual interest fixing.
- Update with current interest rates
The values of the flows that are not yet fixed are calculated based on the current interest rates, regardless
of whether these are determined by automatic or manual interest fixing.
- Update with automatically or manually maintained interest rates
automatic interest fixing. If no interest rates have been determined automatically, then those determined
manually are used.

Money Market - Exercise
Interest Rate Instruments
Interest Rate
Instruments
 SAP AG 2001

2 Deposit at Notice
3 Commercial Paper
6 Facility
 SAP AG 2001

Cash Flow Transactions
Flexible representation of a wide range of transactions
Manual entry of:

Term and
Cash flow from position changes, expenses,
revenues, payments etc.
The application supports:
Entering and processing of cash flow transactions and
Subsequent processing in back office and accounting
 SAP AG 2001
Note that the relevant flow types must be assigned to the product type/transaction type.

2 Deposit at Notice
3 Commercial Paper
6 Facility
 SAP AG 2001

Facilities – Definition and Objective
Definition
Facilities enable you to map master credit lines between a

lender and a fixed business partner for a series of
drawings on a credit facility
Objective
Management and processing of facilities
Facility
Confirmed facility Unconfirmed facility
 SAP AG 2001
A lender and a borrower use a facility to agree terms (= credit line) for a series of drawings against the
credit facility. The lender can name more than one party (= borrower) that is entitled to draw on the
credit line, and 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.

Facilities
Creating and Settling a Facility
Assigning Financial Transactions

• Check that terms of the facility are adhered to
• Manual translation rates for foreign currency transactions
• Check that credit line is not exceeded
• Update the utilization of the facility
• Update the utilization of the facility
Financial Transactions that can be Assigned

• Fixed-term deposit • Cash flow transaction
• Deposit at notice
• Interest rate instrument
 SAP AG 2001
If you avail of 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 when it is entered or being processed.
During the assignment process, the system checks that the transaction's characteristics are appropriate for
the terms of the facility.

Creating a Facility
Start of term, end of term,

Structure currency
Charges Cond.
type
Condition
type name
Effective
from
Amount-based
structure
Date structure
List of drawing objects, drawings, total credit line,

amount utilized, overdraft, credit line not utilized
Profiles
Rule category: business partner, transaction

Rules type, transaction currency
 SAP AG 2001
Drawings can only be assigned to a facility after the transaction has been settled (if this is called for).

Facilities - Charges
Charges for the utilized portion of the credit line

Charges for the non-utilized portion of the credit line
Charges for the provi sion of the credit line
Charges for overdrawing the credit line
All the charge components are optional, and you can structure
them as you require
 SAP AG 2002

Facilities: Credit Lines and Profiles
Definition of a credit line that varies with time

Derivation of different profiles
Amounts in curren cy XX
Profile: Overdrawn at tim e t1
Profile: Credit line op en at time t1
Profile: Total credit line

Drawing 1
Profile: Utilization at time t 1
t1
Start of ter m End of ter m Time
 SAP AG 2001

Customizing Structure: Facilities
Product Transaction cat. Flow cat./ Calculation cat.

cat. (Activity cat.) Condition cat.
560 Facility Processing cat.
24 Am ounts equiv.
100 Granted
to interest
200 Obtained
SYSTEM LEVEL
Product type Trans. type Condition type Flow type

56A Conf. facility 100 Granted 1204 Facility fee free
200 Obtained 1205 Facility fee due
56B Unconf. fac. 1206 Facility fee overdrawn
1207 Facility fee available
USER LEVEL Profile category
 SAP AG 2001

Back-Office Functions (Section 3)
1 Busine ss Proce ss
2 Settlement = Checking
3 Corre spondence
4 Netting
5 Reference
6 Area-Specific Customizing Settings
 SAP AG 2001

Fixed-Term Deposit
Release
Create order/contract Settlement/ Postings

Rollovers checking Payment
Reversals Netting transactions
Transaction history Confirm ation letters Accrual/deferral
Reversals Valuation
Transaction history Reversals
User authorization
Limit management
 SAP AG 2001
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 checking
and change functions - any entries made can be checked here and changed if necessary. Post-processing
includes the following functions:
•Enhancing transaction data, for example, adding information that is relevant for the back office.
•Preparing postings and payments, for example, checking the accounts that are used later on 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.

Transaction Settlement / Checking
Account a ssignment reference
DB000001 Deutsche Bank

Fixed-term deposit
G/L account: 113113
Transaction: Payment details
Company code 1000

Zahlungs-
Product ty pe 51A
Zahl- Zahlungs- Haus- Konto-
Fixed-term deposit
verbindungs- Regu- Partner- weg vorgang bank ID
Transaction ty pe 100 Inv estment
ID lierer bank-ID
D 01Curr. Eff ectiv e FTy pe HBank Acct ID Pmnt Pmnt req. DB GIRO
- UNI Deuba GIRUN
+ 01UNI Deuba GIRUN DB USD
 SAP AG 2001
Just as in Trading, you can call up information on entered transactions or make corrections to them.
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 for the particular business partner
appear as default values. You can then change or add to these.

Transaction History
Histor
History:
y: Acitvit
Acitvit yysequence
sequence
Active
Activity Act. category 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 Active
... ... ... ...
Order Contract Settlement Rollover Settlement
Ve rwa ltungsda te n Ve rwa ltungsda te n Ve rwa ltungs da te n Ve rwa ltungs da te n Ve rwa ltungs da ten
Bukr 0 0 0 1SAP A G Ge s chä ft4 7 11 Bukr 0 0 0 1 SAP A G Ge s chä ft4 71 1 Buk r 00 0 1 SAP A GGe s c hä ft 4 7 11 Buk r 0 0 0 1 SAP A G Ge sc hä ft 47 1 1 Bukr 0 0 01 SAP A G Ge sc hä ft 4 7 1 1
Pa rt 5 1
Grundda tean Vorgang 1 Pa rt 5te
Grundda 1an Vorga ng 1 Pa rt 51 ate n
Grundda Vorga ng 1 Pa rt 5 1
Grundda tean Vorga ng 1 Pa rt 5 1 a
Grundda ten Vorga ng 1
Ga rt 1 0 0 Vorg.Ty pOrde r Ga rt 1 0 0 Vorg.Ty p Ve rtr. Ga rt 10 0 Vorg.Ty p Abrec h. Ga rt 1 0 0 Vorg.Ty p Prol. Ga rt 1 0 0 Vorg.Ty p Abre c h.
Buk r 0 00 1 SAP A G Ge s c häft4 7 1 1 Buk r 0 00 1 SAP A G Ges c hä ft4 7 1 1 CC 0 00 1 SAP A GGes c hä ft 4 7 1 1 Bukr 0 0 01 SAP A G Ges c hä ft 4 7 1 1 Buk r 0 0 0 1 SAP A G Ge s c hä ft 4 71 1
Pa rt 5 1a Vorga ng 1 Pa rt 5 1a Vorga ng 1 Part 5 1a Vorga ng 1 Pa rt 5 1 a Vorga ng 1 Pa rt 5 1 a Vorga ng 1
Ga rt 1 00 Vorg.Typ Order Ga rt 1 00 Vorg.Ty p Ve rtr. TTy pe 1 00 Vorg.Ty p Abre ch. Ga rt 1 0 0 Vorg.Ty p Prol. Ga rt 1 0 0 Vorg.Ty p Abre c h.
 SAP AG 2001
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 specific user has corrected or changed the structure characteristics of any transaction.

Correspondence
Confirmation Confirmation
External Internal
Fax
E.g. Confirmation E.g. Dealing slips

letters, via fax, e-mail,
SWIFT, Idoc
 SAP AG 2001
Correspondence serves to document and reconcile financial transactions that have been concluded.
You can define 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 correspondence data
or have it sent directly from the system by fax. You can also use e-mail and Idoc. To send e-mails, you
must set up the communication interface SAPconnect. For money market and foreign exchange
transactions, you can generate SWIFT files MT320 (fixed-term deposits) and MT300 (forex).
You can control the correspondence types for external correspondence in the partner-specific standing
instructions for correspondence. The 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 clerk, the form used, and the
output type of incoming or outgoing confirmations.

Confirmation Management
Distinction between outgoing confirmation and

counterconfirmation
You can view the confirmation status for correspondence

within the transaction under the Status tab
You can control status management for

counterconfirmation for each business partner in the
standing instructions and in Customizing
Monitoring of overdue counterconfirmations
Optical archiving of correspondence
Correspondence overview and correspondence monitor
 SAP AG 2002
You can define for each business partner (in the standing instructions) whether or not
counterconfirmation is required for external correspondence.
The system updates the confirmation status of the business transaction on the Status tab page:
executed, reconciled (counterconfirmation has been received and matched).
You can archive correspondence letters optically. To do this, you must have set the 'Archiving (Optical
archiving)' indicator in Customizing (choose "Define Correspondence Types") for each correspondence
type you require. However, you need to use an external optical archiving for this. You access the
archived correspondence from the transaction display. If you are in the display/change mode for a
transaction, you can also display the correspondence activities by choosing Goto. By double-clicking a
line, you activate the archive link monitor and display the document.
Besides the existing correspondence overview, the correspondence monitor provides new processing and
monitoring functions.
• You have an overview of the current processing status
• You have the option of setting the counterconfirmation status to "matched" directly from the
monitor (manual match)
• You can execute planned correspondence directly from the monitor
• You can repeat correspondence that has already been generated ...

Customizing Correspondence
1.) Defining correspondence types
Correspondence Type 001
Field Label Confirm ation
General
internal Correspondence Type
E Archiving (Optical Archiving)
E Suppress initial Reverse Correspondence
Language
...
2.) Defining correspondence activities
Company Code 1000
Money Market: Forms

PType Produc t type na me TType ACat Corresp.type Form Aut. C CC on.
51 A Fixed-term deposit ext. 100 10 001 F_TR_CONFIRM_ALL E
51 A Fixed-term deposit ext. 100 10 002 F_TR_DEALER_ALL
51 A Fixed-term deposit ext. 100 11 001 F_TR_CONFIRM_ALL E
51 A Fixed-term deposit ext. 100 11 002 F_TR_DEALER_ALL
...
3.) Changing message control

f or example, 6 conf irmation and counterconf irmation not y et carried out
 SAP AG 2002
You define the relevant correspondence types (such as confirmation, dealing slip) in Customizing under
Transaction Management --> Correspondence --> Define Correspondence Types. The Internal
Correspondence Type indicator determines whether the correspondence type should be external
(allowing partner-specific settings in the standing instructions) or internal (independent of the partner).
You then define the correspondence activities dependent on the company code. In this Customizing
step, you also specify whether counterconfirmation is required. You can change the correspondence
forms using the SAP word processing program SAPscript. If you change the existing forms in SAPscript
and save them under a new name, you must maintain the new forms in the Customizing step Define
Correspondence Activities.
Message control enables you to influence transaction processing. You can set up the system to ignore
messages or checks depending on the user, or to block further processing by defining error messages (E
messages).
The generation of correspondence is built up from planned records. These are created on the basis of
your Customizing settings and standing instructions for correspondence when you create, change, or
reverse transactions, for example.
The function “Confirmation of receipt using IDoc” enables automatic reconciliation of financial
transactions (fixed-term deposits, deposits at notice, Commercial Paper and foreign exchange
transactions).
Third party correspondence: Based on partner assignment, the correspondence function was enhanced in
such a way that an assigned business partner can also be a correspondence recipient.

Settlement and Correspondence
Settlement
and Correspondence
Note:
The exercises on corre spondence are optional
 SAP AG 2001

Netting
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 amounts to be paid and only pay or receive the net
amounts
Ad vantage: Saving transaction costs or bank charges
For this purpose, transactions can be summarized in so-

called “netting transactions”.
 SAP AG 2002
All netting transactions are explicit arrangements between the business partners in order to simplify the
handling of payments.Transactions are blocked against changes to relevant fields, (especially due date,
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 Pmnt Group Determ ine-

details payment direction mthd determ . grouping (text)
EUR ...... X X X 2 Combine all
USD ...... X 2 Combine only w ithin

netting transaction
 SAP AG 2001
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:
all transactions
all transactions within a netting
all transactions within the Foreign Exchange module.

Reference Between Transactions
Transaction 1 Transaction 2
BID Offer
CON Sw ift confirmation files
EUR Euro transaction curr. changeover
KMP Netting
MIR Mirror deal linking
OPT Option reference - derivatives
PRL Rollover of forex transactions
REF General reference
SWP Foreign exchange swap
 SAP AG 2001
To document the links 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. The reference
category establishes the meaning of a reference.
Some references are formed automatically. These include relationships between transactions that are a
result of processing activities (rollover) or that are elements of a transaction (currency swap).
Other references are created by the user (netting).
You can create 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.

Automatic / Manual Posting Approval
Product type
Transaction type
Posting approval X
Automatic !
Approval
Trading Settlement Accounting
 SAP AG 2001
For organizational reasons, manual posting release must be carried out by a second user.
If the "x" is flagged, the posting release occurs automatically, that is, the transaction does not have to be
released by a second user.

Money Market - Netting Exercise
Netting
(optional)
 SAP AG 2001

Accounting Function (Topic 4)
1 Busine ss Proce ss
2 Posting Logic
3 Ca sh Management Integration
4 Posting Overview/Posting Journal
 SAP AG 2001

Fixed-Term Deposit
Release
Trading Back Office Accounting
Create order/contract Settlement/checking Postings

Rollovers Netting Payment transactions
Reversals Confirm ation letters Accrual/deferral
Transaction history Reversals Valuation
Transaction history Reversals
User authorization
Limit management
 SAP AG 2001
After the transactions are entered in Trading and checked and completed in Back office, their accounting
processing takes place. Functions for the transfer to Financial Accounting - such as posting reports or
posting in position management are brought together 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 accounts. Accounting, therefore, incorporates tasks such as the
periodical accrual/deferral of expenses and revenue as well as valuation activities.
You can only post transactions that have achieved contract or settlement status (depending on the back
office processing category) at internal level (system level).
If you do not yet wish to post certain flows caused by the financial transaction, you can block the posting
of these flows.

Accounting
Fixed-term deposit 1 Month 4.5

Sept 01 1100 - F-term deposit inv. 1,000,000
Oct 01 1120 + Final repayment 1,000,000
Oct 01 1200 + Nominal interest 3,750
Selection of the financial

Interface FI transactions or flows to
be posted
Financial accounting
 SAP AG 2002
The CFM information required for posting is transferred to Financial Accounting via an interface. The
posting logic is based on the flow types generated, the account assignment reference taken from the
financial transaction, and the account determination defined by the user.
Individual flows can be posted either via customer accounts or G/L 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

Processing Payment Transactions
... via clearing accounts
IDES
Fixed-term deposit account House bank account
(Deuba) (Deuba) F- term
deposit inv.
100 m 100 m
House bank
DEUBA
Bank clearing account
100 m 100 m F-term deposit investment

Account statement from
bank
 SAP AG 2001
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 the Transaction Manager to the bank clearing accounts are then
cleared with the aid of the electronic account statement.

Postings: Account Assignment Reference
FT dep. transaction Date Sept 01

1,000,000.00 Term 1 month UNI
Deutsche Bank Nominal int. 3.5 %
Company code 1000
Acct asst ref Short text

DB000002 Deutsche Bank Deposit at notice
DB000001 Deutsche Bank FT deposit
. Detail info
.
. Cost center .
General ledger 113113
Business area
 SAP AG 2001
The account assignment reference determines the G/L account (balance sheet account) to which the
financial transaction is to be posted. Different account assignment references allow you to have a
differentiated balance sheet structure.
As well as entering the account for position management in the account assignment reference, you can
also assign a cost center (only relevant for posting category 4) and a business area.
The account assignment reference is part of account determination, which you can set up in Customizing
according to the currency and/or account assignment reference. This flexibility enables you to structure
postings in different ways. For example, in the account determination for revenue and expense postings
for securities (depending on the account assignment reference), you can see whether the securities were
issued by affiliated or unaffiliated companies.
For Money Market, Foreign Exchange and Derivatives, the account assignment reference is defined
directly for each financial transaction. For Securities, however, the account assignment reference is
included in the position indicator in each case.

Customizing Account Determination
Money Mar ket
Ac counting in oper ative

Applic ation 0105 Tr easur y: Money mar ket
valuation ar ea
Char t of acc ts INT Char t of ac counts - In ter national
Acc ount deter mination Ac c ount assignment
Define S ettings Ac c t symbol Ac ct assignment r ef. Curr ency G/L ac count
Check
3 + + ++++++++++5
4.1.1 + + 27310 0
Char t of acc ounts 4.1.3 + + 22000 0
4.2.2 + + 47910 0
4.2.3 + + 46500 0
Acc ounts Symbols 4.2.4 + + 46500 1
Applic ation 0105 Tr easur y: Money mar ket

Acc ount symbol
Posting specifications Ac ct symbol Desc r iption
Flow type 1100 Payment tr ansac tn + ...
Dir ec tion - Comp. 3 Bank c lear ing
Debit 40 1 Balanc e
Cr edit 4.1.1 Inter est r ec eived
50 3 Bank c lear ing
Document type ...
SA Posting c at. 13
 SAP AG 2001
You define Account determination for the relevant application in Customizing.
You use the account determination function to specify which accounts you want to use for posting
activities. It includes the posting specifications, the account symbols used for this, and the accounts
assigned to the symbols.
The following requirements must be met before you can post transactions to Financial Accounting:
You must have created all the necessary accounts and made the correct settings
The document types must appear in the document types table and allow the required account types to
be posted to
The number range linked to the document type must have an internal number assignment in Financial
Accounting
The posting period must be open for posting.

Transferring Data to Financial Accounting using
the Posting Function
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 including due date
Only post flow acc. to currency
Posting control
Posting date
Document date
Test run
 SAP AG 2001
Through posting, the settled financial transactions are transferred to Financial accounting. You can only
post transactions that have achieved contract or settlement status (depending on the back office
processing category) at internal level (system level).
Prior to posting, the transaction flows and/or positions to be posted are selected. The user can let the
system carry out a test run in order to check the accuracy of the posting entries in the posting log. When
posting is carried out, the transfer of flows and corresponding documents to Financial accounting takes
place.
Posting in SAP R/3 Financial Accounting occurs online.
The FI document numbers are also displayed.
With posting, a posting log is generated. By double-clicking on a posting line, you access the respective
posting document.
If you do not yet wish to post certain flows caused by the financial transaction, you can block the posting
of these flows.

Posting a Transaction: Summary
Fixed-term
Fixed-termdeposit
deposit 11 month
month 4.5%
4.5% Acct
Acct assignment
assignment ref.
ref. DB000001
DB000001
Sept 01 1100 - Fixed-term deposit 1,000,000
Oct 01 1120 + Final repayment 1,000,000
Oct 01 1200 + Nominal interest 3,750
Balance
Balance sheet
sheet account
account
acc.
acc. to acct assignment reference
to acct assignment reference
Posting
Postingspecifications
specifications
Flow
Flow type
type 1100 - Deb bal. sheet Credit bank
1120 + Debit bank Credit bal. sheet
Debit bank Credit int. earned

1200 +
Fix.-term
Fix.-termdep.
dep. acct
acct113113
113113 Bank
Bank clearing
clearing acct
acct113105
113105 Interest
Interest earned
earned 273100
273100
D C D C
Depo sit 1,000,000 D C
F T dep osit 1,000,000
Nomi nal 3,750
Nomi nal in t. 3,750
interest
Final 1,000,000 Final
repa yme nt repa yme nt 1,000,000
 SAP AG 2002
When financial transactions (Money Market, Foreign Exchange, Derivatives, and Securities) are
processed, they result in business transactions which have to be entered in the accounting system. These
automatic postings and the corresponding offsetting entries in FI accounts may be carried out online.
The posting of individual business transactions is controlled by the posting specifications. These
specifications contain the rules for posting and account determination for each flow type. You make
these settings during Customizing.
The flow type determines the correct posting specifications for each flow that is to be posted.
The document type and the posting keys for the debit and credit side of the posting included in the
posting specifications represent control information which is passed on directly to the Financial
Accounting module. In addition, the posting category and the account symbols in the posting
specifications are used to determine the actual G/L and subledger accounts via the CFM posting
interface.

Note: Transaction Manager and Cash Management
CFM Via activity at

Fixed-term deposit
fixed-term deposit level
Post flow s to Change to

CFM
clearing account clearing accounts
Clearing entry via Change to

account statement bank account level
 SAP AG 2002
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 usually triggered by the business partner (bank) and processed further via automatic bank
statements in Cash Management.

Transfer to Financial Accounting -
Logical Sequence
Assign planning levels

1000 IDES AG Sa mple co.
51A Fixed-term deposit
TB Time deposits - banks

Cash Management: Display Levels
10 Contract
Banks
Le Description 10/02
10/02 10/03
10/03 10/03
10/04 10/05
10/05 later
later
TB Time depo sits 150,000 Xxx,xxx Xxx,xxx Xxx,xxx Xxx,xxx

.. .. .. .. .. .. . .. ... ... ... ...
B5
B5 Clearing
Clearing 150,000 Xxx,xxx Xxx,xxx Xxx,xxx Xxx,xxx
.. .. .. .. .. .. . .. . .. . .. . .. . ..
F0
F0 Banks
Banks 150,000 Xxx,xxx Xxx,xxx Xxx,xxx Xxx,xxx
Balance Xxx,xxx Xxx,xxx Xxx,xxx Xxx,xxx Xxx,xxx
 SAP AG 2001
Each activity within a transaction (order, contract, settlement, etc.) is displayed automatically in Cash
Management. You can then view and analyze each activity using a separate level.
Cash flows resulting from the transactions - whether already posted or not - become apparent for
planning in Cash Management as soon as the transactions are entered.
In Customizing, for each product type and activity category, you must maintain the planning levels for
G/L and/or subledger accounts where the information is to be displayed.
Example:
Concluded deposit at notice transaction: Level TB - Deposit at notice
(pre-)posted deposit at notice transaction: Level B5 - Bank clearing account
After receipt of the bank statement: Level F0 - Bank account

Money Market - Accounting Exercise
Buchhaltung
Accounting
 SAP AG 2001

Posting Using the Payment Program
Payment Current
control parameters Payment
Master request
Proposal run
Documents
Proposal data set
Edit
proposal
Payment run
Print data set
Print program
Check
Advice Payment Idoc
Bank trans fer
Eurocheck
note summary
 SAP AG 2001
In connection with account determination in the CFM posting interface, you can control whether
payment activities involve a flow of funds.
The payment program has the following functions:

Automatic selection of payment requests
Generation of payment lists and logs
Generation of payment documents (vendor accounts/customer accounts/G/L accounts)
Generation of payment media (forms, advice notes, disks).
Usually, your first step is to activate a payment proposal run. The run creates a proposal data set which
you can check and edit before the actual run.
There are two different payment programs available:

The standard Financial Accounting payment program settles the open items in the debtor/creditor area
whereas
The extended payment program handles not only the postings in the debtor/creditor area, but also
covers G/L accounts.

