Treasury&RiskMgmt-Hedging

What is meant by Fair Value Hedge and Cash flow hedge??

Hi
First you need to know what an hedge is
Hedging - In finance, a hedge is a position established in one market in an attempt to offset exposure to the price risk of an equal but opposite obligation or position in another market u2014 usually, but not always, in the context of one's commercial activity. Hedging is a strategy designed to minimize exposure to such business risks as a sharp contraction in demand for one's inventory, while still allowing the business to profit from producing and maintaining that inventory.
Fair Value Hedge
Fair value hedges primarily relate to fixed-interest balance sheet items (eg receivables, equities or securities), which are hedged against market ...
Cash flow hedge
A cash flow hedge is a hedge of the exposure to the variability of cash flow that
- is attributable to a particular risk associated with a recognized asset or liability. Such as all or some future interest payments on variable rate debt or a highly probable forecast transaction and
- could affect profit or loss
Cash flow hedges are primarily taken to mean hedges against the risk associated with future interest payments from a variable-interest balance sheet transaction by means of a swap. They are measured at their fair values.
check the below link for more details
http://www.attuariale.com/ias39.php?language=English
hope this helps
regards,
radhika

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Treasury&RiskMgmt

Hi,
What is the definition of "SPREAD" in terms of finance. Please explain with some examples
Regards
Blessy

Spread is the difference between two similar measures In the stock market, for example, the spread is the difference between the highest price bid and the lowest price asked.
With fixed-income securities, such as bonds, the spread is the difference between the yields on securities having the same investment grade but different maturity dates.
For example, if the yield on a long-term Treasury bond is 6%, and the yield on a Treasury bill is 4%, the spread is 2%.
The spread may also be the difference in yields on securities that have the same maturity date but are of different investment quality.
For example, there is a 3% spread between a high-yield bond paying 9% and a Treasury bond paying 6% that both come due on the same date.
The term also refers to the price difference between two different derivatives of the same class.
For instance, there is typically a spread between the price of the October wheat futures contract and the January wheat futures contract. Part of that spread is known as the cost of carry. However, the spread widens and narrows, caused by changes in the market -- in this case the wheat market.

Treasury&RiskMgmt-Correspondence-Reconciliation flag

Hi,
ERP2005Ehp4 Release
SAP-FSCM -Product
In the customizing settings for the correspondence user can check the flag "Reconciliation"
What does it mean???
The customizing path is: SPRO --> Financial Supply Chain Management --> Treasury & Risk Management > Transaction Manager> General Settings --> Correspondence --> General Settings --> Assign Attributs for Business Partner Groups
Regards
Blessy

Hi,
I am sending only answers.If wrong pls correct me.
1.A,C
2.C
3.A,B,D,E
4.ACE
5.ABCD
6.B
7.BE
8.ALL
9.ABC
10.ABCDE
11.A
12.ABCD
13.E
14.BC
15.ALL
16.ABC
17.ACD
18.AC
19.B
20.ACDE
21.DE
22.B
23.ABCD
24.CD
25.C
26.BDE
27.BCE
28.C
29.CDE
30.BCDE
31.BDE
32.A
33.B
34.ALL
35.ABC
36.ALL
37.ABC
38.A
39.ACDE
40.AB
41.ABE
42.CD
43.ABCE
44.CD
45.ACDE
46.BD
47.AC
48.CD
I have sent answers for the questions.If any answer is wrong pls correct me.
Assign points if useful
Regards,
S.VINAYA KUMAR

Treasury&RiskMgmt - Exposure Management

Hi,
The context is "Report Logistics in logical database for exposures"
Here, What is meant by "Logistics" ???
Thanks & Regards
Blessy

Hi Blessy,
Can you explain a bit more, maybe with some transaction codes etc? Informative questions are more prone to get better responses
best regards!
Sandip

Treasury&RiskMgmt-Securities

Hi,
Please explain to me the below terms with examples
1) Price valuation procedure
2) Impairment procedure
Regards

Hi,
FWBS - Manual Posting is valid only for securities. I am just giving an example.
In securities there might be some charges for holding an account which is not periodical. Also there will be brokerage/ commisision involved for transactions which can be posted using manual posting.
Regards,
Ravi

Treasury&RiskMgmt-FRA

What is FRA?? Please reply me a detailed way with examples in a business point of view??

Hi Blessy,
FRA is forward rate agreement. it is for aperiod. Example is 6/9 FRA means that the period start is six months and end is 9 months. During this period you will enter an interest rate swap. Again this swap will have a floating leg and a fixed leg. Those details will be entered in the system.
Hope this helps
best regards!
Sandip

Treasury&RiskMgmt-Option

Hi,
I will explain one example contains the process sell/buy options. Please go through this and advise me on the same
EUR/USD
Spot price : 1.40
Strike Price: 1.45
a) SellCall
b) SellPut
c) BuyCall
d) BuyPut
Which options will exercise (a,b,c,d)
1. If the current price is 1.40
2. If the current price is 1.45
3. If the current price is 1.50
and what is the reason for exercising those optins???
Regards
Blessy