Processing Payment Transactions
...using a clearing account for payment requests

Fixed-term deposit
Fixed-term deposit House bank-

IDES Broker
account (broker) account (Deuba)
Payment
100 m 150 m order
50 m House bank
DEUBA Payment
Payment request
clearing account Bank clearing account
150 m 100 m 150 m 150 m

50 m
1st fixed-term deposit Payment

(trigger payment request run)
2nd fixed-term deposit Bank statement
 SAP AG 2001
If you conclude transactions with a partner for whom you do not have a house bank account, you can
generate payment requests which are processed by a special payment program. This option applies to
cases where the payment details are known, but where you do not want each transaction to result in a
physical payment. This function also enables you to make joint payments for groups of transactions.
Examples of use of the extended payment program:

Several transactions are concluded with a business partner that is not a house bank
When a fixed-term deposit is posted, a payment request is generated simultaneously
All transactions are managed in the payment request clearing account
Payments can be grouped together/netted
When payment is due, a payment run is triggered in Accounting and the payment amount is
transferred to the bank clearing account
A payment medium is generated simultaneously and is passed on to the house bank
When the bank statement is received a day later, the payment amount is posted to the bank account.

Posting Overview
Transaction data Posting data
Transaction number Flow type

Due date Document number
Product type Fiscal year
Transaction type Posting date
Amount Account a ssignment
reference
Currency ...
Direction
...
 SAP AG 2002
In the transaction data area, the posting overview contains information about the underlying financial
transactions. In the posting data area, the overview contains data on the flows and, if applicable, the
posting document numbers.
Besides using the Money Market, Forex, and Derivatives posting journal to analyze posted flows, you
can also use it to evaluate reversed flows and those designated for reversal.
the columns or rows to be displayed, sort and sum as you wish.You can save these layouts to use them
again.

Special Functions (Section 5)
1 Changes in Principal
2 Effective Interest Rate
3 Archiving
4 Rollover
5 Reversal
6 Accrual/Deferral
7 Workflow
8 Mirror Transactions
9 BAPIs
 SAP AG 2001

Other Changes in Principal
Capital structure changes
at start of term at rollover during the term
Advantage:
☺ Greater flexibility when representing the transactions

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

Automatic inclusion in ca sh flow
 SAP AG 2001
In addition to the main flows at the start of term or on the rollover date, you can enter other principal
increases and decreases during the term. This enables you to represent repayment schedules, for
example.

Effective Interest Rate Calculation and Update
The effective interest rate

is determined by the system and
updated in the database
Condition: You must specify an effective interest
method when you define the product type
You can use the effective interest rate for evaluations

in reporting
Calculation and display of the effective interest rate

(using all available effective interest methods) when
proce ssing transactions
 SAP AG 2001
Definition of effective interest rate:

Expression of the profitability/costs of a capital investment or borrowing. Besides the nominal interest,
the effective interest rate calculation also takes account of charges, clearing dates, discount/premium,
and repayment modalities.
In the Money Market area, the effective interest rate is calculated and updated to the database during
transaction processing if you specify an effective interest method when you define the respective product
type. In this case, the effective interest rate can be used for evaluations in reporting.
For transactions that were entered before Release 4.6A, a report is available (RFTMEZ00) that enables
you to calculate and update the effective interest rate.

Archiving Basics
Background
Continual increase in the end user's volume of data
Poor performance caused by database overloading
Investment costs caused by new hardware requirements
Demands on archiving
Storing financial transactions outside the R/3 System
Deleting and reloading the archived data in the R/3
System
Automatic conversion if table structures are changed
Online archiving and archive management
Compre ssion of data
Link to external archiving systems
 SAP AG 2001
Archiving data allows you to remove mass data from the database if it is no longer required in the
system, but where it must be available for evaluation purposes. Transactions are written to archive files
via Archiving objects. These objects describe the structure and composition of the data. The files can
then be stored in other media.
SAP's archiving concept is based on the Archive Development Kit (ADK). If you start the archive
management function via the application, the special features that are specific to the application
(archiving objects, programs) are already preconfigured..
The archiving program first generates an archive file. The files to be archived are then read in
background processing and written to the archive file.
Once the archive file has been closed, a program is started - automatically or manually - which reads the
archived data from the archive file and deletes it from the database. This procedure guarantees that only
the data that has been stored correctly in the archive file is deleted in the database.
Archive files, whose contents were removed from the database by the deletion program, can be stored
externally. There are several options available (depending on the hardware you have), for example
ArchiveLink. If the archive system of a third provider is connected via ArchiveLink, this system has to
automatically store the processed file at the conclusion of a successful deletion program. You can also
store this file manually at a later date.

Archiving of Money Market, Forex, and Derivative
Transactions
The transactions to be archived must fulfill the following

criteria before they may be archived:
They must have exceeded the minimum retention period as
set in Customizing:
Define the minimum retention period per company code
Define the minimum retention period per product type
The current transaction must already be settled (see
Customizing transaction type s) or the transaction must have
been reversed.
All posting-relevant flows must be posted.
The transaction must have attained the required
confirmation status.
 SAP AG 2001
You can enter the minimum retention period of financial transactions in Customizing using the following
Customizing activities:
Define the minimum retention period per company code
Define the minimum retention period per product type
Using selection criteria, you can restrict the number of financial transactions to be archived. Note that
financial transactions must have reached a certain status (for example, they have been settled or the
correspondence has been completed) before they can be archived. The archiving object TRTM_FTR is
set up so that you have to start the Deletion report manually. You can change this using transaction
AOBJ.
Transaction AOBJ allows you to make further technical settings for the archiving object TRTM_FTR,
such as the name and path of the archive file.
The financial transactions to be archived are stored in a physical file according to a platform-independent
file name and path name.
Note that the archiving function deletes archived financial transactions from the R/3 System. We
recommend, therefore, that you carry out a test run before performing the update run of an archiving
activity. This way you can identify possible errors. You can only reload financial transactions that have
been archived correctly.

Process-Oriented Checking for Archiving
Order (600)
Contract Expiration
Posting status Archive

Not posted
Confirmation status
Not confirmed
Archive
 SAP AG 2002
You can archive Transaction Manager financial transactions in the Money Market, Foreign Exchange,
and Derivatives areas. The functions available use the R/3 standard functions of the Archive
Development Kit (ADK). This ensures consistency of the data in the archive files as far as database
conversion is concerned. The ADK conveniently supports the connection of external archiving systems
via the Archive Link. The archiving of financial transactions includes the following functions:
Archiving financial transactions, including deleting
Reloading archived financial transactions
Managing archive files
The archiving of a financial transaction is subject to a range of technical and business checks. These
ensure the consistency of the data in the system.
You can now also archive orders that have not been executed (for example, after order expiration). This
function is useful if the due date of the order has been exceeded and the transaction is no longer relevant.
To prevent orders from being archived or deleted unintentionally, the system checks the minimum
retention period of the transaction.

Roll Over Contract: Fixed-Term Deposit
1100 Investment /
Transaction .. . Increase
created
1110 Decrease
Roll over Principal change Term
Flow type Start 08/10/YYYY
Am ount Rollover 10/10/YYYY
End ?
Interest structure
.. .
.. .
 SAP AG 2002
You can roll over existing transactions using the same transaction number, and also change some of the
conditions.
You can display the transaction activity in its present status or display its history with all the related
details.
Using the memo function, you can store additional information for each activity.
If you choose Extras --> Amount Overview, a list appears showing the transaction's capital and interest
flows that are due before or on the relevant key date. The flows are sorted by amount.

Money Market - Fast Processing
Deposits at notice invested . . .
Fixed-term deposit invested

Partner Curr. Total amount Int. rate End of term Int./Rollover Cap Partner
CoCd Transaction New New New New New PTyp Ttyp Name
Deuba UNI 1,000,000.-- 2,700 03/24/YY Payment Deutsche Bank

1000 1 51A 100 Fix.-term

1000 2 51A 100 Fix.-term

1000 3 51A 100 Fix.-term
 SAP AG 2002
Fast processing lists fixed-term deposits and deposits at notice. Here, you can change the amounts,
interest rates and the end of the terms.
This function enables the trader to easily process those financial transactions that are to be rolled over or
where notice is to be given.
This fast processing function is restricted to the necessary fields. This enables you to carry out the most
frequently recurring tasks quickly using just one screen template.
The fast processing of fixed-term deposits allows you to select and process fixed-term deposits and
deposits at notice from several company codes all in one step.

Roll Over Contract: Interest Payment
Example: Fixed-term deposit investment

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

3) Deferral
Interest from rollover
t1 t2 t3
 SAP AG 2001
Example of fixed-term deposit investment:
- Investment in t1
- Rollover in t2
- Repayment in t3

Reversing a Contract: Fixed-Term Deposit
Reversal
=
Resetting of the last activity change made to the transaction
Processing error
Reason for reversal Custom izing error
Capital transfer
Cond. adjustment
Other reasons
Customizing
 SAP AG 2002
A reversal means resetting the last change made to the transaction, that is, resetting the last transaction
activity recorded by the system. If there are postings linked to the reversed activity, these are cancelled
via reverse postings. 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
Case 1:
1: Posting has not yet been m ade
Possible reasons for reversal:
Business partner, currency, product type, transaction
type were incorrect
a) Status Create Contract

contract Reverse
Contract reversed
b) Status Create Contract Reverse 1 Reverse 2

Contract contract settlement
settlement
Time
 SAP AG 2001
If only conditions data or other data was 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, product type, transaction type
b) Condition data, nominal amount, payment details
Post offsetting flow

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

Data changes in
b) Create Settle Post entry screens
Reverse 1 Reverse 2
contract contract contract Settle contract
Post contract
Generate offsetting flow
Time
 SAP AG 2001

Rollover, Reversal
Prolongation
Rollover
Stornierung
Reversal
 SAP AG 2001

Accrual/Deferral Procedures and Methods
Accrual/deferral procedures
Difference procedures
Reset procedures
Accrual/deferral methods
Proportionate to period
Proportionate to period
with linear discounting
 SAP AG 2002
To determine the profit for the period, you must assign income and expenses to the period in which they
were generated/incurred, regardless of the date on which they are paid. This is done by allocating
expenses and incomes to the correct accounting period on a particular key date (for example, the end of
the fiscal year).
The Accrual/Deferral method describes how the amount to be accrued/deferred is calculated.
The Accrual/Deferral procedure, on the other hand, describes how the expense and revenue accounts
are updated:
The Difference procedure is used to transfer income and expenses arising since the last accrual/deferral
run from accrual/deferral accounts to the corresponding income statement accounts.
The Reset or Accumulation procedure is used to adjust the income statement accounts on the
accrual/deferral date by the accrual/deferral amounts that have been determined, and then to reset them.

Accrued/Deferred Interest: Customizing
When you define the flow type, you indicate whether a

flow is relevant to accrual/deferral.
The accrual/deferral procedure (reset or difference
procedure) and the flow types generated from this
procedure are specified for each flow in the
accrual/deferral definition.
Difference procedure: The accrual/deferral posting for interest is not
reset
Reset procedure: Interest is accrued/deferred and the accrual/
deferral is reset on the key date +1
You must define special accrual/deferral flow types

(accrual/deferral and resetting of same).
 SAP AG 2001
Accrual: future income/expense which is assigned to the accrual/deferral period on a pro rata basis. In
line with commercial law, these expenses/revenues cannot be reported as accruals (for example, other
rec. to revenue).
Deferral: received/billed income/expense that is assigned to the accrual/deferral period on a pro rata
basis. The amount is transferred from the expense/revenue account to the deferrals account (expenses to
deferred expenses and/or revenue to deferred revenue).

Interest Accrual/Deferral
Accrual / Deferral of Expense s and Revenues
Due date FType D P Flow type ...
Company code 1000 Transaction 9 Product type 51A
06/05/YYYY 1200 + Nominal interest 4,546.6 UNI
06/05/YYYY 2100 + Int. Accrued/deferred: Accrued. 139.03 UNI
 SAP AG 2001
When you execute the accrual/deferrals, the accrual/deferral amounts are determined for user-defined
transactions/positions and time periods. 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 - via an update run - or they can be processed using the posting function at a
later time.
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 are linked based on the sequence of
accrual/deferral key dates, when you reverse accruals/deferrals according to the difference procedure for
one key date, all subsequent accruals/deferral flows from the same transaction (where they exist) are also
reversed.

Interest Accruals/Deferrals
Accruals/Deferrals
Abgrenzung
 SAP AG 2001

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 2002
Transaction release includes the following:
Integration of the organization management in the SAP Business Workflow

(structure, task distribution by person responsible and job descriptions, dynamic real time task
distribution from the context of the workflow and the objects being processed)
Integration of the release management in 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 clerk is informed by the release area and the transaction can be
changed or reversed. Following any changes, the transaction must be released again.

Release Workflow - Customizing II
.... Release procedure Company code 1000 IDES AG

:....... Release conditions
Release procedure
PTy p TTy p Rel. proc.
51A 100
51B 100
60A 101
.... Release procedure

:........ Release conditions Product ty pe 51B Fixed-term deposit internal
Transaction ty pe 100 Inv estment
Release conditions
ACat Act. Rel. req. Rel steps Trans. process..
10 01 1 1
 SAP AG 2001
In Customizing, you can determine that the procedure selected is dependent on the company code, the
product type, or 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 release).
The transaction release determines the application's behavior for as long as the transaction is in the
release workflow (for example: processing the transaction during the release workflow is not permitted).

Release Workflow - Customizing II
Displa y standard role 20000034 (TRTMTR_ DEAL)
Creating responsibilities Example:

Name from to
Product type 51B
Transac tion type 100
No m. autho rization level 1
Release stages 2
Employee assignment Comp any cod e 100 0
Treasury workflow Stage 1 of 2
Activating e vent linkage
 SAP AG 2001
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 agent 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 agents for an approval
level, you have to create a responsibility in the standard role and assign it to a user/position.
(Change the responsibilities so that the "momentary approval level" 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.

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
once-off processing of the original transaction

(no double entry)
+
automatic execution of the corresponding processing step in the
mirrored transaction
 SAP AG 2001
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.
Other flows are not mirrored.
Mirror transactions cannot be created for existing transactions.
© SAP AG FSC112 4-100

Mirror Transactions: How They Function
Central view
FT dep. invest.
Central company code Partner A
Automatic creation of the

Corresponds to mirrored transaction Corresponds to
Central partner Company code A

FT dep. borrowing
View of subsidiary A
 SAP AG 2001
© SAP AG FSC112 4-101

Customizing Mirror Deal (I)
Example: A fixed-term deposit investment with

subsidiary Subsid_SG is to be mirrored from
system XY, company code TR00 to the same
system, company code TR01.
CoCd Prod. type Trans. type Activity Activity cat. Counterparty
TR00 51A 201 01 10 Subsid_SG
CoCd Prod. type Trans. type Metatext Direction Function:
TR00 51A 201 FGAUF. outgoing mirror

TR01 51A 101 FGAUF. incoming mirror
 SAP AG 2002
When you create the original transaction, a control table determines whether the transaction data has to
be transferred.
By maintaining the relevant product and transaction type, you define in which company code, for which
product/transaction type, and with which partner a mirror transaction is to be created.
The entries for the activity must always be '01', the entry for the activity category for foreign exchange
transactions must always be '20', and for Money Market transactions '10'.
The mapping table is maintained for the product/transaction types named above. The direction
"outgoing" must be assigned to the sending company code, and "incoming" to the receiving one.
© SAP AG FSC112 4-102

Customizing Mirror Deal (II)
Mapping flow types
Cash flow transaction
Processing the initial data
CoCd Part. TType Act. Act.Cat Cparty Act. Function:
TR01 51a 101 01 10 ZENTRAL_ 01 mirror

SG
Assignment: Company code - Partner
 SAP AG 2002
Maintenance of flow type mapping is only required for cash flow transactions. For other products, the
flow types are determined by the transaction type assignment.
From the point of view of the receiving company code, the inbound processing table is maintained with
the mirrored product/transaction types. The entries for the activities and the activity categories are
defined. Only the mirror is supported as a function. The partner is the business partner that is assigned to
the sending company code. This assignment is made in the last maintenance table.
After maintaining the Customizing tables, check that the BAdI
FTR_TR_MIRROR_DEALS is active.
© SAP AG FSC112 4-103

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

R/3. They hold data and are involved in
business processes by way of
their methods, the:
BAPIs
Business Application
Programming Interface
Application X
BAPI
BAPI
Fina ncial tra nsacti on
BAPI
BAPI
 SAP AG 2002
© SAP AG FSC112 4-104

BAPIs for Financial Transactions
BAPI
BAPI
Financial
transactions
Products:
BAPI
• Spot exchange and
forward transactions
• Fixed-term deposits and deposits at notice
• Commercial Paper
• Security order
Processes:
• Support for the principal steps in the processing
of financial transactions
• For example, creating, changing, displaying and reversing
 SAP AG 2002
Take note of the release information.
© SAP AG FSC112 4-105

Information System (Topic 7)
1 Structure of Information System
2 Journal: Mone y Market
3 Journal: Mone y Market, Forex, Derivatives,

Securities
4 Payment Schedule
5 Position List
6 Interest Rate Adjustment Schedule
7 Facilities: Reporting
8 Alert Monitor
 SAP AG 2002
© SAP AG FSC112 4-106

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

3 Transaction Manager
Area-specific journal
3 Mone y Market
3 Information System
3 Transaction
3 Info System 3 Transaction Overview
3 Journal: Money Market
3 Reports
3 Strategic Cross-area journal
3 Operative
3 Transaction
3 Transaction Overview
3 Journal: Money Market, Forex, Derivatives, Securities
 SAP AG 2002
For an overview of all CFM reports, see Reports.
You can find the cross-CFM reports under the menu option Strategic View. 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
Operative View.
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).
© SAP AG FSC112 4-107

Money Market: Journal
Overview list of mone y market transactions

Information on
Company code 1000 IDES AG Entered/cha nge d on 09/06/YYYY

Product type 51A Fixed-term deposit EXTERNAL T ransaction type 100 Investment
Transaction Counterparty Portfolio Finance project T rader Out. Conf. Inc. Conf. Cont. date Entd/chd.date
Activity cat. Status Curr. Amount Start term Rollover start End term Int. rate Valid from Entd/chd
1 1000 Deutsche Bank 1 reqd 1 reqd 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/cha nge d on 09/06/YYYY

Product type 52A Call money EXTERNAL T ransaction type 100 Investment
Transaction Counterparty Portfolio Finance project T rader Out. Conf. Inc. Conf. Cont. date Entd/chd.date
Activity cat. Status Curr. Amount Start term Rollover start Int. rate Valid from Entd/chd
3 1000 Deutsche Bank 1 reqd 1 reqd 09/06/YYYY 09/06/YYYY
Contract Active UNI 100,000.00 09/06/YYYY 2.6 09/06/YYYY BAUERT
 SAP AG 2002
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 criterion, you can define
selection options (single value or interval, inclusive/exclusive).
In this way, you can use the journal to select transactions that were concluded by certain traders, for
example, 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.
© SAP AG FSC112 4-108

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

Forex, Derivatives, Securities
company code
payment date, payment amount, payme nt cur renc y
transaction, name
product t ype, transaction type
posting status, posting approval
house bank ke y, house bank account
bank ke y of business partner bank, part ner’s bank accoun t
...
 SAP AG 2002
You can use the payment schedule to call up incoming and outgoing payments within a user-defined
time period.
The functions of the payment schedule have been significantly enhanced. 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 FSC112 4-109

Money Market - Position List
CoCd Trans. Ptyp TCat Part Tcat Partner Tcurr. Betrag Int. RTerm strt Term end
1000 1 510 100 51A 100 Deuba UNI 100,000.00 2.5 09.06.YYYY 11.06.YYYY
1000 3 520 100 52A 100 Deuba UNI 100,000.00 2.5 09.06.YYYY 11.06.YYYY
1000 4 510 100 51A 100 Deuba UNI 100,000.00 2,7 09.07.YYYY 11.07.YYYY
Link to the SAP List Viewer
 SAP AG 2001
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 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 FSC112 4-110

Facilities: Reporting
Current Utilization Profile of a Facility
Integration of Facilities into Money Market Collective

Proce ssing
Overview of Facility Utilization for Key Dates
Overview of Facility Charges
 SAP AG 2001
© SAP AG FSC112 4-111

Alert Monitor
The alert monitor collects error message s from

the various CFM areas to be assigned to
proce ssing.
Content areas:
Settlement
Release
Payment + Posting
Corre spondence
Interest Rate
Adjustment
 SAP AG 2002
© SAP AG FSC112 4-112

Money Market: Unit Summary
SAP Money Market incorporates the following

financial instruments: Fixed-term deposits, deposits at
notice, Commercial Paper, interest rate instruments,
cash flow transactions, and facilities.
The transaction and position management process in
the Transaction Manager is divided into trading, back
office and accounting functions.
Transaction proce ssing depends on the proce ss chain
that has been defined for a product type/transaction
type (e.g. fixed-term deposit/investment).
Accounting i s integrated into FI Accounting via the
account a ssignment reference and account
determination.
 SAP AG 2001
© SAP AG FSC112 4-113

© SAP AG FSC112 4-114
Money Market Exercises
Unit: Money Market

Topic: Trading - Fixed-Term Deposit Investment 1

• Set up a forward exchange product in the Transaction Manager.
You take advantage of the favorable conditions at your house bank to

invest in a fixed-term deposit.
1-1 Create an external fixed-term deposit as a contract in your company code.
Choose the Deutsche Bank (DEUBA) as your business partner.

This is your house bank, that is, you have at least one current account here.
Choose the following transaction data:
Amount: 50 million UNI,

Interest rate: 2.6 %,
Term: 3 months calculated from today
Interest calculation method: act/360
(Interest) frequency: "At end of term"
Then check
- the conditions,
- the cash flow,
- the payment details.
Save the financial transaction and note the transaction number for later settlement
activities and postings.
Transaction number:_______________________
1-2 Check your entries in the cash position (Grouping: "BANKS").
© SAP AG FSC112 4-115

© SAP AG FSC112 4-116
Exercises
Unit: Money Market


• Create a fixed-term deposit using fast entry.
Use the favorable conditions to invest in another fixed-term deposit.
2-1 Create another fixed-term deposit in your company code as a contract.
Use the fast entry and the input help relating to the amount field and the term.

Interest rate: 3%
End of term: 12/25/YY
(Interest) frequency: Monthly
Check the financial transaction and date the end of term as the following workday.
2-2 Check your entries in the cash position (Grouping: "BANKS").
© SAP AG FSC112 4-117

© SAP AG FSC112 4-118
Exercises
Unit: Money Market

Topic: Trading - Interest Rate Instrument

• Create an interest rate instrument with variable interest formula
• Carry out an interest rate adjustment and.
• Create an interest rate instrument with fixed interest formula and
repayment in installments.
You wish to create both an interest rate instrument with variable interest
formula and an interest rate instrument with fixed interest formula.
3-1 Create an interest rate instrument (investment) with variable interest formula as a
contract in your company code.

This is your house bank, that is, you have at least one current account here.

Term: 1 year calculated from today
Reference interest rate: Lib_1_UNI
© SAP AG FSC112 4-119

With variable interest, the interest rate for the first period is already
known in many cases. Then a fixing or an interest rate adjustment is
made for the following periods. You can enter the known interest
rate in Field 1. Interest rate.
1. Interest rate: 4%
(Interest) frequency: Monthly frequency
Every: 1 Month
Repayment form: Final repayment
Then check
- the conditions,
- the cash flow,
Save the financial transaction and note the transaction number for later settlement activities
and postings.
3-2 Carry out a manual interest rate adjustment for the 2nd interest rate fixing date.
Because of the selected processing category, you do not have to carry out a settlement.
Look at the created interest rate instrument and check the cash flow and interest rate
adjustment tab pages.
© SAP AG FSC112 4-120

3-3 Create another interest rate instrument (investment) with fixed interest formula
and repayment in installments as a contract in your company code.