Hi Blessy,
A very nice question. maybe the same can be executed also in the system.
Best regards!
Sandip

Treasury&RiskMgmt-Stocks

Hi,
Please explain what is Spot, Strike, Forward prices with examples???
Regards
Blessy

Hi,
Spot is nothing but the current price, while stike price is the price which you are going to fix in your option. Suppose you have an option between USD/EUR, then exchange rate price is spot price while the price on the exercise date for this option is the strike price. Ultimately strike price will be price at which this option will be exercised.
Future price is nothing but the price in the case of futures contract. A future contract is an obligation for both buyer and seller i.e one has to sell and the other has to buy. While in the case of option, either the buyer or the seller wil have the option to buy or sell.
Regards,
Ravi

Treasury&RiskMgmt-Transaction Manager- Money market

Hello Colleague,
In the creation of Money market - Fixed Term Deposit - investment , one select box for Capitalize interest is present
What does this capitalize interest means?? why it is in the Money market?

Hi,
It depends on country you are using.
if you check capitalize interest, interest would be added to your deposit account i.e. asset account. Then it means that interest amount has also been added to the asset and hence we will not pay tax on interest amount. This is generally done, when you invest back the money which you got from deposit including interest. Then since you are investing, you won't pay tax for it i.e you are using the money.
If you have not checked the capitalize interest, then you will get the interest amount to your bank or cash and hence it is a revenue, thus you will have to pay tax for interest amount alone depeding on the amount and also the country.
P.S: If the question is answered kindly close the question.
Regards,
Ravi
Edited by: Ravishankar Ramamurthy on Jul 8, 2009 5:57 PM

Letter of Credit-Treasury ECC-6.0

Dear Gurus,
I am am new to SAP treasury and our client has given some basic requirements regarding LC.Excerpts of the mail are as follows:
Opening of trade facilities (L/C, T/T, DP &DA) with the banks
All functionailities should have following features;
- Link in SAP from procurement's P/O or any formed requirements of raw materials and spare parts
- Traceable Reference of L/C or trade documents which may divide into multiple shipments
- Automatic and dynamic update (ie. L/C, forward contract due date) in conjunction with report call date
- Status report (ie. hedged, open position)
- Weekly Planning mode to input and adjust import material plan and revision
- Flexibility to manage on standalone and group basis
Can anybody please help with the basic steps and process for configuration regarding the product types and a broadline process.I know that I have to use Money Market Product types.
Regards
Raju

Hi,
Letter of credit is form of payment guarantee which can be handled in AR/SD Credit Management/Risk Management.
Sales and Distribution
Basic Functions
Credit Management/Risk Management
Receivables Risk Management
Define Forms Of Payment Guarantee
There won't be a letter of credit created in Treasury.
Hedging, open positions (exposure) can be handled under Treasury and Risk Management; tcode THMEX.
Manish

Centralized Hedge Management

Hi Friends,
My client has a centralized Treasury and Hedge Management is done from Head Office. They find out their net position for each currency at the Head office level and enter into the Forward contract in the company code of Head office - company code 1000. But since this transaction is in CC 1000 the accounting entries for Unrealized gain/loss due to FAS 133 are posted in CC 1000 but actually they should go to 5 different company codes.
How to achieve this? How to link this Hedge transaction to the underlying exposure in each of the 5 company code? How to do effectiveness test in each company code and post the gain/loss every quarter correctly to each compnay code?
I would appreciate your experience in this regard.
Thanks.
Klayan

This is the design I finally used.
Each subsidiary will enter into a forward contract with a Business Partner who is their Head Office.
The Head office in turn will enter into a forward contract with the External Bank for the net amount - net exposure of all subsidiaries put together.
When the accounting entries are done for FAS133 in the books of Head Office its impact will be zero (or near zero) because they have forward contracts - with the subs and with the external bank - which will Net to zero. So there is no impact on the B/S of Head office.
The subs will post the accounting entries relating to the forward contract they entered into with the Head office and each one of their B/S will get impacted by this to meet FAS 133 requirement.
Kalyan.

Relation Between Interest and Risk Categories for Customers

Hi
Can somebody tell me if there is a relationship between interest rates and risk categories. We have not implemented neither treasury nor Hedging.
Would like to link the interest as per the risk categories. As the risk changes, interest should also vary.
Can this be achieved
Prasad

Hi Prasad,
It is all AR functionality: Dunning/Interest Calculation/Credit Management/Risk Categories; I think it is doable to adjust interest on late payments based on customer risk category; but I doubt you will get detailed answer on this forum. FICO forum may be better.
Manish

Tool for electricity/energy hedges

Hi,
Our company is looking for a tool that can be able to manage the recording, tracking and anlytical reporting of electricity hedges, is SAP Treasury and Risk Management the right SAP module for us? Or are there any other SAP partner products available that are more suited to this requirement?
Essentially,if SAP-TRM is the right tool for us, would there be any additional licensing costs that we need to worry about assuming we already have our ECC6 full licenses?
And for those who have implemented SAP-TRM (focused on hedging), can you share a rough stab of the cost (how much duration) to implement it?
Thanks everyone and I hope you can get me answers to my questions.
Regards,
Aloy