Term: 1 year calculated from today
Percentage rate: 4%
Interest calculation method: 360/360
(Interest) frequency: Monthly frequency
Every: 1 month
Repayment form: Repayment in installments
Repayment amount: 1 million UNI,
Frequency: Monthly frequency
Every: 1 month
Then check
- the condition details,
- the cash flow,
© SAP AG FSC112 4-121

© SAP AG FSC112 4-122
Exercises
Unit: Money Market

Topic: Back Office - Settlement and Correspondence

• Perform a confirmation (OPTIONAL)
• Settle the transaction.
After you create the fixed-term deposit, the back office processing takes
place:
Confirmation letters are written here and the settlement is carried out, that
is, the transaction is checked.
4-1 OPT Using the correspondence function (confirmation letter), confirm the fixed-
term deposit that has not yet been settled from the exercise above "Trading - Fixed-
term deposit investment 1".
4-2 OPT Compare the printed confirmation letter with your transaction in the system,
and then check the correspondence status in the transaction under Status.
4-3 OPT Assume that the counterconfirmation has been received. Save this in the
system and check the correspondence status again.
By choosing Goto in the financial transaction, you access information on the

confirmation and counterconfirmation letters.
4-4 Settle the transaction from the exercise above "Trading - Fixed-term deposit
investment 1".
Note the change in the activity category.
Check the payment details in particular, and, under "Administration", the account
assignment reference with the balance sheet account details.
© SAP AG FSC112 4-123

© SAP AG FSC112 4-124
Exercises
Unit: Money Market

Unit: Back Office – Netting (OPTIONAL)

• net transaction payment flows with each other in order to settle them
in one payment run.
You invest in an overnight deposit. The next day you create another
fixed-term deposit. The business partner is a bank that is not your house
bank - this means that you have to make an active payment.
To save transaction costs, you wish to net tomorrow's money inflow
(repayment) with the money outflow for the second transaction.
5-1 OPT Create an external fixed-term deposit in your company code. The start of term
is today and the end of term is tomorrow. (FIXED-TERM DEPOSIT 51A -
INVESTMENT 100).
Choose Citibank as your business partner (CITI).

This is your business partner but not your house bank, that is, you do not have a current
account there. You must therefore instruct one of your house banks to pay Citibank.
You can choose the transaction conditions as you wish. Check the
account assignment reference.
Then settle the transaction. Note the payment details that are proposed based on the
standing instructions for CITI.
© SAP AG FSC112 4-125

5-2 OPT...Create another external fixed-term deposit in your company code. The start of
term is tomorrow (FIXED-TERM DEPOSIT 51A - INVESTMENT 100).
Choose Citibank (CITI) as your business partner here also.
You can choose the transaction conditions as you wish. Check the
account assignment reference.
Settle the transaction.
5-3 OPT Now display the proposal list for netting transactions. Assign the possible
transactions (due date tomorrow) to one another. The prerequisites for such netting
transactions include:
- the same business partner

- the same value date
- the same currency
Check and save the new netting transaction.
Then display the netting transaction and look at the net amount determined by the
system.
In the subsequent payment run, this amount is settled in one record.
The transactions involved are blocked against changes to relevant fields.
© SAP AG FSC112 4-126

Exercises
Unit: Money Market

Topic: Accounting

• process the fixed-term deposit in accounting.
In Treasury Accounting, you have to take certain steps to transfer the

transaction flows to FI (Financial Accounting).
6-1 Post the transaction from the exercise above called "Trading - Fixed-Term Deposit
Investment 1".
Your first posting relates only to the creation of the fixed-term deposit.
In the second step - at the end of the term - you post the interest payment and principal
repayment amounts.
Carry out a test run prior to the update run.
Prior to posting, the transaction must be settled and monitored in the back office.
6-2 In the posting run, double-click directly on the FI document generated.
6-3 Do you see a change in Cash Management after posting?
© SAP AG FSC112 4-127

© SAP AG FSC112 4-128
Exercises
Unit: Money Market

Topic: Rollover, Reversal

• roll over a money market transaction
• carry out a reversal.
Due to rising interest rates, you decide to extend the transaction for
another three months. At the same time, the interest rate increases by
0.5 %. Consequently, you have to carry out a reversal.
7-1 Settle the transaction from the exercise above called "Trading - Fixed-Term Deposit
Investment 2", and post the flows resulting from the principal increase.
7-2 In December, you decide to extend the transaction for an additional three months due
to rising interest rates. At the same time, the interest rate increases by 0.5 %.
Roll over your transaction. Use Time Deposit - Fast Processing
7-3 Take a look at the transaction history.
If it had been necessary to change the interest payment method for the above
transaction - how would you do this in the system?
7-4 Reverse the rollover.

Now take a look at the revised transaction history.
© SAP AG FSC112 4-129

© SAP AG FSC112 4-130
Exercises
Unit: Money Market

Topic: Interest Accrual/Deferral

• carry out an interest accrual/deferral on a key date.
You have to accrue/defer your interest at the end of the quarter/year.

Use the accrual/deferral run, after you have made the appropriate settings
in Customizing regarding the procedure and the flow types.
8-1 Create a new fixed-term deposit with a term that extends beyond the end of the next
quarter/year.
Settle this fixed-term deposit transaction. Then post only the principal increase and not
the interest that is due at the end of the period.
8-2 Carry out an interest accrual/deferral at the end of the next quarter or 12/31/YY.
Carry out the postings immediately.
8-3 Take a look at the cash flow in the transaction. Note that you can select the
classification (structure characteristics, accrual/deferral, valuation, transfer posting) by
choosing Set filter.
© SAP AG FSC112 4-131

© SAP AG FSC112 4-132
Money Market Solutions
Unit: Money Market

1-1 Solution to the step: Fixed-term deposit investment 1

⇒ Accounting
⇒ Money Market
⇒ Trading
⇒ Fixed-Term Deposit
⇒ Create
Entry: Data... a) Create fixed-term deposit: Initial screen

b) Create fixed-term deposit: Structure
Button: Conditions
Tab strip: Cash flow
Tab strip: Payment details
⇒ Save (F11)
© SAP AG FSC112 4-133

1-2 Solution to the step: Checking the Cash Position
⇒ Accounting
⇒ Treasury
⇒ Cash Management
⇒ Information System
⇒ Reports for Cash Management
⇒ Liquidity Analyses
⇒ Cash Position

Company Code TRXX
Cash Position Set the flag
Grouping BANKEN
Display as of Today's date
Display in UNI
Delta display with balances Select
(Use button: All selections)
⇒ Execute
You can see your transaction:
DEUTSCHE
– Levels: Fixed-term deposit level TB

– Accounts: DBGIRO
– Transaction
© SAP AG FSC112 4-134

Unit: Money Market

2-1 Solution to the step: Fixed-term deposit investment 2

⇒ Accounting
⇒ Money Market
⇒ Trading
⇒ Fast Data Entry
Entry: Data... a) Fixed-term deposit: Fast entry

Button: Details (go to detail screen)
⇒ Save
© SAP AG FSC112 4-135

2-2 Solution to the step: Checking the Cash Position
⇒ Accounting
⇒ Treasury
⇒ Cash Management
⇒ Cash Position

Company Code TRXX
Grouping BANKEN
Display as of Today's date
Display in UNI
⇒ Execute
You can see your transaction:
DEUTSCHE
– Levels: Fixed-term deposit level TB

– Accounts: DBGIRO
– Transaction
© SAP AG FSC112 4-136

Unit: Money Market

Topic: Interest Rate Instrument
3-1 Solution to the step: Create an interest rate instrument with variable interest formula.
⇒ Accounting
⇒ Money Market
⇒ Trading
⇒ Interest Rate Instrument
⇒ Create
Entry: Data... a) Create interest rate instrument: Initial screen

b) Create interest rate instrument: Structure
Use the details given in the exercises.
Button: Conditions
⇒ Save (F11)
© SAP AG FSC112 4-137

3-2 Solution to the step: Carrying out an interest rate adjustment.
⇒ Accounting
⇒ Money Market
⇒ Back Office
⇒ Variable Interest Calculation
⇒ Interest Rate Adjustment
⇒ Create
Enter any interest rate for the interest rate adjustment.
Solution to the step: Display interest rate instrument

⇒ Accounting
⇒ Money Market
⇒ Trading
⇒ Display
In Customizing you determine the planned record update

strategy. This determines with which values any interest rate
flows that are not yet fixed are to be displayed, for example, in
the cash flow.
Tab strip: Interest rate adjustment
© SAP AG FSC112 4-138

3-3 Solution to the step: Create an interest rate instrument with fixed interest formula and
repayment in installments.
⇒ Accounting
⇒ Money Market
⇒ Trading
⇒ Create
Entry: Data... a) Create interest rate instrument: Initial screen

b) Create interest rate instrument: Structure
Use the details given in the exercises.
Button: Detail view - Interest rate conditions, Detail view - Repayment conditions
⇒ Save (F11)
© SAP AG FSC112 4-139

© SAP AG FSC112 4-140
Unit: Money Market

Topic: Back Office - Settlement and Correspondence
4-1 Solution to the step: Create outgoing correspondence

⇒ Accounting
⇒ Money Market
⇒ Back Office
⇒ Correspondence
⇒ Outgoing Correspondence

Company Code TRXX
Transaction Your transaction number
Correspondence Type 001
⇒ Select Printer and Print preview

⇒ Execute
⇒ Print
© SAP AG FSC112 4-141

4-2 Solution to the step: Comparing the confirmation letter and checking the
correspondence status.
⇒ Accounting
⇒ Money Market
⇒ Trading (or Back Office)
⇒ Display
Tab strip: Status

Correspondence: “Confirmation carried out”
© SAP AG FSC112 4-142

4-3 Solution to the step: Saving the counterconfirmation and checking the correspondence
status.
⇒ Accounting
⇒ Money Market
⇒ Back Office
⇒ Correspondence
⇒ Incoming Confirmations (Manual)
Enter: Exact data that you can find in the counterconfirmation letter from your
business partner.
(Enter: The assigned transaction is displayed and the confirmation status in the
transaction is matched under Status.)
⇒ Save
Information in the financial transaction:

- Goto – Correspondence Correspondence - Overview
- Status – Correspondence – Counterconfirmation matched
If you are using optical archiving, the system usually displays the
correspondence letters from here. If not, the letter comes from
the spool request as long as this has not been deleted.
© SAP AG FSC112 4-143

4-4 Solution to the step: Settling the transaction.
⇒ Accounting
⇒ Money Market
⇒ Back Office
⇒ Settle
You can see the change in the activity type in the upper right hand
part of the screen.

Tab strip: Administration
(Account assignment reference DB000001 and G/L account 113113)
⇒ Save.
If appropriate: Additional check of the G/L account:
⇒ Accounting
⇒ Financial Accounting
⇒ General Ledger
⇒ Master Records
⇒ Individual Processing
© SAP AG FSC112 4-144

Unit: Money Market

Unit: Back Office – Netting (OPTIONAL)
5-1 Solution to the step: Fixed-term deposit investment CITI I

⇒ Accounting
⇒ Money Market
⇒ Trading
⇒ Create

Note that, due to the current standing instructions in the system,

netting transactions are only possible with CITI.
© SAP AG FSC112 4-145

Tab strip: Administration - Allocate account assignment reference!
⇒ Save
Solution to the step: Settling the fixed-term deposit investment CITI I

⇒ Accounting
⇒ Money Market
⇒ Back Office
⇒ Settle
⇒ Save
© SAP AG FSC112 4-146

5-2 Solution to the step: Fixed-term deposit investment CITI II
⇒ Accounting
⇒ Money Market
⇒ Trading
⇒ Create

Tab strip: Administration - Allocate account assignment reference!

⇒ Save
Solution to the step: Settling the fixed-term deposit investment CITI II.
⇒ Accounting
⇒ Money Market
⇒ Back Office
⇒ Settle
⇒ Save
© SAP AG FSC112 4-147

5-3 Solution to the step: Displaying the proposal list for netting transactions, and assigning
the transactions.
The prerequisites for netting transactions include:

- the same business partner
- the same value date
- the same currency
⇒ Accounting
⇒ Money Market
⇒ Back Office
⇒ Netting
⇒ Proposal List
⇒ Execute
Select transactions having tomorrow as due date.

Button: Check
⇒ Save
© SAP AG FSC112 4-148

Solution to the step: Display netting transaction
⇒ Accounting
⇒ Money Market
⇒ Back Office
⇒ Netting
⇒ Display

Netting 1
Your company code TRXX
One of your transactions
Note the net amount determined by the system.

In the subsequent payment run, this amount is settled in one record.
The transactions involved are blocked against changing the relevant

fields.
© SAP AG FSC112 4-149

© SAP AG FSC112 4-150
Unit: Money Market

Topic: Accounting
6-1 Solution to the step: Posting the fixed-term deposit investment 1.

⇒ Accounting
⇒ Money Market
⇒ Accounting
⇒ Posting
⇒ Execute

Your company code TRXX
Transaction Transaction number
Up to and including due date. Day of creation of fixed-term
deposit
⇒ Execute (test run/update run)
6-2 Solution to the step: Displaying the FI document.
After the update run: In the posting log, double-click to view the FI document.
© SAP AG FSC112 4-151

6-3 Solution to the step: Change in Cash Management as a result of the posting.
YES:
⇒ Accounting
⇒ Treasury
⇒ Cash Management
⇒ Cash Position

Company Code TRXX
Grouping BANKEN
Display as of Day of creation of transaction
Display in UNI
⇒ Execute.
(GERMAN - Level change: B5 Level)
© SAP AG FSC112 4-152

Unit: Money Market

Topic: Rollover, Reversal
7-1 Solution to the step: Settling the fixed-term deposit investment 2

⇒ Accounting
⇒ Money Market
⇒ Back Office
⇒ Settle
⇒ Check the Data
⇒ Save
Solution to the step: Posting the principal increase for fixed-term deposit investment 2.
⇒ Accounting
⇒ Money Market
⇒ Accounting
⇒ Posting
⇒ Execute
Entry: Data ...

⇒ Execute (test run/update run)
© SAP AG FSC112 4-153

7-2 Solution to the step: Rollover using fast processing.
⇒ Accounting
⇒ Money Market
⇒ Trading
⇒ Collective Processing
⇒ Time Deposit - Fast Processing
Entry: Data ...

⇒ Execute.
Entry: Rollover data ...
(using fast processing: Total amount, if amount changes)
⇒ Save
Alternative:
⇒ Money Market
⇒ Trading
⇒ Roll Over
Entry: Rollover data ...

(Change amount, if the amount alters)
© SAP AG FSC112 4-154

7-3 Solution to the step: Looking at the transaction history.
⇒ Accounting
⇒ Money Market
⇒ Trading or Back Office
⇒ History
Alternative: Using collective processing:

⇒ Money Market
⇒ Money Market
⇒ Execute
⇒ Select the transaction from the display
Button: History
Solution to the step: Changing the interest payment method.

Simply enter in rollover or fast processing.
© SAP AG FSC112 4-155

7-4 Solution to the step: Reversing the rollover.
⇒ Accounting
⇒ Money Market
⇒ Reverse
Enter a reason for the reversal.

⇒ Save.
Solution to the step: Looking at the new transaction history.

⇒ ... ⇒ Fixed-Term Deposit
⇒ History
© SAP AG FSC112 4-156

Unit: Money Market

Topic: Interest Accrual/Deferral
8-1 Solution to the step: Fixed-term deposit, settling and posting the principal increase.
-see previous exercises-
8-2 Solution to the step: Carrying out an interest accrual/deferral.

⇒ Accounting
⇒ Money Market
⇒ Accounting
⇒ Accrual/Deferral
⇒ Execute

Company Code TRXX
Key date For example, 12/31/YY
(inclusive)
Test run Do not select
Perform posting immediately Select
⇒ Execute.
You can carry out a test run if you wish.
© SAP AG FSC112 4-157

8-3 Solution to the step: Looking at the cash flow.
⇒ Accounting
⇒ Money Market
⇒ Display
The accrual/deferral flows are already posted!
Note that you can select the classification (structure characteristics,

accrual/deferral, valuation, transfer posting) by choosing Set filter.
© SAP AG FSC112 4-158

Foreign Exchange
Contents:
z Topic 1 Introduction to Foreign Exchange trading
z Topic 2 Trading functions
z Topic 3 Back office functions
z Topic 4 Accounting functions
z Topic 5 Valuation functions - operative valuation area
z Topic 6 Other functions
z Topic 7 Information system
 SAP AG 2002

Foreign Exchange: Unit Objectives
z Minimize currency risks using the example of forward

exchange transactions
z Proce ss spot/forward transactions and currency
swaps
z Use the tool s to monitor and speed up back-office
proce ssing
z Explain the operative valuation area.
 SAP AG 2001


Basic Principles
Money Market
Foreign Exchange
Derivatives
FAS 133
 SAP AG 2002

Foreign Exchange: Business Scenario
z Having learned how financial transactions are

proce ssed in the Money Market area in CFM, you now
wish to look at how you can hedge exchange rates
using foreign exchange transactions.
z What do you have to enter in Trading in order to
create a foreign exchange transaction?
z How can you ensure integration of the transactions to
Financial Accounting?
z What valuations can you carry out?
 SAP AG 2001

Introduction to Foreign Exchange Trading (Topic 1)
1 Foreign exchange product type s
Transaction and posi tion management

2
proce ss
 SAP AG 2001

Product Types in Foreign Exchange
Product Types
instruments Hedging tools

Forex spot
transactions
Forward
exchange
transactions
Forex swaps
 SAP AG 2001
Forex trading incorporates the following product types:

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

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 Exchange 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 2001
With spot transactions, internationally traded currencies are bought or sold on the value date against
other currencies.
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 given. 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.

Transaction and Position Management Process
Example: Foreign Exchange Transaction
Release
Create offer/order/contract Settlement/checking Postings

Exercise/expiration Netting Payment
Rollovers Confirm ation letters transactions
Reversals Reversals Reversals
Transaction history Transaction history Accrual/deferral
Valuation
User Authorization
 SAP AG 2002
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 Further Customizing Settings
Spot exchange/Forward exchange

2
transaction
3 Forex swap
4 Forex fixing transaction
Rollover/premature back-office
4 proce ssing
 SAP AG 2001

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 Purchase Forex -
Principal Increase)
z Assign Flow Types

z Update Types
z Assign Foreign Exchange Attributes
 SAP AG 2002
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)

Customizing - Foreign Exchange Master Data 1
Product
Product category
category Transaction category Activity category Processing cat.
600 Forex 100 Spot transaction Contract 1 Order- contract -
100 Forward Settlement settlement
transaction : 2 Contract
: 3 Contract -
settlement
:
SYSTEM LEVEL
Product type Transaction type
- Forex - external - Spot transaction
: - Forward transaction
:
USER LEVEL
 SAP AG 2002

Customizing - Foreign Exchange Master Data 2
Product category Transaction Flow category Calculation cat.

600 Forex
category 10 Principal increase AA - Inflow
100 Spot transaction
100 Forward 90 Other flow
transaction
:
SYSTEM LEVEL
Product type Transaction type Flow type

- Forex - external - Spot transaction 1000 -Purchase forex
: - Forward transaction 2000 -Sale forex
:
USER LEVEL
 SAP AG 2002
In contrast to the money market, condition types are not necessary in foreign exchange trading.

Create Order/Contract: Forward Exchange
Transaction
...
y Company code Purchase Sales
1000
IDE S AG Currency USD Currency UNI
yProduct typ e Am ount 1,000,000.00 Sale amount

60A
Fore x
E XTERNAL
Rate/Value date
yTrans. type
102 Rate Invers
For ward
exchange
Spot 2.07
transaction
Current rate !!
Sw ap 0.00975-
yPartner
Liquidity
Deuba
... Value date ++3
Cash settlement
Contract data
Contract data 09/29/YYYY Trader
Contract person Extern. ref.
 SAP AG 2002
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.
Admin:
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 Payt crcy Betrag -
Flow is not relevant for posting
* Not yet defined
 SAP AG 2001
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.
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
L-Währ.
Dom. F-Währ.
curr. For. curr. Spot-Valutatage
Spot value dates
Number of working days between
EUR
EUR USD
USD conclusion of contract and spot value
USD
USD CHF
CHF date
USD
USD FRF
FRF
Benutzername M
User name
T GTP KEP Händler D
M D WDC REC Trader
at.str.
Date string
Date string from
spot value date
 SAP AG 2002
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 "Dat. 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.

Foreign Exchange - Exercise
Foreign Exchange Transaction
Foreign Exchange
Transaction
 SAP AG 2001

Create Order/Contract: Forex Swap Transaction
...
1st transaction 2nd transaction
Product type 60A Forex: EXTERNAL 60A Forex: EXTERNAL
Trans. type 101 Spot transaction 102 Forward transaction
Transaction
Currency pair In.
Buy USD 1,000,000.00
Sell UNI
Rate
Spot 1.88
Swap 0.01287-
Liquidity
Value date +2 ++4
Ext.refer.
Finance proj.
...
 SAP AG 2001
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).

Create Order/Contract: Forex Fixing Transaction
...
y Company code Purchase Sales
1000
IDE S AG Currency USD Currency UNI
yProduct typ e Am ount 1,000,000.00 Sale amount

60A
Fore x
E XTERNAL
Rate/Value date
yTrans. type
106 Rate 0.000000000 Invers
Fi xing
Spot 0.000000000
transaction
Current rate !!
yPartner Sw ap
Deuba
Liquidity
...
Value date 10/27/YYYY
Fixing date 10/25/YYYY
Contract data ...
Contract date 10/15/YYYY Trader
Contact person. Extern. ref.

 SAP AG 2001
On the entry screen you enter the transaction data for contract conclusion, currencies, payment amounts,
value date, etc.- but not the rate.
You fix rates later in back-office processing. You can do this manually or automatically.

Rate Fixing: Manual or Automatic
Autom atic Processing of Forex Fixing Transactions
Autom atic Processing of Forex Fixing Transactions
The following transactions were processed successfully:
CoCd Transaction Currency
1000 12 USD UNI
 SAP AG 2001
You can fix rates in back office processing. You can do this manually or automatically. If you want to
fix rates automatically, the currency table TCURR must already be filled.
You access the individual fixing transactions via double-click.

Foreign Exchange in Cash Management
Assign planning levels Cash Management: Display Levels
1000 IDES AG Banks

Lev Description 10/02
10/02 10/03
10/03 10/03
10/04 10/05
10/05 later
later
60A Forex-EXTERN AL
TB Time depo sits xxx,xxx xxx,xxx xxx,xxx xxx,xxx xxx,xxx
.. .. .. .. .. .. . .. ... ... ... ...
DB Forex banks
20 Contract
OB
OB Forex
Forex options
options xxx.xxx xxx.xxx xxx.xxx xxx.xxx xxx.xxx
.. .. .. .. .. .. . .. . .. . .. . .. . ..
DB
DB Forex
Forex 123,456 xxx.xxx xxx.xxx xxx.xxx xxx.xxx
Balance xxx.xxx xxx.xxx xxx.xxx xxx.xxx xxx.xxx
E.g.
E.g. Forward
Forward exchange
exchange
transaction
transaction
Display accounts
DBGiro
DBGiro -- 1.48
1.48 m
m UNI
UNI
Outflow
Outflow in
in local
local currency
currency
DBUS$
DBUS$ +1.00m
+1.00m USD
USD
Inflow
Inflow in
in foreign
foreign currency
currency
 SAP AG 2001
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.
In Customizing, for each product type and activity category, you must maintain the planning levels for
G/L and/or subledger accounts where the information is to be displayed.
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.

Rollover/Premature Back-Office Processing
Rollover/Premature Back-Office Processing

-Forward exchange transaction-
Finance System generates 2 new transactions Finance

project project
New forward transaction Netting transaction
Sw ap unit
Adjusting the term Offsetting
 SAP AG 2001
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 to 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.

Back-Office Functions (Topic 3)
1 Settling Contracts: Checking/Adding Missing Data
2 Collective Processing
3 Reversal
4 Transaction Hi story, Corre spondence
5 Referencing
6 Rate Fixing ...
 SAP AG 2001

Accounting Functions (Topic 4)
1 Posting
 SAP AG 2001

Posting a Transaction
Application
Forex
Money market POSTING LOG
Derivatives
Securities
General selections
Company code
Transaction
Product type
Transaction type
Portfolio ...
Currency
Flow classification
Up to and including due date
Only post flow according to currency
Posting control
Posting date
Document date
Test run
 SAP AG 2002
Through posting, the settled financial transactions are transferred to Financial Accounting. You can only
post transactions that have achieved contract or settlement status (depending on the back office
processing category) at 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 posting is carried out, the flows and
corresponding documents are transferred to Financial Accounting.
Posting to Financial Accounting occurs 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 the indicator "Only post flow according to currency" is checked, only the flows of the specified
transactions in the selected currencies are processed.
Example: In a foreign exchange transaction between currency A and currency B, with selection by
currency A, the system behaves as follows:
- If this indicator is not checked, the flows in currency A and currency B are posted.
- If this indicator is checked, only the flows in currency A are posted.
The system issues a posting log and from there you can go directly to the FI documents. From the
posting log, you can access the posted FI documents directly.

Back Office Processing and Accounting
Back Office and Accounting
 SAP AG 2001

Valuation Functions (Topic 5)
1 Introduction to Valuation
2 Operative Valuation Area
 SAP AG 2001

Introduction to Valuation

Transaction Manager
General Settings
Accounting
Operative Valuation Area
Define one-step valuation principles
 SAP AG 2001

Operative Valuation Area
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.
z Realized profit/loss: With positions that are closed, the
realized gain/loss is determined using the principle of single
valuation of transactions. This is calculated by taking the
differenc e between the forward rate based on the conclusion
of the cont ract and the posted rate on the value date.
 SAP AG 2001
You can carry out a valuation run for specific transactions that you select. You determine realized
gains/losses via the single valuation principle. There are two alternative procedures to choose from: On
the one hand, you can calculate the valuation rate by taking the difference between the forward rate
based on the conclusion of the contract and the posted rate at the value date. On the other hand, you can
generate split valuations for spots and swaps by using certain settings to separate the amounts resulting
from the spot and/or swaps. In this way, realized gains/losses are calculated by taking the difference
between the spot rate on the day of conclusion of the contract and the spot rate on the valuation key date.
Swap incomes and expenditures are generated from the discounted swap component up to the the key
date. Besides this, a valuation of the other components is carried out for the discounted swap component
from the key date up to the term end, and unrealized gains/losses are generated.
For a foreign exchange swap, you carry out the foreign currency valuations on the basis of the single
transactions generated. With a forward exchange transaction, you can also carry out a split valuation here
for the spot and swap, provided that the necessary settings have been made.

Valuation Rules I
Establish valuation rules

Dependent on company code/product type/transaction type
A. Define single-level valuation principles and classe s/

for key date valuation - "Unrealized Gains and Losse s"
Unrealized losse s (write-downs):

- No valuation loss
or - valuation loss until key date value
Unrealized gains (write-ups):

- No valuation gain
or - valuation gain to purchase value
or - valuation gain to key date value
 SAP AG 2002

Valuation Rules II
=> Define flow types for valuation and assign

to product/transaction type combination
B. Foreign currency rate determination

for key date valuation - "Unrealized Gains and Losse s"
and realized gains and losse s
1 = Compare trans action forward rate with current spot rate

2 = Key date valuation:
- Compare transaction forward rate with mark et forward rate
(incl. spot rate)
Realized gains:
- Compare transaction forward rate with current spot rate
3 = Compare trans action forward rate with current spot rate
 SAP AG 2001

Valuation Rules III
B. Foreign currency rate determination (continuation)
4 = Split valuation spot/swap:

Transaction forward rate USD/UNI
Contract date: 02/01/YY, value date: 03/31/YY
Forw ard rate: 1.49 Spot rate: 1.40 Swap rate: 0.09
02/01 arising up to now 02/28 remaining 03/31

| |
Contract date 1. Real. gains/losses
1. Compare transaction forward rate
w ith current spot rate 2. Accrual/deferral
2. Accrual/deferral swap rate: past past swap rate
= Transaction spot rate x (past period 3. Posting to a prior
/w hole period) period
3. Accrual/deferral swap rate: remaining past swap rate
= Transaction swap rate x (remaining period
/ w hole period) - Market swap rate
5 = Like 4 but swap accrual without swap valution
6 = Current forward rate/transaction forward rate discounted
 SAP AG 2001
Cross valuation:
If this flag is checked for a foreign exchange transaction type, then a separate valuation flow is generated
for each foreign currency flow whenever cross-currency foreign exchange transactions are valued. This
enables you to assign currency gains more accurately.

Foreign Currency Valuation (FCR Determination: 2)
Example: Forward Exchange Transaction

Forex transaction: USD/ UNI
Contract date: 03/01/ YY
Value date: 05/31/ YY
USD purcha se amount: 1,000,000 USD (Forward rate)

UNI sale amount: 1,700,000 UNI
Spot rate: 1.65

Forward rate: 1.70
Valuations on 03/31/ YY and 04/30/ YY

Closing valuation on 05/31/ YY
Local currency = UNI

 SAP AG 2001
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.

Foreign Currency Valuation
Example: Forward Exchange Transaction

1. Valuation: 03/31/ YY
2. Valuation: 04/30/ YY
End valuation: 05/31/ YY
Forward rate: 1.70 Local currency = UNI
Date Forward rate UNI Not realized 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 2001
This is an example for the following scenario:
- Creating and reversing provisions

- 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.

Foreign Currency Valuation - G/L Accounting
1. 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
50t 1
Forward rate
on market: 1.65 Clearing account
USD bank account
UNI bank account
P&L
Unrealized loss Unrealized profit
1 50t
Realized loss Realized profit
 SAP AG 2001

Writing-off of passive provisions,

2. Valuation: 04/30/ YY creation of active provisions, display
Balance sheet of unrealized profit
Forward rate
2 20t 2 50t 50t 1
Forward rate
USD bank account
UNI bank account
P&L
1 50t 50t 2 20t 2
 SAP AG 2001
Unrealized profits and active provisions are not disclosed in Germany.

End valuation: 05/31/YY (after posting the transaction)

Balance sheet
Forward rate
2 20t 20t 3 2 50t 50t 1
Spot rate
1.70m UNI 1m USD
10t 3
USD bank account
1m USD
UNI bank account

1.70m UNI
P&L
1 50t 50t 2 3 20t 20t 2

3 10t
 SAP AG 2001
The closing valuation of the forward exchange transaction is carried out using 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.

MRM: Saving OTC Net Present Values
Mark-to-market Saving Valuation

EUR USD GBP
10
8 NPV s
4
Money Market Financial
2
1 2 4 6 8 10 Forex
accounting
M Y Y Y Y Y Derivatives
 SAP AG 2001
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.

Topic 6 Other functions
Collaborative application scenario: Creating

1
Forex transactions
 SAP AG 2002

Collaborative Application Scenario: Creating Forex
Transactions
CORPORATES INTERNET BANK
Enter transaction data and r ate quer y
Pass on quer y to bank
Determine r ate
Pass on rat e to corporate
Rate displayed / option to accept rate
Pass on CFM data to ban k
Create tran saction
Pass on ban k data to corporate
Create tran saction
 SAP AG 2002
The MiniApp FTR_FX_WEB is used to create Forex transactions using real time bank rates.
At the time this documentation was drawn up, a connection with Citibank/CrossMar had been
successfully tested.
You can make the required settings with the Customizing view VC_FTR_FX_WEB. You also need to
have the SAP Business Connector and the corresponding SAP BC CFM application packet installed. The
aforementioned packet is included in the delivery or can be obtained via http://www.sap.com/.

Valuation
Valuation
 SAP AG 2001

z Report selection/Link to drilldown reporting
Journal Forex
z Journal Journal Money Market Forex Derivatives
Securities
Payment schedule Forex
z Payment schedule Payment schedule Money Market Forex
Derivatives Securities
z Maturity schedule - spot and forward transactions
z Transaction changes
 SAP AG 2002
There are specific reports available in the Information system for particular business requirements. You
can use these reports to analyze and evaluate foreign exchange trading transactions.
The financial transactions journal gives you an overview of the financial transactions according to
variable selection criteria. From the journal, you can branch to the basic data of each transaction at any
time.
The payment schedule provides an overview of the payments already made or outstanding and contains
information about business partners and bank details.
With the maturity schedule for spot/forward transactions, a list of due dates for spot and forward
transactions within a predefined period of time is generated. To get detailed information, you can branch
from the list to the display of the selected transaction.
By linking to the SAP drilldown tool, you can use flexible reporting and interactive processing
functionality for cumulative and non-cumulative values in foreign exchange trading. These include
drilldown techniques, data export, and graphical presentation forms. You can use flexible report trees to
configure individual reports.

Foreign Exchange: Unit Summary
z Transaction back office proce ssi ng in foreign

exchange trading depends on the proce ss chain
defined for a product/transaction type (for example,
a forex/forward transaction).
z Foreign exchange transactions are represented in
Ca sh Management.
z In rollover/premature back-office proce ssing, two
new transactions arise which are linked to the
original transaction.
z Posting i s executed via a Currency clearing account
which is subject to valuation.
z The Transaction Manager also provide s valuation
functionality.
 SAP AG 2001

Foreign Exchange Exercises
Unit: Foreign Exchange

Topic: Trading - Forward Exchange Transaction

• set up a forward exchange transaction in the Transaction Manager.
You must pay an invoice in 3 months to the value of approximately USD

12 million and you wish to take advantage of the current USD exchange
rate. You therefore conclude a forward exchange transaction.
1-1 In the standing instructions for your business partner (DEUBA), ensure that both UNI
and USD are maintained in the payment details for Forex transactions.
1-2 Create an order via a forward exchange transaction (USD-UNI).

Choose the Deutsche Bank (DEUBA) as your business partner. Choose the following
transaction data:
Amount: 12 million USD,

Rate: 2.07 UNI
Value date: In 3 months.
Use the input help relating to the amount field and value date.
Note: Do not carry out a cash settlement.
Then check the

- account assignment reference and G/L account,
- cash flow,
- payment details.
Look at the other flows.
Consider which value date (with date string ++3) would result if you had checked the
flag "Date string" (see Define User Data).
1-3 Execute the order and observe the change in the activity category.

Topic: Back Office and Accounting

• settle and post transactions.
Having created the Forex transaction, you proceed in the Back Office.
Here, you settle or check the transaction. Then you post the transaction
flows.
2-1 Settle the Forex transaction.

Check that your entries are complete.
Note the change in the activity category.
2-2 Carry out the posting for the Forex transaction. Note the due date.
Carry out a test run prior to the update run.
In the posting run, double-click directly on the FI document generated.


Topic: Valuation - Forward Exchange Transaction

• value a forward exchange transaction in the Transaction Manager (in
the operative valuation area).
You must pay an invoice in 2 months to the value of approximately USD

10 million and you wish to take advantage of the current USD exchange
rate. You therefore conclude another forward exchange transaction. At
the end of the month, you wish to value your transactions (Key date
valuation). You then have to determine your realized gains and losses.
3-1 You must first determine your valuation rules.
You do this in Customizing under General Settings. You define a one-step valuation
principle (BXX - VALUATION PRINCIPLE GR XX).
Choose: - Valuation loss up to key date value (2)
-Valuation gain up to key date value (4)
You then determine your own valuation class (CLASSXX). Assign valuation category
10 (single - manual assignment) and your valuation principle (BXX).
3-2 Then check that the predefined flow types for Forex transactions are complete.
Take a look at
- 3010 Realized loss (Forex)
- 3011 Realized gain (Forex)
- 3020 Create provision
- 3021 Reverse provision
- 3030 Show unrealized gain
– 3031 Reverse unrealized gain
3-3 Assign these valuation flow types to the product type/transaction type combination
(DXX/GXX) that you defined in the unit entitled "Basic Principles".

3-4 Assign your valuation class to your product/transaction type (DXX/GXX) combination
in your company code (TRXX).
You should use procedure "2" for exchange rate determination. Here, the current
forward rate (current spot rate plus swap rate) is compared with the transaction forward
rate. The standard translation should be at the middle rate (M) in each case.
We do not want to carry out a cross valuation at this point.
3-5 Create a contract via a forward exchange transaction (USD - UNI) for your product
type/transaction type combination (DXX/GXX) in your company code (TRXX).
Amount : Purchase USD 10 million,

Rate : 2.20
Value date : in 2 months.
Use the input help relating to the amount field and value date.
3-6 Carry out a key date valuation at the end of each of the next two months. Post the
generated valuation flows immediately.
On the due date, the Forex transaction is realized and posted. You must then carry
out a valuation to determine the gains/losses realized and in order to post.
3-7 Finally, take a look at the cash flow. Now call up the local currency display using
Choose layout.

Foreign Exchange Solutions

Topic: Trading - Forward Exchange Transaction
1-1 Solution to the step: Checking the Standing Instructions
⇒ Accounting
⇒ Master Data
⇒ Standing Instructions
⇒ Payment Details

Partner Deuba
Company Code TRXX
⇒ Display
The standing instructions for the business partners concerning

payment details, correspondence, authorizations and derived flows
have been included in business partner maintenance and can be
edited there.

1-2 Solution to the step: Create an order (forward exchange transaction).
⇒ Accounting
⇒ Trading
⇒ Create

Company Code TRXX
Product type 60A
Transaction type 102
Partner Deuba
Order Select
Purchase currency USD
Amount 12m
Sales currency UNI
Rate 2.07
Value date ++3
Confirm the entries by pressing 'Enter'. The system then automatically determines
the offset amount (here: sales); only then should you save.

Tab strip: Other flows
⇒ Save (F11)

If the flag “Date string" is checked (see Define User Data), the date
strings you enter (e.g. ++3 for three months) 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.
1-3 Solution to the step: Carrying out the order.
⇒ ...
⇒ Trading
⇒ Order
⇒ Execute
⇒ Save
The transaction now has "Contract" status.


Topic: Back Office and Accounting
2-1 Solution to the step: Settling the foreign exchange transaction.
⇒ Accounting
⇒ Back Office
⇒ Spot/Forward Transaction
⇒ Settle
Check that the data is complete.
⇒ Save

2-2 Solution to the step: Posting the foreign exchange transaction.
⇒ Accounting
⇒ Accounting
⇒ Posting
⇒ Execute

Company Code TRXX
Up to and including due date. Adjust date
⇒ Execute (Test run/ Update run)
After the update run:

In the posting log, you can branch directly to the FI document.


Topic: Valuation - Forward Exchange Transaction
3-1 Solution to the step: Determining the valuation rules.
Customizing:
⇒ General Settings
⇒ Accounting
⇒ Operative Valuation Area
⇒ Define One-Step Valuation Principles
⇒ New entries

Valuation principle BXX
Name of the valuation principle Valuation principle GR XX
Valuation loss Valuation loss up to key date
value
Valuation gain Valuation gain up to key date
value
⇒ Save

Solution to the step: Creating a valuation class.
Customizing:
⇒ Accounting
⇒ Define Valuation Classes
⇒ New entries

Valuation class ClassXX
Valuation class 10
Valuation principle BXX
⇒ Save
3-2 Solution to the step: Checking the predefined flows

Take a look at
- 3010 Realized loss (Forex)
- 3011 Realized gain (Forex)
- 3020 Create provision
- 3021 Reverse provision
- 3030 Show unrealized gain
- 3031 Reverse unrealized gain
Customizing:
⇒ Flow Types
⇒ Define Flow Types – Double click on Flow Type

3-3 Solution to the step: Assigning the valuation flow types.
Customizing:
⇒ Accounting in Operative Valuation Area
⇒ Valuation
⇒ Assign Valuation Flows to Transaction Type
3-4 Solution to the step: Assigning the valuation class.
Customizing:
⇒ Accounting in Operative Valuation Area
⇒ Valuation
⇒ Assign Valuation Class to Company Code/Transaction Type
⇒ New entries

Company Code TRXX
Product type DXX
Valuation class ClassXX
General valuation class Not a hedging instrument
Foreign currency rate(FCR)- 2
Determination
Rate cat. SwpPu M
Rate cat. SwaSa M
Rate type SpoPu M
Rate type SpoSa M
Cross valuation No flag
If the cross valuation flag is checked, whenever cross-currency

foreign exchange transactions are valued, a separate valuation flow is
generated for each foreign currency flow. This enables you to assign
currency gains more accurately.

3-5 Solution to the step: Creating a foreign exchange transaction for your product
type/transaction type combination.
Application:
⇒ ...
⇒ Trading
⇒ Create
Button: Contract
Entry: - Purchase currency
- Amount
- Sales currency
- Rate; Value date
⇒ Save
Transaction number: _______________________

3-6 Solution to the step: Carrying out and posting a key date valuation.
Application:
⇒ Accounting
⇒ Valuation
⇒ Run Key Date Valuation (Key date 1: End of the current month
Key date 2: End of the next month)

Company Code TRXX
Key date Key date 1: End of the current
month
Key date 2: End of the next
month
⇒ Execute

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.

Solution to the step: Posting the forward exchange transaction.
Application:
⇒ Accounting
⇒ Posting
⇒ Execute (Transaction - purchase, sale - on value date)
Solution to the step: Determining realized gains/losses.

Application:
⇒ Accounting
⇒ Valuation
⇒ Realized Gain/Loss

Company Code TRXX
Transaction number Transaction number
⇒ Execute

3-7 Solution to the step: Looking at the cash flow.
Application:
⇒ Accounting
⇒ Trading
⇒ Display
Select layout – Local currency view – Set filter
Note that you can select the classification (structure

characteristics, accrual/deferral, valuation, transfer posting) by
choosing Set filter.

Derivatives
Contents:
z Topic 1 Introduction to derivative
financial instruments
z Topic 2 Control of exchange rate risks using
OTC currency options
- OTC Currency options
- Currency barrier options
- Compound options
z Topic 3 Control of interest rate risks via derivatives
- Forward rate agreement (FRA), interest rate
swap, Cap/Floor
z Topic 4 Future s
z Topic 5 Information system
 SAP AG 2001

Derivatives: Unit Objectives
z Create various instruments for hedging against interest

rate and exchange rate risks and
z Map these instruments in the Transaction Manager.
 SAP AG 2001

Basic Principles
Money Market
Foreign Exchange
Derivatives
FAS 133
 SAP AG 2002

Derivatives: Business Scenario
z You now wish to create various instruments for

hedging against intere st rate and exchange rate
risks.
z What must you do in the Trading area in order to
create a derivatives transaction and proce ss it?
 SAP AG 2001
displaying financial transactions in SAP R/3 Treasury Management.

Introduction to Derivative Financial Instruments
(Topic 1)
1 Product type s in derivatives trading
 SAP AG 2001

Selection of Relevant Product Types
Product types
instruments Hedging instruments

CAP/Floor
FRA
Sw aps
- Interest rate
- Cross currency
(interest rate) sw ap
OTC Options
- Currency
- Interest rate
- Stocks
- Sw aption
Futures
 SAP AG 2001

Product Matrix - Derivative Financial Instruments
Important Hedging Instruments
Exchange rate risk Interest rate risk
• Forward exchange trans. • FRA

• Currency future s • Forward rate agreements
• Interest future s
• Currency swap • Interest rate swap
• OTC interest rate options

• OTC currency options • CAP/Floor
• Swaption
• IRG
 SAP AG 2001
What exactly you want to hedge against (elimination of the currency risk, interest rate risk, or price risk)
will determine which of the hedging instruments you choose.
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 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.

Control of Exchange Rate Risks Using Currency
Options (Topic 2)
Typical transaction and position management processe s:
Transaction entry and back-office proce ssing
1 OTC Currency options
2 Currency barrier options
3 Compound options
 SAP AG 2001
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 assymetric 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.

Currency Options
• The purchaser acquires the right (the seller accepts the ob ligation)
to buy (deliver) or sell (purchase)
- a certain foreign currency amount (underlier)

- at a certain rate (strike price)
- at a certain time (European option) or
within a certain time period (American option).
• The purchaser must pay the option premium to the seller for this right.
• The seller of the option has the obligation to deliver the foreign exchange
amount or to purchase it.
• Calls: Purchaser acquires the right to buy (seller must deliver).

• Puts: Purchaser acquires the right to sell (seller must buy).
• Cash settlement or physical settlement (delivery/purchase)
 SAP AG 2002
Example - Call: with a USD/UNI call at the strike price of 1.80, the purchaser has the right to obtain a
particular USD amount at the strike price from the seller. The purchaser will only exercise this right if
the market price is higher than the strike price at the time of exercise or within the exercise period. This
way, the purchaser can acquire the foreign currency amount cheaper using the option than on the market.
Example - Put: with a USD/UNI 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.
Trading idea: the purchaser of a call wishes to hedge against rising prices and the purchaser of a put
hedges against falling prices. The seller expects the inverse price trend and wishes to improve his
position by collecting the option premium.
With barrier options, you differentiate between knock-in 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).