Hi Aloy,
from enhancement package 4 (EhP4) for ECC6 you can use functionality of commodities hedging in SAP-TRM. So far I know, there is also a solution for commodities in Sales and Distribution (SD) module.
I think there are no additional licencing cost for enhancement packages, if you already have ECC6, but better you check this information with your local SAP sales agent. They could also help you with cost estimation for implementation or to find out reference companies.
Regards,
Tomislav

Extraction from Treasury Module

Hello all,
I'm currently mapping the BI Content objects related to the Treasury Module.
I've found standard extractors for LP (Liquidity Planner) and CM (Cash Management) sub modules:
0TR_LP_1 Liquidity planning
0TR_CM_1 cash management
However, according to the help documentation, it seems there isn't any standard extractor for the TM (Transaction Manager) one.
Our client has asked for financial transaction reports in BW, such as position of Borrowings, Investiments and Hedge Operations (TM data).
Has anyone already worked with these requirements before? In order to develop a custom extractor, I would like to know the R3 tables where those information are stored.
Any hint will be welcome.
Thanks in advance,
Tiago.

Hi Simon,
Thanks for your prompt answer. I haven't replied it before because I've been attending meetings along the week with the client.
The link has everything that I was looking for.
Thank you again,
Tiago.

Treasury Management Curriculum Location

On March 29 I sent one of my customers the following information which I cut and pasted from the UA web site. Now I can't find it.
+In the TMP module the students use an ERP system (in this case SAP) to work in the field of Treasury Management. In this module the ERP system used, SAP, is not a goal in itself, but provides a means of experiencing the many aspects of treasury management. The emphasis lies on anything to do with the management of money flows. Tendering, winning orders, purchasing, invoicing, payments and receipts, and reacting to liquidity shortages / surpluses u2013all in different currencies u2013 generate the problems that every treasurer has to deal with.++ In this module, students are appointed as assistant-treasurer in a u201Cgoing concernu201D, DDS Management Consultancy, which uses SAP as administration and information system. The system is already loaded with data such as client and supplier data, accounts receivable and debts, and ledger and bank accounts.
DDS carries out consultancy and training assignments for its clients, and if necessary hires external consultants. DDS acquires its assignments in u201CEurolandu201D and beyond and consultants are employed in various countries.
A great variety of problems are raised with a limited number of assignments. Students must prepare and maintain a rolling liquidity plan, hedge foreign exchange positions, borrow or invest short term, prepare a long-term loan and manage receivables and payables. For this, use is made of what the market has to offer in terms of financial instruments and derivatives: deposits, loans, FRAs, futures, options, swaps, spot and forward transactions, etc.
Use is made of real market rates and prices that can be found in newspapers, on the internet, or possibly by telephoning a bank.
The management of money flows is a hot item for many companies. Good treasury management saves money. Great savings in management and bank costs can be achieved by centralising money flows - millions of euros a year for large multinationals.
Working for some months with DDS as an assistant-treasurer provides a student with some experience in this field at zero cost now, but with a high return in the future.
It is under the Treasury Managemenrt Project (hence the TMP).
Edited by: Atis Purins on Apr 5, 2010 2:20 AM

On March 29 I sent one of my customers the following information which I cut and pasted from the UA web site. Now I can't find it.
+In the TMP module the students use an ERP system (in this case SAP) to work in the field of Treasury Management. In this module the ERP system used, SAP, is not a goal in itself, but provides a means of experiencing the many aspects of treasury management. The emphasis lies on anything to do with the management of money flows. Tendering, winning orders, purchasing, invoicing, payments and receipts, and reacting to liquidity shortages / surpluses u2013all in different currencies u2013 generate the problems that every treasurer has to deal with.++ In this module, students are appointed as assistant-treasurer in a u201Cgoing concernu201D, DDS Management Consultancy, which uses SAP as administration and information system. The system is already loaded with data such as client and supplier data, accounts receivable and debts, and ledger and bank accounts.
DDS carries out consultancy and training assignments for its clients, and if necessary hires external consultants. DDS acquires its assignments in u201CEurolandu201D and beyond and consultants are employed in various countries.
A great variety of problems are raised with a limited number of assignments. Students must prepare and maintain a rolling liquidity plan, hedge foreign exchange positions, borrow or invest short term, prepare a long-term loan and manage receivables and payables. For this, use is made of what the market has to offer in terms of financial instruments and derivatives: deposits, loans, FRAs, futures, options, swaps, spot and forward transactions, etc.
Use is made of real market rates and prices that can be found in newspapers, on the internet, or possibly by telephoning a bank.
The management of money flows is a hot item for many companies. Good treasury management saves money. Great savings in management and bank costs can be achieved by centralising money flows - millions of euros a year for large multinationals.
Working for some months with DDS as an assistant-treasurer provides a student with some experience in this field at zero cost now, but with a high return in the future.
It is under the Treasury Managemenrt Project (hence the TMP).
Edited by: Atis Purins on Apr 5, 2010 2:20 AM

Treasury&RiskMgmt-Hedging

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