OTC Currency Options
t 0 t0+2 t 1 t 1+2
n At t 0 the transaction is concluded

(Input and settlement)
o At t 0+2(Value date ) the prem ium is paid

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

(reposting 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 flows occurs.
 SAP AG 2002

Input of OTC Currency Options
Cross rate calculator Option price calculator

Company code 1000 IDES AG Transaction
Product type 76A OTC currency option Activity 1 Contract
Trans. type 100 Purchase
...
Option
Exercise period ++2 Exercise type European Settlmnt. Physical exercise
Currency pair USD UNI
Underlying curr. USD 5,000,000.00 : Call * Put
Strike 1.82 Invers
Value date
Prem ium
: Pnt quot. * Perc. quoted
Points
Payment date Curr. UNI Am nt 300,000.00
Contract
Contract date 09/29/YYYY ...
...
 SAP AG 2001
When creating a currency option, you document the purchase/sale intention for 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 following screen, in addition to the transaction data for the underlying spot exchange transaction
or forward transaction, you enter data relating to the option such as the due date, exercise, and purchase
premium.
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 amnt 3,640,000 UNI
Transaction 1800002 USD-CALL USD 2,000,000
 SAP AG 2001
In CFM, when you define the product types, you can include the related underlying transactions. In this
way, for example, a spot exchange transaction is entered as an underlying transaction in currency
options. In general, in the case of physical exercise, the underlying transactions are generated
automatically. You can specify different payment methods for the underlying transaction and the option
because of this separation into two transactions.
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
Prem ium Calculation for Standard Options

Market data Sw ap/forward Prem iums Sensitivities Implied volatility List
Curr. pair
Market data
Spot 1.70900 / 1.71100 Int. 1st curr. 6.4152 / 6.4574
Sw ap 0.11212- / 0.10644- Int. 2nd curr. 3.8005 / 3.8997
Forward 1.59688 / 1.60456 Volatility 10.0000 / 10.0000
Prem iums
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 0.4502 / 0.04650 0.04878 / 0.05020
Call 3 / /
 SAP AG 2001
In order to calculate the arithmetical value of the option premium, the trader can use the option price
calculator directly during input. 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. Calculation of the premium is based on the:
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 type s

z (Assign ca sh management levels)
z Transaction type s
Define number ranges for transactions
Define number ranges for underlying transactions
Define transaction types
z Define flow types

z Assign flow type
z Transfer of option premium at exercise
z Account a ssignment reference
 SAP AG 2001

Product Types - Currency Option
Product type 76A

Text OTC Currency option
Product cat. 760 OTC Options
Option/Future
Number range Underlying
Quot. type
... Product type 60A
Settlement Transaction type 101
...
Option type 1
 SAP AG 2001
Settlement: Settlement indicator that controls whether the underlying transaction is to be exercised
physically or if there is to be a cash settlement.
Quotation type: Price quotation, percentage quotation, etc.
Settlement method
Exercise type: 1 = European 2 = American
Option category: 1 = Standard OTC option.
Underlying:
- Underlying product type
- Underlying transaction type

Derivatives - Exercise
OTC Currency Options 1 and 2
OTC Currency Options 1

and 2
 SAP AG 2001

Transfer of Option Premium at Exercise
Transfer
Transfer of
of Flows
Flows -- Activity
Activity Transitions
Transitions
New entries
Activity transition
Product type 76A OTC Currency option
Transaction type 100 Purchase
Settlement 1 Physical exercise
New activity cat. 41 Exercise
Original flow
Flow type 1301 Option premium (OTC)

Direction -
Generated flow
TransferTrans 1321 Premium transfer on exercise

ProdTypeUnderly 60A Forex: External
TransTypeUnderl 101 Spot transaction
 SAP AG 2001

Exercise
OTC currency option
Exercise
Cash settlement
Physical exercise
 SAP AG 2001
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- according to 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 2001
Currency barrier options are different from regular OTC options as 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 -
depending on it's type - either becomes effective or expires. This barrier is specified in the financial
transaction data.
In Treasury Management, you can see the basic categories traded on the market: These are:
Calls: Down&Out Option expires at or below the outstrike
Up&Out Option expires at or above the outstrike
Down&In Option comes into existence at or below the instrike
Up&In Option comes into existence at or above the instrike
Puts: Down&Out Option expires at or below the outstrike
Up&Out Option expires at or above the outstrike
Down&In Option comes into existence at or below the instrike
Up&In Option comes into existence at or above the instrike
You can also enter double barrier options. These either come into existence or expire if two barriers are
exceeded or fallen below.

Currency Barrier Option
Barrier Option price calculator

Product type 76F Currency barrier option Up. Activity 1 Contract
Trans. type 100 Kauf
Structure Underlying ... ... ... ... ...
Partner Deuba ...

Exercise Currency barrier option Up&In
Currency barrier 2.10 USD/UNI

Underlying
Continue Cancel
Prem ium
Contract
 SAP AG 2001

Customizing: Currency Barrier Option
Product type 76F

Text Currency barrier option Up&In
Product cat. 760 OTC Options
Options/Futures
Number range Underlying
Quotation type
... Product type 60A
Settlement Trans. type 101
...
Opt./fut. cat. 13
 SAP AG 2001
1. Defining product types:

Option categories:
011: Down&In
012: Down&Out
013: Up&In
014: Up&Out
2. Defining transaction types:

==> Selection of the "Processing category" with
knock-in or knock-out
Example:
Prod.type Trans. type Back-office cat. Definition
76F 100 00106 Order - Contract - Knock-in/Expiration -
Exercise/Expiration

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 2001
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 option
z Advantages compared to a currency option:

Reduction in the cost of the option premium
Exercise decision is postponed
 SAP AG 2001
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 - Entry Screen

Product type 76L CompFXOpt.Long Call Activity 1 Contract
Structure Underlying ... ... ... ... ...
...
Exercise
...
Underlying Underlying
Product type 76A Currency option (OTC) Activity 1
Trans. type 100 Purchase ActCat Underlying
Option
Prem ium ......
Contract data
...
 SAP AG 2002

Maturity Schedule OTC Options
Type Term start Maturity Exer. Settl. Underl. Strike Trans. Ctrpy
Put MM/DD/YY 12/30/YY Eur. Phys. GBP 10m 2.20 4711 ABC
Call MM/DD/YY 06/30/YY Eur. Phys. GBP 20m 1.48 1712 XY
 SAP AG 2001
The option maturity schedule incorporates all OTC options that can be exercised in a predefined period
of time. To get more detailed information, you can branch from the list to the display of the selected
OTC transaction. From here, you can access the exercise or expiration transactions.
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.

Control of Interest Rate Risks Using Derivatives
(Topic 3)
Typical transaction and position management processe s:

Transaction entry and back-office proce ssing
1 FRA
2 Interest Rate Swap
3 CAP/FLOOR
 SAP AG 2001

Forward Rate Agreement
• Agreement bet ween two contract parties (buyer and seller)

- on a certain interest rate (FRA rate)
- for an investment or loan
- for a period of time in the future
• Goal: Fixing of an interest rate today to apply to a period in the future
• Term: 3-24 months

• Quotation: 3:9; 6:12; 12:24; (Future period: Total term)
• Reference interest rate, for example, LIB OR 3 months, LIBOR 6 months
• Interest rate comparison (Fix ed rat e to reference interest rate)
after future period and determination of the settlement payments
to be made.
• Interest netting in the form of a cash settlement, not an exchange
of nominal amounts.
 SAP AG 2001
Trading idea: The purchaser of an FRA hopes for higher interest rates
for the reference period and the seller hopes for lower interest rates.
Example: FRA 3x9; Nominal amount 10m UNI

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

am ount (Posting of the flows generated under 3)
q End of hedging period
 SAP AG 2002
A company will receive UNI 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 UNI 10m. The FRA will start in 8 months (t8) for a term of 3 months until (t11). The agreed interest
rate is 5%:
8 months later (Fixing day = t8 minus 2 days):
The reference interest rate (3 months LIBOR) is 4.5%. Therefore, the bank is obliged to pay the
company a settlement of
UNI 10m x 0.5% x 90/360 = UNI 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 a FRA
Company Code 1000 IDES AG Transaction

Product type 63A FRA Activity 1 Contract
Trans. 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 UNI
Interest rate 5.0
Reference int. rate LIB_3_UNI
Interest calc. method act/360
Fixing 2-
Business calendar ...

Contract data
Contract date 10/05/YYYY ...
 SAP AG 2001
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. Purchasers of FRAs protect themselves
against rising interest rates whereas the sellers protect themselves against falling interest rates. The entry
in the SAP System is user-defined and is based on the trading conventions shown.

Interest Rate Adjustment
Create interest rate adjustment
Interest Rate Adjustments: Overview
Int. fixing Weekday Ref. Int Status Int. rate Start
Interest rate adjustment: Detail view

Int.fixing date Effective from
Ref.int.rate Status
Manual adjustment
Interest rate Trigger
Autom atic adjustment
 SAP AG 2001
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.

Derivatives: Exercise - Forward Rate Agreement
(FRA)
Forward Rate
Agreement
 SAP AG 2001

Swaps
• A swap is an exchange of payment flows over a fixed time period.
• The payment flows are defined on conclusion of the swaps.

However, their magnitude may depend on future events
(e.g. variable interest payments where the amounts depend
on the level of the reference interest rate in the future).
• Based on the type of payment flows to be swapped, we distingui sh

between
- Interest rate swaps and
- Cross-currency swaps.
Possible variants when swapping the interest payments:

PAYER: outgoing interest payments fixed, incoming variable
RECEIVER: incoming interest payments fixed, outgoing variable
BASIC: variable and variable interest payments
FIXED TO FIX ED: fixed and fixed interest payments
 SAP AG 2001
The trading idea is based on the comparative cost advantages which can be achieved together due to
different positions (credit standings) in different financial market segments and cannot be taken
advantage of individually.

Interest Rate Swap (Coupon Swap)
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 2nd period of the variable interest rate (6
months)
(Adjust interest rate -> Generate interest flow)
3) Interest payment for variable side/start of the 2nd period
(Posting of interest flow from 1 )
4) Interest rate fixing for the 3rd period
5) Interest payment for variable and fixed side/start of the 3rd period
6) Interest rate fixing for the 4th period
7) Interest payment for variable side/start of the 4th period
 SAP AG 2001
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%
y Equals an interest expense of 6 M LIBOR - 0.75%

Creating Interest Rate Swap
Company Code 1000 IDES AG Transaction

Product type 62A Int. Rate sw ap (IRS) Activity 1 Contract
Trans. type 300 Swap
...
Term Business calendar ...

Start 10/15/YYYY Calendar 1
End 10/15/YY+5 Inclusive Calendar 2
Outgoing interest Incoming interest
Nom inal amount 10m UNI Nominal amount 10m
Effective from 10/15/YYYY Effective 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_UNI
Int.calc.method 360/360 Int.calc.method act/360
Int. Int. rate adjustment. Int. Int. rate adjustment.
Contract data
Contract date 10/13/YYYY
 SAP AG 2001
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.
You start an automatic interest rate adjustment by choosing 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
Example: Interest conditions
Update
Rule Unadjusted : Standard Special
Increment 12 Months
Days +/- 1-
Due date
Due date DD.MM.YY Month-end
Working day Next working day
Calendar
Calendar 01
Calendar GB
 SAP AG 2002 Calendar
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.
For more details, see the F1 Help or the SAP Library.

Back Office - Planned Record Update
Range of Planned Record Update Methods

Custom izing: Corporate Finance Management
Transaction Manager
General Settings
Organization
Define Company Code Additional Data Ze ro
upda te
Up date with in te re st rat es

ma in tained aut om atica lly
U pd ate wit h interest rates

ma int ained manu ally
U pda te with current

inte rest rates
Upd ate with inte re st rat es

ma inta in ed auto matically/m anu ally
Conversion program :
Transaction: OTC_CONV
 SAP AG 2002
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.

Master Data: Cross-Currency Interest Rate Swap
Product type 62B

Text Crosscurr. int.rate swap
Product category 620 SWAP

Cap/Floor E Currency swap
 SAP AG 2001
By flagging the relevant field, you ensure that the right currency field can be filled when you create a
swap in the details screen of the application.

Master Data Discount Swap
Product type 62D

Text Discount Swap
Product category 620 SWAP

CAP/FLOOR E Discount Swap
 SAP AG 2002
You create a swap as a discount swap with this indicator. The discount swap differs from the standard
swap in the way the interest amounts are calculated.
Standard Swap
Interest amount calculated using the formula:
Interest amount = base amount * days/day basis * interest rate/100
Interest payments at the end of the interest period
Discount Swap
Interest amount calculated using the formula:
Interest amount = (base amount * days/day basis * interest rate/100) / (1 + days/day basis * interest
rate/100)
Interest payments at the beginning of the interest period
With a discount swap, therefore, the same interest rate is used for discounting and for calculating interest.
Additionally, you must assign a "Classification 1" condition type and a "Condition Category 22" (=
Discounting).

Derivatives - Exercise
Interest Rate Swap
Interest Rate Swap
 SAP AG 2001

CAP/Floor
• CAP s/Floors are a series of interest options that you can

fit to the periods/term of the transaction that you wish to hedge.
• 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 rate (Strike), to pay
the difference in the interest rate s to the Cap holder. If
the reference interest rate falls below the agreed
interest rate, no compensation payment is made.
• FLOOR: The buyer receives a settlement payment if the

reference interest rate falls below the agreed
interest rate.
 SAP AG 2001
Trading idea: both cases involve 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 short of. 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 2002
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

Entering 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 UNI Amount 200,000.00 UNI
Effective from ++2 Percentage rate
1st due date ++6 Freq.month 6
Ref. int. rate LIB_6_UNI Payment date 10/15/YYYY
Int.calc.method act/360 Effective from 10/15/YYYY
Int. Int. Rate adjustment. Option prem ium
Contract data
Contract date 10/13/YYYY
 SAP AG 2001
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. rate
7.0
Interest rate upper limit
6.5
6.0
5.5
5.0
4.5
 SAP AG 2001
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
Int. rate instruments

CAP/FLOOR 1
CAP/FLOOR
1 Upper limit
2 Lower limit
 SAP AG 2001

Futures (Topic 4)
1 Master data
2 Future s account
3 Transaction entry
4 Margin management
 SAP AG 2001

Futures
z Master data
Maintain class data/Assign exchanges
Futures account
Futures account - class position
z Maintain securities prices

z Transaction entry
OPEN transactions
Close transactions
z MARGIN Management
z Determination of exchange rate gains with Close transactions
 SAP AG 2001
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
Securities
Futures Interest
Interest rate
rate
Index
Index
 SAP AG 2002
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
Description 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 2002
The securities account was replaced by the futures account as the position management unit for futures
(CFM1.0). This account is a management unit used for position management, which is required for
futures too. 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 for all Open and
Close transactions.

Transaction Entry: Open and Close
FUTURE
Open purchase Close sale
Offset by:
Open sale Close purchase
Single Position Management
 SAP AG 2001
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
OPEN Variation
Variation Margin
Margin CLOSE
CLOSE
transaction
transaction transaction
transaction
-- Accounting
Accounting
-- Purchase
Purchase -- Daily
Daily -- Purchase
Purchase
-- Sale
Sale -- Sale
Sale
Rate
101
+VM
100
-VM
98,5
t1 t2 t3 t4 Days
 SAP AG 2001
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.

1 Journal
2 Payment schedule
Interest rate adjustment

3 schedule
Maturity schedule OTC

4 options
 SAP AG 2001
The interest rate adjustment plan serves to monitor the interest rate adjustment dates for derivative
interest rate transactions. You can call up the interest rate adjustment plan for all transactions in a
company code or restrict it to the transactions of specific time periods or reference interest rates.

Derivatives: Maturity Schedule OTC Options
Maturity Schedule OTC Options
Typ Term strt Due date Exer. Settl. Underl. Strike Trans. Cntrpy
Put MM/DD/YY12/ 30/ YY Eur. Phys. GBP 10 m 2.20 4711 ABC

Call MM/DD/YY 06/ 30/ YY Am. Phys. USD 20 m 1.48 1712 XY
 SAP AG 2001
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.

Derivatives: Unit Summary
z In this unit you have learned how to create and

control the different derivative financial instruments
in the Transaction Manager in order to hedge against
interest rate and exchange rate risks.
 SAP AG 2001

Derivatives: Exercises
Unit: Derivatives
Topic: OTC Currency Option 1

• create an OTC currency option in the SAP Transaction Manager -
using the foreign exchange module.
You want to purchase a currency option.
1-1 Create an OTC currency option (in the menu via Foreign Exchange) as a contract.
Purchase of a currency-call option
Option:
Exercise : European
Conclusion date : TODAY
Currency : USD Amount : 3,000,000
Strike : e.g. 2.20
Value date : in 5 months
Offset currency : UNI
Exercise date : in 5 months minus 2 days
Premium:
Value date : in 2 days
Currency : UNI
Enter a premium of your choice.
If this option gets to the exercise stage, you are entitled, but not obliged to purchase USD
from DEUBA.

Take a look at the cash flow. Which flows are shown?
Check the payment details and the account assignment reference.
1-2 Settle the contract using collective processing.
1-3 Post the option premium. Note the posting due date.
Carry out a test run prior to the update run. Take a look at the document.

Unit: Derivatives
At the conclusion of this exercise, you will be able to:

• create an OTC currency option in the SAP Transaction Manager -
using the derivatives module.
You want to sell a currency option.
2-1 Create an OTC currency option (in the menu via Derivatives) as a contract.
Sale of a currency call option
Option
Exercise : European
Termination day : TODAY
Currency : USD Amount : 3,000,000
Rate : e.g. 2.20
Value date : in 6 months
Offset currency : UNI
Exercise day : in 6 months minus 2 days
Premium
Value date : in 2 days
Currency : UNI
Enter a premium of your choice.
If this option gets to the exercise stage, the bank is entitled, but not obliged to purchase
USD from you.

Settle the contract using collective processing.
Post the option premium.

Unit: Derivatives
Topic: Forward Rate Agreement (FRA)

• set up a Forward Rate Agreement (FRA) as a contract in the SAP
Transaction Manager - using the derivative module.
You want to sell an FRA because you expect interest rates to fall.
3-1 Create an FRA as a contract. You are the seller of the FRA.
Take the Deutsche Bank (DEUBA) as your business partner (FRA purchaser).
Contract date : TODAY

Start of lead time : in 2 days
Start of hedging period : 1 year after start of lead time
End of hedging period : 2 years after start of lead time
Base amount : 10,000,000 UNI
Exchange : Frankfurt, but London for determination of the basic
interest rate
Interest rate : 4.56 % p.a.
Interest rate reference : LIBOR_12 months_UNI
Interest calculation method : act/360
Interest rate fixing is to occur 2 days before the start of the hedging period.
Settle the contract using collective processing.

3-2 Take a look at the interest rate adjustment schedule.
Carry out a manual interest rate adjustment. The actual fixing date is 2 days prior to the
start of the hedging period (planned fixing date!).
Then post the interest generated as a result of the interest rate adjustment.

Unit: Derivatives
Topic: Interest rate swap
At the conclusion of this exercise, you will be able to:

• set up an interest rate swap in the SAP Transaction Manager - using
the derivative module.
You wish to conclude an interest rate swap.
4-1 Create an interest rate swap (receiver swap) as a contract.

Contract date : 11/09/1999

Start of term : 11/11/1999
End of term : 11/11/2003
Exchange : Frankfurt, but London for determination of the basic
interest rate
Nominal amount : 5,000,000 UNI
Regulations concerning fixed amounts:
DEUBA pays the fixed amounts.

Fixed interest rate : 6.53% p.a.
Interest calculation method : 360/360
Interest frequency : every 12 months

Regulations concerning variable amounts:
You pay the variable amounts.

Variable rate : LIBOR_6M_UNI
Interest calculation method : actual/360
Spread : 0% p.a.
Interest frequency : every 6 months
Remember to maintain the condition details.

As the update rule, choose "Unadjusted".
- Shift the due date relative to the end of the interest period (days +/-). Choose the value 1-.
- Choose the shift rule: Next working day modified
Then settle the interest rate swap.
Carry out the manual interest rate adjustments - only for your company code!
Compare the fixing data with the details in the exercise.
Take a look at the interest rate adjustment schedule.
Then post the interest generated as a result of the interest rate adjustment. Note the due
date.

Derivatives Solutions
Unit: Derivatives
1-1 Solution to the step: Creating an OTC currency option using the foreign exchange
module.
⇒ Accounting
⇒ Trading
⇒ OTC option
⇒ Create
Entry: Data... a) Create OTC option: Initial screen

b) Create an OTC option: Structure
Note: For orientation concerning the option price:

Button: Option price calculator
Evaluation type: 0001 (Standard evaluation)
Entry: Data (direct or via the Market data button)
Button: Premiums
Tab strip: Cash flow (You can see the option premium)
⇒ Save

1-2 Solution to the step: Settling using collective processing.
⇒ Accounting
⇒ Back Office
⇒ OTC Options
⇒ Execute
Select the transaction that you wish to settle.

Button: Settle
⇒ Save
1-3 Solution to the step: Posting the option premium.
⇒ ... ⇒ Foreign Exchange

⇒ Accounting
⇒ Posting
⇒ Execute

Company code TRXX
Up to and including due date. Due date of the premium
Test run Do not select this. Choose
execute.
From here, you can view the
document.

Unit: Derivatives
2-1 Solution to the step: Creating a currency option using the derivatives module.
⇒ Accounting
⇒ Derivatives
⇒ Trading
⇒ OTC options
⇒ Create
Entry: Data a) Create an OTC option: Initial screen

b) Create an OTC option: Structure
Tab strip: Underlying

⇒ Save
Solution to the step: Settling using collective processing.
⇒ Accounting
⇒ Derivatives
⇒ Back Office

⇒ OTC options
⇒ Execute

Button: Settle
⇒ Save
Solution to the step: Posting the option premium.
⇒ ... ⇒ Derivatives
⇒ Accounting
⇒ Posting
⇒ Execute

Unit: Derivatives
Topic: Forward Rate Agreement (FRA)
3-1 Solution to the step: Creating an FRA.
⇒ Accounting
⇒ Derivatives
⇒ Trading
⇒ OTC Interest Rate Instrument
⇒ Create
Entry: Data... a) Create OTC interest rate instrument: Initial screen
b) Create FRA: Structure
- Pay attention to the CONTRACT DATE ! -
- Use the input help "+..." for days and months ! –

⇒ Save

Solution to the step: Settling using collective processing.
⇒ Accounting
⇒ Derivatives
⇒ Trading
⇒ OTC interest rate instruments
⇒ Execute

Button: Settle
⇒ Save

3-2 Solution to the step: Looking at the interest rate adjustment schedule.
⇒ Accounting
⇒ Derivatives
⇒ Transaction
⇒ Deadline Monitoring
⇒ Derivatives: Interest Adjustment Schedule
⇒ Execute
Solution to the step: Carrying out a manual interest rate adjustment.
⇒ Accounting
⇒ Derivatives
⇒ Back Office
⇒ Variable Interest Calculation
⇒ Interest Rate Adjustment
⇒ Create
Enter an interest rate. (Note: Choose a lower interest rate so that you receive a
settlement payment.)
⇒ Save

Solution to the step: Posting the interest that was generated as a result of the interest
rate adjustment.
⇒ Accounting
⇒ Derivatives
⇒ Accounting
⇒ Posting
⇒ Execute

Unit: Derivatives
Topic: Interest rate swap
4-1 Solution to the step: Creating an interest rate swap.

⇒ Accounting
⇒ Derivatives
⇒ Trading
⇒ OTC Interest Rate Instrument
⇒ Create
Entry: Data... a) Create OTC interest rate instrument: Initial screen
Since the incoming interest is fixed, select "Receiver swap".
b) Create a swap: Structure
- Use the input help "+..." for days and months ! -

Contract date 09.11.1999
Start of term 11.11.1999
End of term 11.11.2003
Outgoing interest
Nominal amount 5,000,000.00 UNI
Effective from 11.11.1999

1. Due date ++6
Freq.month 6
Variable interest LIBOR_6_UNI
Interest calculation method act/360
Incoming interest
Nominal amount 5.000.000,00
Effective from 11.11.1999
1. Due date ++12
Freq.month 12
Fixed interest rate 6,53
Interest calculation method 360/360
Solution to the step: Maintaining the condition details.

Button: Detail view: Interest
Update
- Rule : Unadjusted
- Days +/- : 1-
Due date
- Working day : "Next working day modified"
Calendar
Maintain the appropriate calendar.
The end of the interest period is determined relative to the due date.
It is determined before the due date is shifted (unadjusted) by the
working day check.

Solution to the step: Checking the payment details and the account assignment
reference.
⇒ Save
Solution to the step: Settling the interest rate swap, manual interest rate adjustment and
posting the interest.
- See the FRA exercise -

FAS 133
1 FAS 133
2 Area-specific Customizing Settings: FAS 133
 SAP AG 2001

FAS 133: Unit Objectives
z Create a hedge plan

z Create a manual link between the hedged item and
the derivative (hedging relationship)
z Perform an effectiveness test
z Carry out a key date valuation with FAS 133
distribution
 SAP AG 2001

Basic Principles
Money Market
Foreign Exchange
Derivatives
FAS 133
 SAP AG 2002

FAS 133: Business Scenario
z FAS 133 establishe s fundamentally new accounting and

valuation guidelines. The new Standard applies to all
companies that prepare balance sheets according to
US GAAP.
z How can we implement this Standard?
z Which Customizing and application settings are

necessary for hedge management?
 SAP AG 2001
mapping financial transactions in Corporate Finance Management.

FAS 133
1 FAS 133 - Introduction
2 Hedge management - Application
3 Hedge management - Customizing
4 Reports
 SAP AG 2001

FAS 133 - Introduction
FAS 133…
accounting guideline for
…a new
derivative instruments and hedging activities
that ha s far-reaching implications for all entities that use
derivatives
 SAP AG 2001
The US Financial Accounting Standard No. 133 (FAS 133) establishes fundamentally new accounting
and valuation guidelines, and replaces previous guidelines such as FAS 52.
According to FAS 133, derivative financial instruments must be reported as assets on the balance sheet
at their fair value. Under certain circumstances, FAS 133 recognizes a derivative as a hedge transaction.
In this case, special hedge accounting rules can be applied to changes in its fair value.

FAS 133 – Fundamental Principles
In developing FAS 133, the Financial Accounting Standards

Board (FASB) concluded...
z "Derivative instruments represent rights or obligations that meet the

definitions of assets or liabilities and should be reported in financial
statements."
z "Fair value is the most relevant measure for financial instruments and the only
relevant measure for derivative instruments."
z "Only items that are assets or liabilities should be reported as such in financial
statements."
z "Special accounting for items designated as being hedged should be provided
only for qualifying items. One aspect of qualification should be an assessment
of the expectation of effective offsetting changes in fair values or cash flows
during the term of the hedge for the risk being hedged."
 SAP AG 2001

Requirements
Requirements for defining a hedging relationship and for the

valuation functions:
Link the derivative to the exposure to be hedged

(hedging relationship)
Define the hedge strategy at the start of the hedging

relationship
z Identify the hedge transaction (derivative)

z Identify the underlying exposure
z Specify the type of risk being hedged (interest rate risk,
currency risk)
z Effectiveness test
(retrospective effectiveness assessment, prospective
effectiveness assessment, effectiveness measurement)
 SAP AG 2002
SAP provides the following functions to support FAS 133 requirements: Manual creation of the
following exposure categories: - Planned purchase/sale - Fixed commitments: Purchase/sale - Financial
assets: Cash flow transactions and position-based transactions + Exposure upload from money market
(interest rate instrument). (The function Exposure upload from money market enables interest rate
exposures from money market instruments to be automatically uploaded for the category "interest rate
instrument" only. Before the import can be carried out, a hedge plan for interest rate risk must be made
in hedge management. After the first import, exposures can be continuously updated. The update mode
is used to import the calculated interest amounts after processing the interest rate adjustment in the
money market.)
The following hedging instruments are supported:

- FX forwards
- FX options
- Interest rate swaps

FAS 133 – Fair Value Hedge
Basic forms Risk:

¾ Fair value hedge Possible fluctuations in future fair values of balance
sheet items and firm commitments
Cash flow hedge
Risk factors:
• Price
• Interest rate
• Exchange rate
Accounting/valuation rules:
• Changes to the the fair value of the derivative affect
income.
• Changes to the the fair value of the underlying affect
income.
• The effective part of the change in the value of the
derivative is offset by the change in the value of the
underlying; the ineffective part of the hedge
transaction affects income.
 SAP AG 2001

FAS 133 – Cash Flow Hedge
Basic forms Risk:

Fair value hedge Possible fluctuations in future cash flows from
balance sheet items and expected transactions
¾ Cash flow hedge
Risk factors:
• Price
• Interest rate
• Exchange rate
Accounting/valuation rules:
• The effective part of the change in fair value is
posted to "Other Comprehensive Income" (OCI) on a
cumulative basis without affecting income.
• The ineffective part is posted to P&L
• The cumulative OCI amounts are reclassified to P&L
as soon as the underlying transaction affects
income.
 SAP AG 2001

Integration in CFM
Transaction
Manager
Deriv atives
Key date v aluation
Hedge
Market Risk
FI-GL
FI-GL manage-
Analyzer
ment
NPV calculation
OCI
Market
data
 SAP AG 2002

Ba sic Proce ss for Implementing the FAS 133
Requirements
Basic process for implementing the FAS 133 requirements
Hedge
Valuation
Valuation Accounting
management
management
Mark-to-market Enter exposure Key date valuation
valuation Realiz ed gain s/losses
Hedge decision
Document
hedging relationship
Criteria
Document
hedge strat eg y All
yes no
criteria.
Effectiveness test
fulfille d?
Hedge
Hedge Open
Open
accounting
Accounting accounting
accounting
Distribution of Postings
valuation flo ws affect incom e
according to
 SAP AG and / or America Inc. 20 00 / 1
FAS 133
 SAP AG 2001
To calculate the fair value of a derivative financial instrument, the hedge management application uses
the mark-to-market valuation functions in the Market Risk Analyzer.
In the Tools area of the Market Risk Analyzer, you can store the present values calculated by the mark-
to-market valuation function in the OTC NPV table.

SAP Hedge Management
Hedge management - Application

Transaction Manager
General Functions
Hedge Managem ent
Application
Hedge Managem ent
 SAP AG 2001
First, you create a hedge plan:

The hedge plan lets you group exposures according to certain criteria. In this way, you could manage all
the exposures for a particular product group in one hedge plan, for example. The system lists all the
existing hedge plans together with their exposures and hedging relationships. To see the details for a
particular hedge plan, double-click on the corresponding line. To branch to the exposures and hedging
relationships that have been entered for the hedge plan, choose Hedge Management.

SAP Hedge Management Functions I
Hedge management application
z Define hedge plan:

- Plan ID
- Risk category (exchange rate risk, interest rate risk)
- Start/end ...
z Exposure :
Define transaction category and transaction activity
Transact. cat.
Planned Fixed ...

transaction commitment
- Nominal amount
- Currency
...
 SAP AG 2001
You have to specify the risk category of the hedged item (exchange rate risk, interest rate risk).
For the risk category interest rate risk, you must also enter the nominal amount and currency of the
interest rate instrument. You can also set the Single Hedge indicator. This tells the system that the hedge
plan only contains one hedged item, to which all the exposures should be assigned. In this case, the
hedged item corresponds to the interest rate instrument to be hedged, and the exposure reflects the
individual cash flows for this interest rate instrument. All the exposures are part of a single hedged item,
just as all the cash flows belong to this interest rate instrument. If you do not set the Single Hedge
indicator, each cash flow represents a separate hedged item, which would have to be hedged
individually, as is the case for exchange rate risk.
Transaction category: Category to which a transaction is assigned according to FAS 133 (planned
transaction, fixed commitment, ...).
The transaction activity (such as purchase or sale) qualifies the transaction category.
An exposure consists of one or several transactions. The total value of the transactions determines the
value (volume) of the exposure.
If you have already entered an exposure (consisting of at least one transaction), and then enter a new
transaction, the setting in the Exposure field determines whether the new transaction is assigned to the
existing exposure, or whether it creates a new exposure.

SAP Hedge Management Functions II
z Define hedge category

Fair value hedge (FAS)
Cash flow hedge (FAS)
z Define target hedge ratio for the hedged item

z Link the derivative and the exposure to be hedged
z Select the hedge strategy
Create hedging relationship between the hedged item and the

derivative manually
 SAP AG 2001
You create the link between the hedged item and the derivative manually (hedging relationship). A
hedged item is an exposure that you have hedged or plan to hedge. Several hedged items can be linked to
a given derivative financial instrument, and several derivative financial instruments can be linked to a
given hedged item.
In the Target ratio field, you specify the extent to which you want to hedge the exposure/hedged item.
Ref. hedge ID: This field is optional. When you enter a new hedged item, you can use the reference
hedge ID to refer to an old hedged item. This back reference enables you to specify that an item is a
successor of a previous hedged item. For the reference, you can choose from hedged items that are
assigned to the current plan ID in the current company code. The possible entries are listed in the
dropdown box.
Hedge Strategy: Set of rules containing all the calculation principles needed to determine the
effectiveness of a hedge. It also determines whether the shortcut method applies.
Note: Once the hedging relationship has been saved, you cannot change the hedge strategy. You can
only change the hedge strategy by dissolving the hedging relationship and creating a new one.
In the FV on incept. field you can set the fair value of the hedged item on the inception date (to the value
of the derivative). This enables you to optimize the effectiveness of the hedge. For more information, see
the F1 field help.

Hedge Management Period-End Activities
• Calculate and Save Net Present Values of OTC

Transactions
• Define Net Present Values at the Start Date
• Define Net Present Values of OTC Transactions
• Adjust Interest Rates for Exposures
 SAP AG 2002
Calculate and Save Net Present Values of OTC Transactions: You can use this function to save net
present values for money market, foreign exchange and derivative transactions in the OTC Net Present
Value table.
Define Net Present Values on Inception Date: This function determines the opening values (at the
beginning of the hedging relationship) for all derivatives used as hedging instruments, and stores them in
the corresponding Net Present Value table. You can carry out a test run with this function.
Opening values:
- FX forwards: NPV = 0
- FX options: NPV = premium, intrinsic value = 0, time value = premium
- Interest rate swaps: NPV = 0

SAP Hedge Management Functions III

z Effectiveness test
Retrospective effectiveness assessment: On the valuation

key date, you must carry out a retrospective effectiveness to
check whether the change in the value of the derivative
during this period correlates sufficiently w ith the change in
the value of the hedged exposure.
Different calculation methods, depending on

the type of hedge (cash flow hedge / fair value
hedge)
Prospective effectiveness assessment
Effectiveness measurement
 SAP AG 2002
In Customizing, you can set up different calculation methods for assessing and measuring effectiveness.
The retrospective effectiveness assessment function calculates delta amounts and delta totals for both
the financial transaction (derivative) and the hedged item (exposure). It also calculates the effectiveness
ratio.
Prospective effectiveness assessment: You can use this function to determine the effectiveness of one
or several hedging relationships on a given valuation key date. You must enter this data manually. If you
click on the Effective column in the report, the green symbol turns red, and the corresponding hedging
relationship is flagged as ineffective for the future.
Effectiveness measurement:
Cash flow hedge: The effectiveness measurement determines the part of the change in the value of the
derivative that can be posted to Other Comprehensive Income (OCI).
Fair value hedge: The effectiveness measurement determines the part of the exposure in the hedging
relationship that can be posted to P&L. In the case of a fair value hedge, the change in the value of the
derivative is always posted to P&L, irrespective of whether the hedging relationship is effective, or
ineffective, resulting in the derivative being regarded as "open".

Effectiveness Test - Process
Define
Define hedge
hedge strategy
strategy
Customizing
Application
Choose
Choose hedge
hedge strategy
strategyfor
for Retrospective
hedging relationship
hedging relationship effectiveness a sse ssment
Prospective effectiveness
asse ssment
Effectivene ss
measurement
 SAP AG 2001
The amounts to be posted for the derivative, for OCI and for P&L are determined by valuation functions
in conjunction with the calculation methods for the effectiveness assessment.
If the prerequisites for a "perfect hedge" are fulfilled, you are not required to carry out the effectiveness
test. This is referred to as the shortcut method.

Key Date Valuation
General selections:
FAS 133 di stribution
If you set thi s indicator, the system generates distribution

flows in addition to the valuation flows.
The system determines whether the valued derivative is part of

a hedging relationship according to FAS 133.
 SAP AG 2001
FAS 133 distribution:

The system calculates the distribution flows on the basis of the rules defined for the relevant hedging
relationships in hedge management.
The total of all the distribution flows corresponds to the total of all the valuation flows. This indicator
affects the valuation of the following products:
y Forward exchange transactions (product category 600)
y Interest rate swaps (product category 620)
y OTC options (product category 760)

Posting Logic Extract:
Example - Forward Exchange Transaction I
1. Disclose unrealized gain (683,915.78 USD)
2. Classify as OCI position - Effectiveness assessment (410,349.47 USD)
3. Classify as open position to be posted to P&L (273,566.31 USD)

(The part of the derivative that is not covered by the
hedging relationship)
 SAP AG 2001

Posting Logic Extract:
Example - Forward Exchange Transaction II
Forex clearing Technical clearing

1 683,915.78 USD 2 410,349.47 USD 1 683,915.78 USD
3 273,566.31 USD
0.00 USD 0.00 USD
Transfer to P/L OCI

3 273,566.31 USD 2 410,349.47 USD
 SAP AG 2001
In the SAP posting logic, the fair value of the derivative is posted to a clearing account. From there, the
value is distributed to the corresponding accounts on the basis of the hedge category and the results of
the effectiveness test.

SAP Hedge Management
Hedge Management - Customizing

Transaction Manager
General Settings
Hedge Managem ent
Effectiveness Test
 SAP AG 2001

Example: Define Calculation Types
Define Calculation Types
Calculation types for effectiveness measurement
Calculation type 201

Calc. type name Net present value cumulative
Calculation category Net present value
Evaluation type FASB
Comparative calc. method Valuation currency offset cumulative
Price/NPV type FAS
 SAP AG 2002
In this IMG activity you define the calculation types that are relevant for the effectiveness test. These
are available as possible entries when you define the hedge strategy later on.
A calculation type contains all the parameters required to measure the effectiveness of a hedging
relationship. These include the effectiveness calculation category, the offsetting calculation category for
the differences, the evaluation type in the Market Risk Analyzer, and the NPV type.
The evaluation type identifies the market parameters and valuation parameters for risk management
evaluations.

Example: Define Assessment Types
Define Assessment Types
Retrospective effectiveness assessment types
Effectiveness assessment type 1

Effectiveness assessment Standard range
type name
Effectiveness ratio from 0.8000000
Effectiveness ratio to 1.2500000
 SAP AG 2002
In this IMG activity you define the retrospective effectiveness assessment types. You define an upper
and lower limit for the effectiveness ratio, which determines the range within which the hedging
relationship is deemed as effective. These assessment types are available as possible entries when you
define the hedge strategy later on.

Example: Define Hedge Strategies
Define Hedge Strategies

Hedge Management: Custom izing Hedge Strategy
Assessment type 1
Assessment calc. type 201
Measurement calc. type 201
Text PV forw ard rate cumulative

Shortcut
Cash flow determination FAS 133: Application of 30(b); cf.
balances to derive ineffectiveness
 SAP AG 2002
In this IMG activity you define the hedge strategy for testing the effectiveness of the hedging
relationship. The hedge strategy comprises several parameters that define how the effectiveness test is
carried out. These include the assessment types, the calculation types for the effectiveness assessment,
and the calculation types for the effectiveness measurement. You can also define whether the shortcut
method is available.

Customizing – Other Settings I
Hedge Management
Define Number Ranges for Hedges
Assign Hedge Number Ranges to a Company Code
Company Code-Dependent Settings for Hedge
Management
Define and Set up Evaluation Type

Define Price/NPV Type
 SAP AG 2001
You must decide for each company code whether a negative result in the prospective effectiveness
assessment leads to the hedging relationship being dedesignated or dissolved. If you dedesignate a
hedging relationship, the link between the derivative and the hedged item is deactivated without clearing
the OCI balance. If you dissolve the hedging relationship, the OCI balance is cleared.
The default settings for the evaluation type are default market price parameters. These are required by
the NPV calculators to determine the market data relevant for valuation.
In the application you can store several NPVs for an OTC transaction. These are identified using the
price/NPV types you define in Customizing. When you perform a mark-to-market valuation, the
price/NPV type you specify determines which of the stored present values is used.

Customizing – Other Settings II
z Transaction Manager
Define Product Types
Define Transaction Types
Define Flow Types
Assign Flow Types to Transaction Type
Assign Valuation Class to Company Code/Transaction Type
FCR determination: 6 (current forward
rate/transaction forward rate
discounted)
Assign Valuation Flows to Transaction Type
Assign Flow Types for FAS 133 Distribution
Account Determination – Define Settings
 SAP AG 2002
y FCR determination 6:
When you run a valuation, the system compares the current transaction NPV in local currency with the
book value in local currency. The book value of the transaction is the total of all the valuations to-date.
The system generates a valuation flow for unrealized gains/losses.
It compares the transaction spot rate with the posting rate and generates a flow for the realized
gain/loss.
y You therefore need to create flow types specifically for FAS 133 and assign them to usages in
accordance with FAS 133.
y In the SAP posting logic, the fair value of the derivative is posted to a clearing account. From here, the
value is distributed to the corresponding accounts on the basis of the hedge category and the results of
the effectiveness test.

Parallel Valuation Area - FAS 133
Key Date Valuation
Define Securities Valuation Procedure

Step type 4
Procedure 3000
Name Securities valuation for FAS 133
Net Present Value type FAS
Write-up rule Write-up to Market Value/Present Value
Write-down rule Write-down to Market Value/Present
Value
Gain/loss handling Distribute profits/losses according to
FAS 133
 SAP AG 2002

Reports Selection I
Hedging Relationships per Derivative
OCI Balance Overview
Exposure Expiration
Hedging Relationship Dede signation
Hedge Plan Expiration
Hedging Relationship Status Overview
 SAP AG 2002
The function Hedging Relationships per Derivative displays derivatives alongside the exposures hedged
by these derivatives. You can use it to see which derivatives are already being used to hedge an
exposure, which derivatives are still open, and which exposures still need to be hedged.
The function OCI Balance Overview determines the OCI and P&L balances for derivatives and their
hedging relationships on any given date.
You can use the Exposure Expiration function to monitor the expiration dates for the selected exposures.
The function dissolves all hedging relationships assigned to expired exposures.
You use the function Hedging Relationship Dedesignation to manually dedesignate one or several
hedging relationships on a given date.
Example: All the hedging relationships for a particular derivative.
You can use the function Hedge Plan Expiration to display and dissolve all the hedging relationships for
hedge plans with a given expiration date.
The function Hedging Relationships Status Overview provides an overview of all existing versions of a
selected hedging relationship. The latest version appears with a green traffic light. Other versions are
marked with a red traffic light.

Reports Selection II
Retrospective Effectiveness Asse ssment: Di ssol ve

Ineffective Hedging Relationships
Manual OCI Reclassifi cation
Fair Value Changes to be Posted
Prematurely Reclassified OCI
 SAP AG 2002
The function Retrospective Effectiveness Assessment: Dissolve Ineffective Hedging Relationships lists all
the hedging relationships that have proved to be ineffective during the last period. From the list, you can
select and dissolve some or all of the hedging relationships.
You can use the Manual OCI Reclassification function to reclassify all or some of the OCI balances for
the selected hedging relationships.
The function Fair Value Changes to be Posted displays all the fair value changes that have been
calculated for the selected hedged items in effective hedging relationships. This indicates which postings
are necessary for the underlying exposures.
The function Prematurely Reclassified OCI displays all the OCI balances that were reclassified early,
that is, before the exposures affected income. You can use this function to meet the requirements for
exception reporting.
You will find detailed information in the SAP Library.

FAS133: Unit Summary
z FAS 133 establishes fundamentally new accounting and

valuation guidelines.
z The basic forms of hedge are fair value hedges and cash flow
hedges.
z If the hedging relationship is deemed to be effective in both
the retrospective and prospective effectiveness assessments,
the system performs the last step in the effectiveness test, the
effectiveness measurement.
z In Customizing, you need to define calculation types,
assessment types and hedge strategies.
 SAP AG 2001

1 Parallel Position Management
Area-specific Customizing settings

2 - Parallel position management -
 SAP AG 2002
Take note of the applicable release restrictions.

Parallel Position Management:
Unit Objectives
z Make the basic settings in Customizing for parallel

position management.
 SAP AG 2001

Basic Principles
Money Market
Foreign Exchange
Derivatives
FAS 133
 SAP AG 2002

Parallel Position Management: Business Scenario
z Which basic settings must be made in Customizing so

that an operative busine ss transaction can be updated
in parallel position management?
 SAP AG 2001

1 Overview
2 Transaction entry
3 Posting transactions
4 Valuation
5 Reporting
 SAP AG 2002

Reasons for Using Parallel Books...
z Legal requirements
z Comparability
standard accounting principles enable benchmark comparisons between companies
Group-internal
comparison of subsidiaries from different countries
Group-external
comparison of different companies (in the same industry)
z Consolidation
z Globalization
 SAP AG 2001

...and How CFM Does This
Defines position management

Defines several proceduresin order to produce IAS
parallel valuation areas and/or US-GAAP accounts
in the parallel valuation areas
Resetting keydate valuations

Supports lot accounting
enables you to produce quarterly
for securities
and annual accounts
 SAP AG 2001

Parallel Valuation Areas
Operative Valuation Ar ea
Operative
EX AMPLE! valuation
Position Management
HGB (German Commercial Code)
Valuation area 01 Rate gains
Business D
i
Position Management
Administration s US GAAP Parallel
t
r . valuation
i .
b .
u
t Position Management Rate gains
o
r IAS
Parallel Valuation Areas
 SAP AG 2002

Transaction Entry
Administration
Gen. valn class
Exam ples:
Short-term investment
Medium-term investment
Long-term investment
 SAP AG 2002
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. This class is significant when you are
assigning the transaction as part of parallel position management.

Posting Transactions: Initial Screen
Post transactions
General selecti ons
Company Code TRXX
Transaction to
FI posting date to
Posting control
Test run
 SAP AG 2002
To ensure that the data transfer occurs, you have to post the transactions in the context of the parallel
valuation areas.
When you post a transaction in the parallel valuation areas, the company code, the transaction number
and the FI posting date are available as selection criteria.
Note on posting: After you have posted transaction flows, the system sets other fields in the transaction
to "cannot be changed", as these are important for the parallel valuation areas. These fields are:
- General Valuation Class
- Portfolio.
If these fields nevertheless need to be modified, the posted flows for the transaction must be reversed.
You can then modify the fields. After you have done this, you will have to post the flows again.

Key Date Valuation
General selections
Company code TRxx to
Valuation area 001 to 002 Posting control
Product type to
for updating
in the parallel
Valuation class to valuation areas
Portfolio to
OTC Transactions
Transaction to
Valuation parameters Different v aluation

categories enable you
Key date for valuation 09/30/YYYY
to produce quarterly
Valuation category and year-end accounts
 SAP AG 2002
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.

Reporting
; Parallel Position Management

; Reporting
Positions
- Display in SAP list viewer
- Branch to the position flows
- Branch to the posting journal
- Determ ine 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 2002

Parallel Valuation: Organization
FI
CFM
TR accounting code Company code
Valuation area Valuation class
 SAP AG 2002
The general settings include the definition of the organizational units that are required in 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, in addition to the
operative valuation area, you have to set up a parallel valuation area in Customizing.
You define the parallel valuation classes 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. Finally, you assign the general valuation class to the valuation class for each valuation area. This
procedure has the advantage that, in day-to-day business (for example, trading) an abstract but familiar
term can be used. This can then be mapped in the background to the special valuation classes familiar to
accounting.

Valuation Area and Accounting Code
Define valuation areas

001 Operative valuation area
002 IAS
003 US GAAP
es
pl
am
Ex
Define accounting codes
CFxx TRxx
 SAP AG 2002
For each valuation view (accounting rule) supported by the system extending beyond the operative
valuation area, you have to set up a parallel valuation area in Customizing.
Note: The parallel valuation area 001 has a special role.

Assigning Accounting Codes and Valuation Areas
001 Operative valuation area
CFxx 002 IAS

003 US GAAP
TR Accounting code Valuation areas
Posting in
z General ledger
z Special ledger
 SAP AG 2001
You assign the relevant valuation areas to the TR accounting codes. This implicitly establishes the
valuation areas 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.
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
Valuation class • General valuation class
- short-term investments
- medium-term investments
- long-term investments
• Valuation class
Define and assign valuation classes:

Bala nce sheet
Gener al Valuation class

Valuation area
valuation class
 SAP AG 2002
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 on the basis of the valuation
class.
As different accounting rules allow different classifications, the valuation classes are dependent on the
valuation area. Examples of valuation classes include fixed assets, current assets (HGB-German
commercial code), or also held-for-trading or available-for-sale (IAS).

Parallel Valuation: Consumption Sequence
Procedure
Position ?
LIFO
FIFO
manual
Assign:
FI Company code
01A,... Product
04I... type
General valuation class
 SAP AG 2002
The question as to which business transactions are aggregated for any one position is answered in each
valuation view via the position differentiation. Depending on the properties of defined characteristics,
the operative business transactions in each valuation area are assigned to a position. With some products,
the position differentiation is implicit. The differentiation terms are defined in Money Market, for
example.
You can define a consumption sequence procedure for individual positions (securities and listed
derivatives). In this IMG activity, you define which consumption sequence procedure is to be used to
determine the position to be sold in the event of a sale.

Single Position Management:
Assigning Consumption Sequence Procedure
3000 Purchase 3000 Purchase 3000 Purchase

on 12.01. on 12.01. on 12.01.
Purchase Purchase
5500 on 07.01. 5500 Purchase 5500
on 07.01. on 07.01.
1000 Purchase Purchase

on 02.01.
1000 1000 Purchase
on 02.01. on 02.01.
?
1000 1000 1000
LIFO FIFO Manual assignment
 SAP AG 2001
You can use either of the following consumption sequence procedures:

y LIFO = Last in, First out
y FIFO = First in, First out
y Manual assignment:

Overview
z Key date valuation: Define procedure,

for example, define rate valuation procedure for
forward exchange transactions
z Define position management procedure
z Assign position management procedure
 SAP AG 2001
The position management procedure defines 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.
Then you determine the sequence of the procedures. You can combine amortizations, one-step rate
valuations, securities and foreign currency procedures according to requirements.
You can assign position management procedures dependent on different factors (for example, valuation
area, valuation class, product type).

Define Position Management Procedure
Position mgmt procedure 4000

Name Forward exchange transactions: Spot/spot
Position mgmt category Foreign exchange transactions
Step 1
Step category 6 Rate valuation for forward exchange transaction
Procedure 1000 Rate valuation spot/spot
E Carry out for key date valuation
Step 2
Step category 7 Swap/m argin accrual
Procedure
E
Step 3
Step category 8 Sw ap valuation
Procedure
 SAP AG 2002
The sequence of the steps in a valuation is established in the definition of the position management
procedure.

Assign Position Management Procedure
Assignment criteria: Position mgmt procedure 4000

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

accounting 4000
area: class
code
 SAP AG 2002
When assigning the position management procedures, 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 in the TR Ledger
1 Update type s
2 Derived busine ss transactions
3 Account determination
 SAP AG 2001

Update Types - Terminology
z The identification of the new update types has been taken from the old
flow types:
Example: Update typw FX1000+
FX = Foreign Exchange
1000 = Flow type purchase foreign exchange
+ = Sign +
DE = Derivati ves
FX = Foreign exchange
LO = Loans Update ty pes are
MM = Money Mar ket held in one table
independent of the
SE = Securities
module
V = Valuation
R = Reset valuati on
TRL = Treasur y ledger fl ows (rate gains, rate losses , translation and
reconciliation flows, valuation, etc .)
 SAP AG 2001

Key Date Valuation - Update Types
Define update types
Assign update types to usages
Assign update types for valuation
Position m anagement procedure
 SAP AG 2001
For the individual usages, you must first define the required update types and then assign them. You
assign update types for derived business transctions and for valuations on a position management
procedure basis. In account determination, the posting systematic is defined using the assignment of the
posting logic to the update type. By using different update types, therefore, you can differentiate between
the position management procedures.

Derived Business Transactions
Define update types
Assign update types to usages
Assign update types for derived busine ss

transactions
 SAP AG 2001
Operative business transactions are updated to the parallel valuation areas without being affected by
valuation criteria in the operative area.
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 2002
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 ref erence

... ...
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
... ...
Assign
&% Derivation rule(s)

Assignment
 SAP AG 2002
Within the parallel valuation areas, the account assignment references are initially defined without specifying a
balance sheet account. In the context of account determination, the balance sheet accounts can be assigned using a
similar classification system 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

Acc. symbol Name of account symbol Posting category
1 Position (Book value) Position posting book value
Definition of posting logic

0001 Bal.sheet to bank clearing
Debit posting
Account symbol 1
Credit posting
Account symbol 3
Assignment of update type to posting logic

Up. type Name of update type Post. logic Name of posting logic
MM1100- Invest./Increase 0001 Bal. sheet to bank clg
Assignment of G/L accounts to account symbols

Account symbol AcctAsstRef. Val. area G/L account
1 Position 10001 113113
 SAP AG 2002
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.
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.

Parallel Position Management: Exercise
Parallel Position
Management
Customizing/ Application
 SAP AG 2002

Parallel Position Management:
Unit Summary
z To ensure that the data is available in the parallel valuation

areas, transactions are posted as part of parallel position
management.
z The organizational elements of parallel position management
include the accounting code and valuation area.
z Valuation classes serve as orientation for the trader and are
useful for classifying the position in the balance sheet.
z You define the update types and the account determination for
the update to the TR ledger.
 SAP AG 2001
In order to start afresh on an initial key date in the parallel valuation areas of the TR ledger, the initial
positions of the operative valuation area must be transferred on the key date.
For the first-time set-up, the position components must be adapted to the individual valuation areas
according to the accounting rules.
For position initialization, some update types are used to post the initial positions (valuation area-
dependent if applicable).
A function is available for this TRL initialization.

Exercises
Unit: Parallel Position Management

Topic: Customizing

• Make the necessary Customizing settings for use with parallel
position management
You wish to define a further position management procedure (based on a

securities valuation procedure) and assign it to your new product type.
You make the necessary Customizing settings. You then perform a
parallel valuation for a forward exchange transaction in accordance with
IAS and US GAAP.
Assume that the forward exchange transaction to be valued is not a
hedging transaction.
1-1 Define your own securities valuation procedure TXX. Define the net present value type
as 001 and write-up/write-down to market value/net present value. You wish to realize the
valuation results directly.
1-2 Set up a further position management procedure with the name "VXX".
1-2-1 Define the position management procedure "VXX":
Position management category: Foreign exchange transactions
Transfer category: Posting to the same components (Note: has no effect here)
Step 1: Carry out the securities valuation, procedure TXX, at the key date
valuation
1-2-2 Define the required update types (for key date valuation) for your newly
defined position management procedure "VXX". Copy the update types for the
existing position management procedure "3002".
1-2-3 Define the required update types (for derived business transactions) for your
newly defined position management procedure "VXX". Copy the update types
for the existing position management procedure "3002".
1-2-4 Assign position management procedure "VXX" in accounting code "CFXX" for
the IAS and US GAAP valuation areas, and the valuation class "Trading" for
your product/transaction type combination "DXX/GXX".

1-3 Complete the automatic account assignment reference determination.
Complete the existing derivation rule for the account assignment reference determination.
Define the account assignment references US_TRA20000 and IAS_TRA20000 for your
new product/transaction type combination DXX / GXX, the valuation areas US GAAP and
IAS and the relevant valuation class Trading

Exercises

Topic: Application

• Carry out valuations (in the parallel valuation area) for forward
exchange transactions.
You wish to define a further position management procedure (based on a

securities valuation procedure) and assign it to your new product type.
You make the necessary Customizing settings. You then perform a
parallel valuation for a forward exchange transaction in accordance with
IAS and US GAAP.
Assume that the forward exchange transaction to be valued is not a
hedging transaction.
2-1 Create a forward exchange transaction (with your new product type/transaction type
DXX/GXX) and DEUBA as the business partner.
- Purchase 1 million USD

- Sale UNI
- Value date in 3 months
- Forward rate2.05
Define "no hedging instrument" as the general valuation class (by way of example only).
2-2 Use the Market Risk Analyzer to calculate the net present value for the forward transaction
you have just created (with evaluation at the next month-end) and save this.
- Display currency is UNI
- Evaluation type 0001
- Net present value type 001
First, carry out a test run. Take a closer look at the calculation bases and the detail log.
Now carry out the update run and save the net present value.

2-3 Carry out a valuation in the parallel valuation area. Restrict this to OTC transactions and
your transaction. The key date valuation is the next month-end. We will carry out a mid-
year valuation without reset. Since the Customizing settings are new, carry out a test run
first.
Has your newly created position management procedure been used? If not, check your
Customizing settings.
Take a look at the posting log - posted business transactions.
2-4 Post your forward exchange transaction first in the operative valuation area.
2-5 Then post it in the parallel area.

Now carry out a test run and check the posting log.
2-6 Display the flows via the evaluations. Restrict the flows to your transaction number.
2-7 Here, the price gain or translation flow is still in "plan" status. You should therefore fix the
derived business transactions for your transaction.

Solutions
Topic: Customizing
1-1 Solution to the step: Defining a securities valuation procedure.

⇒ Accounting
⇒ Parallel Valuation Areas
⇒ Settings for Position Management
⇒ Key Date Valuation
⇒ Define Securities Valuation Procedure
NEW ENTRIES

Procedure TXX
Name (freely definable)
NPV type 001
Write-up rule Write-up to market
value/present value
Write-down rule Write-down to market
value/present value
Profit/loss handling Initial
SAVE

Profit/loss handling
This indicator is used to control the handling of profit and
loss. You can use any of the following options:
• Do not realize profit/loss:

Write-ups and write-downs are also managed in a separate
position component (valuation not affecting net income).
Where they result in outflows or transfer posting, derived
business transactions are generated. You can use these in turn
to clear equity capital items generated by the valuation, for
example.
You must create the corresponding update types in
Customizing for the derived business transactions.
• Distribute profits/losses according to FAS 133:
• Realize profits/losses (indicator remains at the initial value):
None of the options listed above are used. This constitutes a
direct realization of the valuation results.
.

1-2 Solution to the step: Setting up a position management procedure.
1-2-1 Solution to the step: Defining a position management procedure.

⇒ Accounting
⇒ Define Position Management Procedure
NEW ENTRIES

Position mgmt procedure VXX
Name Freely definable (for example,
forward exchange transaction:
mark-to-market)
Position mgmt category Foreign exchange transactions
Transfer category For example, posting to same
components
Step category 4
Procedure TXX
Carry out at key date valuation Set the flag
SAVE

1-2-2 Solution to the step: Assigning update types for valuation.

⇒ Accounting
⇒ Key Date Valuation
⇒ Update Types
⇒ Assign Update Types for Valuation
Use the existing position management procedure "3002" as a

template.
SAVE
1-2-3 Solution to the step: Assigning update types for derived business transactions.

⇒ Accounting
⇒ Derived Business Transactions
⇒ Update Types
⇒ Assign Update Types for Derived Business Transactions
Use the existing position management procedure "3002" as a

template.
SAVE

1-2-4 Solution to the step: Assigning a position management procedure.

⇒ Accounting
⇒ Assign Position Management Procedure

Accounting code CFXX
Valuation area 002
Valuation class 0001 (Trading)
Product type DXX
Accounting code CFXX

Valuation area 003
Product type DXX
SAVE

1-3 Solution to the step: Completing the derivation rule for account assignment reference
determination.

⇒ Accounting
⇒ Link to Other Accounting Components
⇒ Define Account Assignment Reference Determination (Transactions)
Double click on derivation rule

Button: Maintain rule values

Product type DXX
Valuation area 002
Account Assignment Reference US_TRA20000

Product type DXX
Valuation area 003
Account Assignment Reference IAS_TRA20000

Solutions
Topic: Application
2-1 Solution to the step: Creating a forward exchange transaction.
⇒ Accounting
⇒ Trading
⇒ Create
Entry: Data...

General valuation class Not a hedging instrument
SAVE

2-2 Solution to the step: Saving the net present value
⇒ Accounting
⇒ Market Risk Analyzer
⇒ Tools
⇒ Storage
⇒ OTC NPVs

Company code TRXX
Foreign exchange Set the flag
Financial transaction Your transaction number
Evaluation per End of next month
Display currency UNI
Evaluation type 0001
NPV type 001
⇒ CALCULATION DETAILS
⇒ DETAIL LOG

2-3 Solution to the step: Carrying out a valuation
⇒ Accounting
⇒ Accounting
⇒ Valuation
⇒ Execute

OTC Transactions Set the flag
Company code TRXX
OTC Transaction Your transaction number
Key date for valuation End of next month
Valuation category Mid-year valuation without
reset
CARRY OUT VALUATION

see valuation log: Position management procedure
LOGS AND MESSAGES

see posting log: posted business transactions

2-4 Solution to the step: Making the posting
⇒ Accounting
⇒ Accounting
⇒ Posting
⇒ Execute
2-5 Solution to the step: Making the posting (parallel valuation areas)
⇒ Accounting
⇒ Accounting
⇒ Transaction
⇒ Post

Company code TRXX
Test run First set the flag
EXECUTE
POSTING LOG – PARALLEL VALUATION AREAS

2-6 Solution to the step: Displaying flows
⇒ Accounting
⇒ Accounting
⇒ Reporting
⇒ Flows

Company code TRXX
Transaction number Your transaction number
EXECUTE
2-7 Solution to the step: Fixing derived business transactions
⇒ Accounting
⇒ Accounting
⇒ Derived Business Transactions
⇒ Fix

Company code TRXX
Transaction number Your transaction number
Fix derived business Set the flag
transactions for scheduled
business transactions
EXECUTE
CARRY OUT FIXING

POSTING LOG – PARALLEL VALUATION AREAS

1 General
2 Preparatory activities
3 Conversion phase
4 Cleanup activities
 SAP AG 2001

Transaction Currency Changeover:
Unit Objectives
Carry out the transaction currency changeover for

your Money Market, Foreign Exchange and
Derivatives transactions.
 SAP AG 2001

Basic Principles
Money Market
Foreign Exchange
Derivatives
FAS 133
 SAP AG 2002

Business Scenario
You would like to use the Money Market, Foreign

Exchange and Derivatives modules.
If some of the se transactions are carried out in
the dual currency phase or extend beyond thi s,
you can/must convert the se transactions to the
euro after agreement with the busine ss partner.
 SAP AG 2001

1 General
3 Conversion phase
 SAP AG 2001

General
After agreement with the business partner, a selected

transaction position i s proce ssed on a transaction-by-
transaction ba si s as part of an automatic transaction.
Transactions with due dates within the dual currency phase
can be converted to the common euro currency
Transactions with due dates after the dual currency phase
must be converted to the common euro currency
The transaction currency changeover can take place before
or after the local currency changeover
 SAP AG 2001

Changeover Program
The transaction currency changeover report also allows you

to value financial transactions at the fixed euro rate without
changing over the transaction currency. Thi s i s necessary
when the transaction currency changeover only occurs after
the key date at which gains and losse s re sulting from the
fixed euro translation have to be realized.
 SAP AG 2001

Changeover - Process Flow
Start of
changeover
Preparation activities
Changeover of transaction currency
Convert Convert Convert

Money Market Forex Derivatives
Cleanup activities
End of
changeover
 SAP AG 2001

after Local Currency Changeover (I)
Example 1:
LC = TC = UNI
LC changeover as of 01/01/1999
TC changeover as of 01/01/2001
Dual currency phase
1/1/1999 1/1/2000 1/1/2001 1/1/2002 06/30/2002
Local currency:
UNI Euro
Transaction currency:
UNI UNI Euro
LC=TC LC # TC, TC = FC LC = TC
 SAP AG 2001
Before the local currency changeover (1/1/99) from UNI to Euro, all money market transactions are
managed as local currency transactions.
In the period between the local currency changeover and the transaction currency changeover, all money
market transactions are managed as foreign currency transactions.
Following the transaction currency changeover (1/1/2001), all money market transactions will be
managed as local currency transactions again.
After the local currency changeover (1/1/1999), the money market transaction must be valued at the
fixed euro rate using the valuation function incorporated in the changeover program (key date valuation).
The system does not create any additional valuation flows during the transaction currency changeover.
Note:
If the valuation principle does not allow for write-ups in the key date valuation, a euro valuation flow is
generated in the case of a gain from transaction currency changeover. This is taken into account when
realized gains and losses are determined.

after Local Currency Changeover (II)
Example 2:
LC # TC
LC = UNI
TC = FRF
Dual currency phase
1/1/1999 1/1/2000 1/1/2001 1/1/2002 06/30/2002
Local currency:
UNI Euro
FRF Euro
LC # TC, TC = FC LC = TC
 SAP AG 2001
Before the local currency changeover (1/1/99) from UNI to Euro, all money market transactions are
managed as local currency transactions.
In the period between the local currency changeover and the transaction currency changeover, all money
market transactions are managed as foreign currency transactions.
Following the transaction currency changeover (1/1/2001), all money market transactions will be
managed as local currency transactions again.
After the local currency changeover (1/1/1999), the money market transaction must be valued at the
fixed euro rate using the valuation function incorporated in the changeover program (key date valuation).
The system does not create any additional valuation flows during the transaction currency changeover.
Note:
If the valuation principle does not allow for write-ups in the key date valuation, a euro valuation flow is
generated in the case of a gain from transaction currency changeover. This is taken into account when
realized gains and losses are determined.

before Local Currency Changeover (I)
Example 3:
LC = TC = UNI
Dual currency phase
01/01/1999 01/01/2000 01/01/2001 01/01/2002 06/30/2002
Local currency:
UNI UNI
Euro Euro
UNI Euro
LC = TC LC # TC, TC = FC LC = TC
 SAP AG 2002
Before the transaction currency changeover (1/1/1999) from UNI to Euro, all money market transactions
are managed as local currency transactions.
After the transaction currency changeover and until the local currency changeover, all money market
transactions are managed as foreign currency transactions.
Following the local currency changeover (1/1/2001), all money market transactions are managed as local
currency transactions again.
At the time of the transaction currency changeover (01/01/99), the system carries out a valuation of
money market transactions at the fixed euro rate.

before Local Currency Changeover (II)
Example 4:
LC # TC
LC = UNI
TC = FRF
Dual currency phase
01/01/1999 01/01/2000 01/01/2001 01/01/2002 06/30/2002
Local currency:
UNI UNI
Euro Euro
FRF Euro
LC # TC, TC = FC LC = TC
 SAP AG 2002
Before the transaction currency changeover (1/1/2000) from UNI to Euro, all money market transactions
are managed as foreign currency transactions.
After the transaction currency changeover and until the local currency changeover, all money market
transactions are managed as foreign currency transactions.
After the local currency changeover (1/1/2001), all money market transactions are managed as local
currency transactions.
At the time of the transaction currency changeover (01/01/00), the system carries out a valuation of
money market transactions at the fixed euro rate.
Gains and losses resulting from the transaction currency changeover are disclosed separately,
regardless of the valuation principle for the corresponding transaction type.
Valuations after this time do not generate any further gains or losses.
The gain/loss that has already been disclosed is taken into account when the realized gains/losses are
determined.

Posting Details for Example 4
Money Market transactions in T-accounts:

Transaction : 1000 FRF LC = UNI
TC changeover : FRF Euro
Balance sheet account MM (FRF) P&L account (EUR changeover)

1000 FRF 0 FRF 0 FRF
(300 UNI) (10 UNI) (10 UNI)
1000 FRF
(290 UNI)
Clearing account Balance sheet account MM (Euro)

1000 FRF 145 Euro 145 Euro
(290 UNI) (290 UNI) (290 UNI)
 SAP AG 2002
The money market transaction was originally posted at an FRF/UNI rate of 0.30. The following postings
result from the euro changeover of the transaction currency prior to the local currency changeover:
Valuation of the FRF position at fixed conversion rate

(Assuming: 1 FRF = 0.145 EUR
1 EUR = 2 UNI)
Post the FRF position to the clearing account at the fixed exchange rate
Post the euro position

1 General
3 Conversion phase
 SAP AG 2001

Preparatory Activities: Overview I
You
You need
need to
to make
make various
various changes
changes in
in the
the R/3
R/3
Customizing
Customizing Imple
Implementation
mentation Guide:
Guide:
Maintain the euro currency table

 Create one or several number ranges with internal
number assignment
 Create number range 01 for the reference category
EUR
Create clearing accounts
Create different flow types if you intend to generate
postings
 SAP AG 2001

Preparatory Activities: Overview II
Maintain account determination for these flow types

Maintain the leading currency table
Maintain the exchange rate tables
Maintain standing instructions for payment details if
applicable
 SAP AG 2001

Maintaing the Euro Currency Table
R/3 Customizing Implementation Guide:

Transaction Manager
General Settings
Euro Currencie s
Define Participating Currencies for Euro Changeover
 SAP AG 2001

Creating Number Ranges

Transaction Manager
Money Market, Foreign Exchange or Derivatives
Transaction Management
Transaction Type s
Define Number Ranges
 SAP AG 2001
You need to create one or several number ranges with internal number assignment for storing the
original transactions.

Defining Number Ranges for Linking Transactions

Transaction Manager
General Settings
Define Number Ranges for Linking Transactions
 SAP AG 2001
Create a number range 01 for the reference category EUR.
The reference is used to link the original transaction to the converted euro transaction after the
transaction currency changeover.

Creating Clearing Accounts
R/3
R/3Application
ApplicationMenu:
Menu:
Accounting
Financial Accounting
General Ledger
Master Data
Individual Processing
...
 SAP AG 2001
Create clearing accounts via which you take the amounts in the original currency off the books and post
the amounts in euro (account currency = local currency).
These amounts are also referred to as currency swap clearing accounts.
There is no open item management for these clearing accounts.

Creating Different Flow Types (I)

Transaction Manager
Flow Types
Define Flow Types
You have to create various flow types using thi s path if you
intend to generate postings.
 SAP AG 2001
If you want the system to generate flows, you need to create the various flow types for the Money
Market, Foreign Exchange and Derivatives applications.
Postings need to be generated if you want to carry out balance sheet transfers. To do this, you need to
create two posting flows (a debit and a credit flow) and two valuation flows. If you only want to perform
euro valuations, it is sufficient to create the two valuation flows.

Creating New Flow Types (II)
Create flow type (outflow)

Flow classification transfer, flow category 40
For taking the original currency off the books
Create a flow type (inflow)
Flow classification transfer, flow category 40
For posting the amounts in euro
Create a P&L flow type for a possible loss
Flow classification valuation, flow category 90
Possible loss resulting from translation at fixed rate
Create a P&L flow type for a possible gain
Flow classification valuation, flow category 91
Possible gain resulting from translation at fixed rate
 SAP AG 2001

Maintaining Account Determination
Account determination for the new flow types:


Transaction Manager
Accounting in Operative Valuation Area
Account Determination
Define Settings
 SAP AG 2002
To ensure correct account determination, you may need to define several debit and credit flow types per
product category. This will depend on the flow types and account assignment references.
You need to make the settings for account determination for the Money Market, Foreign Exchange and
Derivatives applications.

Maintaining the Leading Currency Table
You must define the euro exchange rates in the case of

two changeover currencies (even with EUR/EUR entries).

Transaction Manager
General Settings
Currencie s
Define Leading Currency
 SAP AG 2002
Note
The table of participating currencies for converting Treasury transactions is independent of the table
of participating currencies used for the local currency changeover!
For the local currency changeover, you must maintain the table in R/3 Customizing via:
Cross-Application Components
European Monetary Union: Euro
Local Currency Changeover
Central Changeover
Central Changeover: Preprocessing
Specify Participating Currencies for Changeover Package.

Maintaining the Exchange Rate Table
R/3
R/3Customizing
CustomizingImple
Implementation
mentationGuide:
Guide:
General Settings
Currencie s
Enter exchange rates
 SAP AG 2001
For a transaction currency changeover prior to the local currency changeover, you must also make the
following settings (normally in FI):

General Settings
Currencies
Check currency codes
Check exchange rate types
You create the euro rate type here with the following settings:
Basis currency: Euro
EMU currency is fixed
Define translation ratios for currency translation

Maintaining Standing Instructions
You may need to redefine the payment details

for the euro currency.
Treasury
TreasuryApplication
Applicationmenu:
menu:
Master Data
Standing Instructions
Payment Details
 SAP AG 2001
The standing instructions must be created per business partner.

1 General
3 Conversion phase
 SAP AG 2001

What You Have To Do:
Execute report RFTBEUR00

 Release transfer posting manually, if necessary
 Execute the posting after release
Perform any cleanup activities
New confirmation run
 SAP AG 2001

1. Prerequisites
All flows relevant to posting with a due date prior to

the changeover key date must be posted
All open payment requests with a due date prior to the

changeover key date must be settled
If open payment requests exist, they cannot be settled
after the changeover date
 SAP AG 2001
This should ensure that all flows relevant to posting are correctly posted in the original currency.

Flows Relevant to Transfer Postings
Money Market
Principal increases
Principal reductions
Foreign Exchange
Purchase and sale flows
OTC options, CAP s/Floors
Premiums (if relevant to positions)
Swaps
Nominal amounts (if relevant to positions)
 SAP AG 2001
Interest and other flows are generally not transferred. To post any pre-posted interest flows to a euro
account, you need to delete such flows before the changeover.

2. Function Description (I)
Conversion of all relevant flows

The original data is saved under a new transaction
number in inactive status.
A special number range exists for the se transaction
numbers
The transaction converted to euro retains the original
transaction data.
The system generates a reciprocal reference category
(category EUR) for both transactions.
 SAP AG 2002
During the transaction currency changeover, the system converts all the relevant flows (including
historic flows which have already been posted) into euros, as long as the currency is defined as a
participating currency in the European Monetary Union.
By doubling the original transaction, it is possible to map the financial transaction both in the original
currency and in euros.
To avoid inconsistencies in the data, you created a special number range for the original transactions in
which the transactions are stored as inactive with a new transaction number.
The transaction that was converted to euros retains the original transaction data and also the old
transaction number.
Both the original and new transactions can be matched at any time via the reciprocal reference category,
EUR .

3. Procedure (I)
To change over the transaction currency, start report

RFTBEUR00
Using the application menu:
System
Services
Reporting
You must enter the following data in the report

selection screen:
The key date for conversion
The number range for storing the old transactions
 SAP AG 2001
The report program gives you a range of individual selection options. It does not have to be started at the
same time for all three applications (Money Market, Foreign Exchange and Derivatives).

Procedure (II)
You can run the conversion for

individual transactions, for
certain partners, or according
to other criteria.
Transaction
It is not possible to carry out a
Partners simulation run. Neither can you
reverse a transaction currency
Key date for conversion changeover that has already
been carried out.
If you want the s ystem to
Transfer flow types
generate postings, you must
: enter the defined transfer
Flow types for currency valuation posting and valuation flow
: types for the respective
applications.
Do not generate postings
Only execute valuation
 SAP AG 2001
If only one area or one transaction in a particular area is to be converted, you must be careful to set only
the corresponding flag in the report (Money market, Foreign exchange or Derivatives).

Procedure (III)
If no transfer posting flows and valuation flows are to

be generated, the following indicator must be flagged:
Do not generate postings
(Example: for unposted forward exchange transactions)
If only an evaluation is to be carried out, the following
indicator must be flagged:
Only execute valuation
With this procedure, you only specify the respective
valuation flow types
 SAP AG 2001

Money Market
 SAP AG 2002

3.1. Money Market (I)
The system carries out the following steps

when you run the report:
Step 1:
Valuation at the fixed rate
The current money market position is valued at the fixed rate. This can
result in a valuation difference.
This is represented by a P&L flow for gains and losses resulting from
the conversion to the euro
Step 2:
Taking the position off the books
using the local currency amount (translated at the fixed rate - against
the euro)
to a clearing account for the transfer posting (you need to define the
clearing account specially)
using the flow type defined for taking the position off the books (in
original currency)
 SAP AG 2001
For these steps, you use the relevant flow types created in the preparation phase:
Outflow flow type
P&L flow type for possible losses
P&L flow type for possible gains

3.1. Money Market (II)
3. Step 3:
Conversion of the transaction currency amount
The transaction currency amount is copied from the outgoing flow to
the ingoing flow
This amount is now converted into euros
All currency fields, and any calculation bases in transaction currency
that require adjustment, are automatically converted
The local currency amount of the posting corre sponds to the
amount taken off the books. The sign of the flow is inverted.
 SAP AG 2002
This flow is generated with the flow type for making the posting in euros. The posting flow type was
also created in the preparation stage of the transaction currency changeover.
This procedure ensures that the original transaction currency position, calculated on a fixed rate basis, is
correctly transferred to euros.

3.1. Money Market (III)
Valuation
Valuation without
withoutconversion:
conversion:
Valuation without conversion (general)
If you do not carry out the transaction currency changeover at the beginning
of the dual currency phase, you may need to perform a valuation based on
the fixed euro exchange rate. The valuation is carried out independently of
the valuation principles used for key date valuation, since both losses and
gains resulting from the translation to the euro are to be disclosed.
Valuation without conversion (for Money Market and

Derivatives)
The valuation is based on the book value of the transaction position and it
determines the difference between the book value and the fixed euro rate.
The system generates a valuation flow using the flow types for euro
gains/losses.
 SAP AG 2001
Procedure
Start report RFTBEUR00.
Select the required application and enter the flow types required for euro gains and losses.
Enter a number range. This is necessary, even though no transaction number is assigned.
Select the Only execute valuation field.
Execute the report.

3.1. Money Market - Example 1 (I)
Fixed-term deposit - Inve stment 07/01/1998

100 million FRF Book rate 07/01/1998 : 0.29832 29,832,000 UNI
Valuation 12/31/1998
100 million FRF Valuation rate : 0.29475 29,475,000 UNI
Unrealized loss : -357,000 UNI
Transaction currency changeover 01/01/1999

100 million FRF Fixed rate : 0.29974... 29,974,000 UNI
Realized gain from euro changeover : approx. 499,000 UNI

Take old transaction currency off the books 100 million FRF
Post new transaction currency 29.974 million EUR
 SAP AG 2002
Transaction currency changeover at the start of the dual currency phase, but prior to the local
currency changeover for a money market transaction in a participating currency.
For more than one balance sheet date:
- Assuming: 1 Euro = 1.97293 UNI
1 Euro = 6.672448 FRF

3.1. Money Market - Example 1 (II)
Example 1 illustrated in T accounts (in 000s):
Balance sheet account FRF Profit and loss account

100,000 FRF 1 0 FRF 2 0 FRF 2 0 FRF 5
(29,832 UNI) (357 UNI) (357 UNI) (499 UNI)
0 Euro 5 100,000 FRF 3
(499 UNI) (29,974 UNI)
Clearing account Balance sheet account - Euro

100,000 FRF 3 15,192 Euro 4 15,192 Euro 4
(29,974 UNI) (29,974 UNI) (29,974 UNI)
 SAP AG 2002
Postings:
Post fixed-term deposit investment at rate of 0.29832 (ignoring the offsetting account)
Value the FRF position as of 12/31/1998 (key date valuation)
Post FRF position to the clearing account created for the transaction currency changeover (value date
01/01/1999)
Post converted euro position to euro balance sheet account (value date 01/01/1999)
Value FRF position at fixed conversion rate (value date 01/01/1999)

3.1. Money Market - Example 2 (I)
Fixed-term deposit - Inve stment 10/ 14/1998, Term 01/04/2000

100 million FRF Book rate 10/14/1998 : 0.29832 29,832,000 UNI
100 million FRF Valuation rate : 0.29475 29,475,000 UNI
Unrealized loss : -357,000 UNI
Euro valuation at fixed rate 01/01/1999

100 million FRF Fixed rate : 0.29974... 29,974,000 UNI
Realized gain from euro changeover : approx. 499,000 UNI

Take old transaction currency off the books 100 million FRF
Post new transaction currency 15,192 million EUR
 SAP AG 2002
Transaction currency changeover prior to local currency changeover for a money market transaction
in the participating currency.
For more than one balance sheet key date.
Transaction currency changeover not at the start of the dual currency phase.
If the valuation at the fixed conversion rate took place as of 01/01/1999, then only the original data of
the transaction is converted in a transaction currency changeover on 07/01/1999.
This is always the case if the transaction currency changeover takes place after the first balance sheet key
date in the dual currency phase.

3.1. Money Market - Example 2 (II)
Example 2 illustrated in T accounts (rounded):
Balance sheet account FRF Profit and loss account

100,000,000 FRF À 0 FRF Á 0 FRF Á 0 FRF Â
(29,832,000 UNI) (357,000 UNI) (357,000 UNI) (499,000 UNI)
0 Euro Â 100,000,000 FRF Ã 0 Euro Æ
(499,000 UNI) (29,974,000 UNI) (0.01 UNI)
Clearing account Balance sheet account - Euro

100,000,000 FRF Ã 5,192,000 Euro Ä 15,192,000 Euro Ä 15,192,000 Euro Å
(29,974,000 UNI) (29,974,000 UNI) (29,974,000 UNI) (29,973,999.99 UNI)
0 Euro Æ
Bank clearing
(0.01 UNI)
15,192,000 Euro Å 100,000,000 FRF À
(29,973,999.99 UNI) (29,832,000 UNI)
 SAP AG 2002
Postings:
Post the fixed-term deposit investment at the rate of 0.29832
Value the FRF position as of 12/31/1998 (key date valuation)
Value the FRF position at the fixed-conversion rate (01/01/1999)
Post the FRF position to the clearing account created for the transaction currency changeover
(07/01/1999)
Post the converted euro position to the euro balance sheet account (07/01/1999)
Post the final repayment (01/04/2000)
Realized loss for clearing a possible conversion difference (01/04/2000)

3.1. Money Market - Example 2 (III)
Cash flow at the end of the term:

Pm nt date Pm nt am nt Curr. Local curr. am nt Curr. LC rate
10/14/1998 15,192,765.81 Euro 29,832,000.00- UNI 1.96357
12/31/1998 0.00 Euro 357,000.00- UNI
01/01/1999 0.00 FRF 499,263.46 UNI
07/01/1999 15,192,765.81 Euro 29,974,263.46- UNI 1.97293
07/01/1999 100,000,000.00 FRF 29,974,263.46 UNI 0.29974
01/04/2000 15,192,765.81 Euro 29,974,263.45 UNI 1.97293
01/04/2000 0.00 Euro 0.01 UNI
01/04/2000 990,378.42 Euro 1,953,947.30 UNI 1.97293
( Nom inal interest)
 SAP AG 2001

3.1. Money Market (IV)
Release
Release and
andPosting:
Posting:
Automatic posting release of the generated valuation flow types

In some circum stances you may need to manually release the
generated transfer flow s
Money Market - application menu:
Accounting
Posting
Release
Execute the posting after release
 SAP AG 2001
You may need to release the generated transfer flows. This will depend on the Customizing settings you
have made for automatic posting release for the corresponding transaction type.

3.1. Money Market (V)
Note:
Any intere st and other flows which have already been
posted are displayed in euro when you display the
transaction. However, the posting document show s the
original currency.
The position itself i s not transferred.
 SAP AG 2001

Foreign Exchange
 SAP AG 2001

3.2. Foreign Exchange (I)
Foreign exchange transactions are pending transactions

which are usually only posted when they become due.
This means that there is no related balance sheet
position that needs to be transferred.
For transactions with two currencies to be changed
over, the key date valuation ensures that the swap
accrual/deferral is carried out correctly up to the
transaction due date.
 SAP AG 2001
Note: Transactions involving two participating currencies:

These transactions are still to be settled after conversion to fulfil the original purpose, even if they are no
longer, strictly speaking, foreign exchange transactions.

3.2. Foreign Exchange (II)
Valuation
Valuationwithout
withoutconversion
conversion
Valuation without conversion (general)
If you do not carry out the dual currency changeover at the start of the dual
currency phase, you may need to perform a valuation based on the fixed euro
exchange rate. The valuation is carried out independently of the valuation
principles used for key date valuation, since both losses and gains resulting
from the translation to the euro are to be disclosed.
Valuation without conversion (foreign exchange)
Foreign exchange transactions with two participating currencies which have not
yet been posted are valued on the basis of the acquisition value. Any existing
key date valuations are reset automatically.
The system generates a valuation flow using the flow types for euro
gains/losses.
Where transactions have already been posted, the procedure is the same as for
Money Market transactions.
 SAP AG 2001
Procedure
Start report RFTBEUR00.
Select the required application and enter the flow types required for euro gains and losses.
Enter a number range. This is necessary, even though no transaction number is assigned.
Select the Only execute valuation field.
Execute the report.

3.2. Foreign Exchange - Example 1
Forward exchange transaction 07/01/1998 due on 01/04/2001

Amount 01/04/2001: 10,000,035.09 UNI / 35,087,842.42 FRF
Transaction rate : 0.28500
Key date value : 10,342,141.55 UNI Valuation rate : 0.29475
Unrealized loss (Provision) : -342,106.46 UNI
Accrual/deferral swap expenses : -11.18 UNI

Key date value : 10,517,322.332 UNI Fixed rate : 0.29974...
Realized loss : -517,287.23 UNI
Accrual/deferral swap expenses : -23.72 UNI
(No previous valuation at fixed rate)
 SAP AG 2002
Note:
A forward exchange transaction that has not been posted is being used here.
Problem:
This changeover may produce a different result to the manual changeover as the euro changeover is
more exact (to more than 5 decimal places).

3.2. Foreign Exchange - Example 2 (I)
Forward exchange transaction 07/01/1998 due on 11/02/1999

Amount 11/02/YYYY : 50,000,000 UNI / 175,438,596.49 FRF
Transaction rate : 0.28500
Key date value : 51,710,526.32 UNI
Valuation rate : 0.29475
Unrealized loss (Provision) : -1,710,526.32 UNI
Euro valuation at fixed rate 01/01/1999
Key date value : 52,586,427.11 UNI
Fixed rate : 0.29974...
Realized loss : -2,586,427.11 UNI
No flows of any kind are generated
 SAP AG 2002

3.2. Foreign Exchange - Example 2 (II)
Example 2 illustrated in T accounts:
Provision Profit and loss account

1,710,526 UNI 1,710,526 UNI À 1,710,526 UNI 1,710,526 UNI Á
2,586,427 UNI
Foreign exchange clearing account Bank clearing account

26,653,975 Euro 2,586,427 UNI Â 25,343,017 Euro 26,653,975 Euro Ã
(52,586,427 UNI) 25,343,017 Euro Ä (50,000,000 UNI) (52,586,427 UNI)
(50,000,000 UNI)
 SAP AG 2002
Postings:
Create provision on key date 12/31/1998 (key date valuation)
Write back provisions on 01/01/1999
Realized loss from euro fixed rate valuation on 01/01/1999
Sell original FRF after conversion (posting on due date of 11/02/1999)
Purchase UNI after conversion (posting on due date 11/02/1999)
Note:
No further realized gains or losses can arise on the due date of the transaction
(except for minimum amounts originating from currency translation differences).

Transaction with One Currency to be Changed
Over
Function:
Function:
The entries from the leading/following currency table (TCURL)

are used to display the rates
The spot rate and the swap rate are determined as follows:
The spot amount is calculated using the spot rate in the old transaction
currency
The new spot rate is calculated using the ratio of this amount to the
leading currency amount of the converted transaction
The swap rate is the difference between the transaction rate and the
spot rate
 SAP AG 2001
Example:
If you want to change over a USD/UNI transaction, you enter EUR/USD in the leading currency
table. The EUR/USD rate is used for the new rate notation. The system determines the transaction
rate.

Transaction with Two Currencies to be Changed
Over
Determining the EUR/EUR rate

The original transaction amounts are converted to euros
Leading currency amount
Following currency amount
Spot amount
The system uses the ratios between these amounts to
determine an artificial euro rate
Determining the transaction rate
The converted following currency amount of the original
transaction i s divided by the converted leading currency
amount.
Where the original transaction notation i s inverse, the
system use s the rate notation of the leading currency table
 SAP AG 2001
The calculation of the transaction rate described above ensures that transactions with the same trading
amounts are identical and have the same rate, even if the rate notation is not EUR/EUR.
The system calculates the spot and swap rates in the same way.

Transaction with Two Currencies to be Changed
Over
Example:
You wish to convert a UNI/FRF transaction (inverse rate display). The
entry in the leading currency table is FRF/UNI.
Purchase: 1 m illion UNI at forward rate of 3.0000 (UNI/FRF)
Sale: 3 m illion FRF
Spot rate: 3.1000 (UNI/FRF)
Sw ap rate: 0.1000- (UNI/FRF)
The system translates both amounts into euros
(Assumption: rate EUR/UNI = 2, EUR/FRF = 5)
1 m illion UNI = 500,000 Euro 3 m illion FRF = 600,000 Euro
The system determines the EUR/EUR rate by dividing the converted
UNI amount by the converted FRF amount. The calculation is based
on the FRF/UNI entry in the leading currency table TCURL.
The EUR/EUR rate is thus 0.833333333.
 SAP AG 2001

Derivatives
 SAP AG 2002

3.3. Derivatives I
The changeover program can deal with the following

product categories:
OTC options
Caps/Floors
Swaps
FRAs
The system only creates outgoing/ingoing flows and P&L
flows for derivative s which affect balance sheet positions, for
example:
purcha sed OTC options
purcha sed Caps and Floors
Swaps
 SAP AG 2002
OTC options, Caps and Floors affect balance sheet positions if the flow types for the premium are
flagged as relevant to the position and to posting.
Swaps affect balance sheet positions if the flow types for the nominal amounts are flagged as relevant to
the position and to posting.

3.3. Derivatives II
Flows from derivatives which do not affect balance sheet

positions are converted using the fixed rate. (No posting
flows are generated)
For OTC options, the system also converts the following
underlyings into euros
Forex transactions
CAPs and floors (simple conversion of flows)
Swaps (simple conversion of flows)
FRAs
This system does not change either interest rates,

calculation methods or conditions.
 SAP AG 2001
The system does not convert listed underlyings such as stocks and bonds. You must convert these
manually if necessary.

Transaction Currency Changeover: Cleanup
Activities
1 General
3 Conversion phase
 SAP AG 2001

Cleanup Activities (I)
In the case of more complex financial transactions (derivatives),

you may need to perform cleanup activities manually, for
example:
Assignment of new reference interest rates
You may need to make manual adjustments to:
interest rates
calculation methods
transaction conditions
that are not affected by the changeover program
You must manually edit any listed underlying transactions
(stocks and bonds) when they are exercised. You can do thi s
when you create the exercise transaction.
 SAP AG 2002
To change the conditions of interest rate transactions, for which you carried out an interest-rate
adjustment before the changeover, you create new conditions effective from the next interest rate fixing
date.

Cleanup Activities (II)
Any rounding differences that may arise are cleared by

the key date valuation or by the determination of realized
gains or losses.
Reversibility
If you convert a transaction by mistake, you must reverse the
transaction and enter it again under a new transaction number
You must also manually reverse any flows that have been posted
When you enter the new transaction, you can copy the data from the
original (inactive) transaction
SAP is not planning to provide a function to

reset the transaction currency changeover
 SAP AG 2002

Cleanup Activities (III)
Special items resulting from fixed rates

The system posts the gains and losses resulting from the changeover
to the euro to the accounts for realized gains and losses.
If you opt to create special items for these gains and losses, you must
do this manually in FI.
These special items are also to be cleared manually.
 SAP AG 2001

Cleanup Activities (IV)
Checking if the changeover is complete

The system creates a log (error list) automatically. You should print this.
The log cannot be displayed again once you have exited the program.
You can check if the changeover is complete by comparing the log with
the journal for financial transactions.
There is also a collective processing function for references for control
purposes. The reference category used in the changeover is EUR.
 SAP AG 2002
Note
At the end of the dual currency phase, you need to ensure that all the transactions have been changed
over to the euro. You can check this using the journal for financial transactions and the maturity lists
in the forex area.

Transaction Currency Changeover: Unit Summary
Prior to the transaction currency changeover, you must

make certain preparations.
To convert the transaction currency, start Report
RFTBEUR00.
The transaction currency changeover report also allows
you to value financial transactions at the fixed euro rate
without changing over the transaction currency.
More complex financial transactions (derivative s) may
require a manual cleanup.
 SAP AG 2001


Money Market Foreign Exchange Derivatives

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FSC112 Money Market, Foreign Exchange and

THE BEST-RUN BUSINESSES RUN SAP

 SAP R/3 Enterprise 1.10

Copyright 2003 S AP AG. All rights re served.

All rights reserved.

SAPFIN 2 days FSC100 3 days AC805 3 days FSC111 5 days

FS230 5 days FSC120 2 days WDE BC 1 Day

Bank Custome r SAP In-House Ca sh SAP Biller

© SAP AG FSC112 1-1

This course will prepare you to:

© SAP AG FSC112 1-2

At the conclusion of thi s course, you will be able to:

© SAP AG FSC112 1-3

Unit 1 Course Overview

Unit 4 Money Market

Unit 5 Foreign Exchange

Unit 9 Transaction Currency Changeover

© SAP AG FSC112 1-4

Overview of Corporate Finance Management

Parallel Position Management

© SAP AG FSC112 1-5

z You wish to get an overview of the components of

© SAP AG FSC112 1-6

1 Overview of Corporate Finance Management

2 Selection of financial instruments

3 Identification of the processe s

© SAP AG FSC112 2-1

At the conclusion of thi s uni t, you will be able to:

z Provide an overview of Corporate Finance

© SAP AG FSC112 2-2

Overview of Corporate Finance Management

© SAP AG FSC112 2-3

z Before you begin your work in the project team, you

© SAP AG FSC112 2-4

“Corporate Finance Management enables

1 Liquidity Planner 2 In-House Ca sh

3 Transaction Manager 4 Portfolio Analyzer

5 Market Risk Analyzer 6 Credit Ri sk Analyzer

© SAP AG FSC112 2-5

Com pany03 In-House Cash Finan cial

Payment Account statement

© SAP AG FSC112 2-6

© SAP AG FSC112 2-7

Risk areas & measurement

Currency risk Interest rate risk Stock risk

Market Risk Procedure Organizational Elements

Decision Support and Simulation

© SAP AG FSC112 2-8

CFM Transaction Manager

z Integrated online limit check Credit Ri sk

© SAP AG FSC112 2-9

© SAP AG FSC112 2-10

Establishing the benchmarks

© SAP AG FSC112 2-11

Money Market Securities Foreign Exchange Derivatives

© SAP AG FSC112 2-12

Revision of planned Corrective

Transaction and position

Documentation and control functions

© SAP AG FSC112 2-13

Trading Back office Accounting

 Create offer/order/contract  Settlement/control  Postings

 Exercise of rights  Confirm ation letters  Accrual/deferral

© SAP AG FSC112 2-14

SAP R/3 Enterprise 1.10

Create offer/order/contract Settlement/control Postings

Exercise of rights Confirm ation letters Accrual/deferral

Example:Product category Transaction category Activity category

The processing sequence of a financial transaction is determined by processing categories (Money

Flow types are defined in Customizing: