S4F50

S4F50
Business Processes in Treasury and

Risk Management in SAP S/4HANA
.
.
PARTICIPANT HANDBOOK
INSTRUCTOR-LED TRAINING
.
Course Version: 17
Course Duration: 5 Day(s)
e-book Duration: 23 Hours 30 Minutes
Material Number: 50156543
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© Copyright. All rights reserved. iii

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© Copyright. All rights reserved. iv

Contents
vii Course Overview
1 Unit 1: Overview SAP Treasury and Risk Solution
2 Lesson: Describing Financials in SAP S/4HANA

18 Lesson: Explaining the SAP Treasury and Risk Management Solution
30 Lesson: Explaining the Transaction Manager Main Process
40 Lesson: Describing the Core Treasury Processes
52 Unit 2: General Master Data
53 Lesson: Capturing Banks Master Data Using Bank Account

Management
69 Lesson: Completing the House Bank Master Data in the Business
Partner
81 Unit 3: The Debt and Investment Management process
84 Lesson: Explaining the Debt and Investment Management Process

88 Lesson: Using the Money Market Trading Functions
112 Lesson: Employing the Back Office Functions - Part One
133 Lesson: Describing the Back Office Functions: Correspondence
159 Lesson: Executing Postings in Accounting
176 Lesson: Performing Payments
199 Lesson: Performing the Period End Process
227 Lesson: Using Credit Lines and Mirror Transactions
237 Lesson: Employing the Back Office Functions - Part Two
249 Lesson: Managing Securities and Other Exchange Traded Products
283 Lesson: Executing Money Market Funds
289 Lesson: Replacing LIBOR
302 Lesson: Performing Analysis in the Transaction Manager
305 Lesson: Executing Leading Edge SAP Fiori Reporting Apps
317 Lesson: Gaining Efficiency with the Trade Finance Process
338 Unit 4: The FX Risk Management Process
340 Lesson: Handling FX Deals

360 Lesson: Using the Exposure Management
369 Lesson: Explaining Hedge Management and Hedge Accounting
432 Lesson: Understanding Trading Platform Integration
444 Lesson: Handling Further Derivatives
457 Lesson: Coping with EMIR Regulations
© Copyright. All rights reserved. v

468 Unit 5: Market Data Management
469 Lesson: Employing Market Data

500 Lesson: Loading and Calculating Market Data
509 Unit 6: Risk Analysis and Optimization with the Market Risk Analyzer
511 Lesson: Understanding Risk Management

524 Lesson: Performing NPV and Sensitivity Analysis
554 Lesson: Using Value at Risk Valuations
582 Lesson: Considering Credit Risk
601 Unit 7: Risk Limitation with the Credit Risk Analyzer
602 Lesson: Explaining the Credit Risk Analyzer Functional Approach

619 Lesson: Using the Credit Risk Analyzer Process
631 Unit 8: Further Topics
632 Lesson: Understanding Further Topics
664 Unit 9: Commodities
665 Lesson: Understanding Commodities
© Copyright. All rights reserved. vi

Course Overview
TARGET AUDIENCE
This course is intended for the following audiences:
Application Consultant
Super / Key / Power User
Business Analyst
Business Process Architect
Business Process Owner/Team Lead/Power User
Enterprise Architect
Solution Architect
System Architect
Trainer
© Copyright. All rights reserved. vii

© Copyright. All rights reserved. viii
UNIT 1 Overview SAP Treasury
and Risk Solution
Lesson 1
Describing Financials in SAP S/4HANA 2
Lesson 2
Explaining the SAP Treasury and Risk Management Solution 18
Lesson 3
Explaining the Transaction Manager Main Process 30
Lesson 4
Describing the Core Treasury Processes 40
UNIT OBJECTIVES
Describe SAP HANA and SAP S/4HANA
Explain the SAP Treasury and Risk Management solution architecture
Explain the transaction manager main process
Understand how the SAP Treasury and Risk Management process is linked with the typical
Treasury organization
Understand the importance of authorization concept and dual/ triple control
Describe the core Treasury processes
© Copyright. All rights reserved. 1

Unit 1
Lesson 1
Describing Financials in SAP S/4HANA
LESSON OBJECTIVES
After completing this lesson, you will be able to:
Explain SAP HANA and SAP S/4HANA

Scenario
Your business processes a large volume of data. You want to extract meaningful information
from this data and create reports based on this data. You want to understand how SAP HANA
can help you with your data storage and analysis needs today. You also want to make sure
that SAP HANA can future proof your organization in preparation for the expansion of the
Internet of Things.
You want to update your current system landscape to a next generation solution. You are
interested in the new SAP S/4HANA suite and want to understand the scope of the solution
and the available deployment options.
The World Is Now Digital
Figure 1: The World Is Now Digital
By 2020, 5 billion people will enter the middle class and come online, while 212 billion “things”
will be connected to the Internet of Things, creating a digital network of virtually everything.

Lesson: Describing Financials in SAP S/4HANA
Cloud computing - a $41 billion business in 2011 - will grow to a $241 billion business in that
same time frame. There will be approximately 9 billion mobile users by the end of the decade.
The exponential growth of mobile devices, social media, cloud technologies, and the amazing
amounts of data they generate have transformed the way we live and work. In fact, 61% of
companies report that most of their people use smart devices for everything from e-mail to
project management to content creation.
While all of these advancements have improved our lives and have provided us with greater
opportunities for innovation than ever before, they have also accelerated the rise of an
entirely new problem to contend with: unprecedented and crippling complexity that
suffocates innovation.
The world may be getting smarter, but it has not gotten any easier. Mass consumerization of
IT means online purchasing, banking, and completing online applications becomes
commonplace. How much digital data did you create today? Part of this data might be of
interest to some organizations but they can only integrate it with their core business
processes if they run SAP S/4HANA.
Trade-Off - Broad and Deep or Speedy and Simple
Figure 2: Trade-Off - Broad and Deep or Speedy and Simple
With the existing system architecture, you have to make a trade-off and either go for a Broad
and Deep analysis or Speedy and Simple reporting.
With existing technologies, optimizing across the five dimensions shown in the figure, Trade-
Off - Broad and Deep or Speedy and Simple, is not possible. Therefore, you can decide to go
deep and broad with your business warehouse systems or have high speed but simple reports
from your data.
In both scenarios, real time updates are difficult, almost impossible to design. In a data
warehouse environment updates occur overnight with nightly batch jobs.

Unit 1: Overview SAP Treasury and Risk Solution
Advances in Technology
Figure 3: Advances in Technology
In the last few years, there have been significant advances in technology that application
developers are able to take advantage of in order to build smarter and more powerful
applications.
For example:
Multi-core processors enable parallelism of tasks. This means more throughput of data
and faster processing to give us real-time responses.
Large memory enables us to fit an entire organization's database in memory. This means
that we lose the mechanical spinning disk and the latency it brings.
Advances in the design of on-board cache means that data can pass between memory and
CPU cores rapidly. In the past, even with large memory, this was a bottleneck as CPUs
were demanding more data and the journey from memory to CPU was not optimal.
We can now easily slot in more servers into our landscape to add more processing power
or memory in order to scale to any size.
SAP re-wrote their business application software to fully exploit the new hardware. SAP
worked closely with leading hardware partners who shared the product blueprints of their
new CPU architectures so that SAP knew how to write the very best modern software to
extract every drop of power.
Cloud computing technology has matured in the last few years and is now a compelling
deployment option for our customers who do not want to take on the complexity and cost
of the installation and maintenance of IT landscapes. Virtualizing machines means lower
costs of running enterprise wide applications. Public cloud services based on subscription
models increase access to everyone to the latest solutions, reducing the costs and
simplifying everything.

The Vision of SAP HANA
Figure 4: The Vision of SAP HANA
For more than 20 years, organizations have been using specialist software - usually with
additional hardware - to extract transform and load (ETL) data from transactional systems to
dedicated reporting systems. Based on the technology available at the time, this was the
optimal way to provide a holistic view of business data with good response times (especially
when you add accelerator software/hardware).
Online transactional processing (OLTP) was separated from online analytic processing
(OLAP). The reason for this lies in the database design of OLTP and OLAP. Quite simply, a
database model was either built for OLTP optimization or OLAP optimization, but not both.
However, this also bought with it complexity, redundancy and of course latency. It was usual
for today’s business figures to be only available tomorrow for analysis once the data was
extracted and loaded to a reporting system.
The database, which supports S/4HANA (SAP HANA) can handle both OLTP and OLAP
processing from a single data model and therefore we do not need to move transactional data
to a separate system. This means transactional and analytical applications run off the same
tables and therefore data is available in real-time at every level of detail.

Remove Complexity with SAP S/4HANA
Figure 5: Remove Complexity with SAP S/4HANA
Traditional applications were built on a hierarchical data model. Detailed data was
summarized into higher level layers of aggregates to help system performance. On top of
aggregates we built more aggregates and special versions of the database tables to support
special applications. So as well as storing the extra copies of data, we also had to build
application code to maintain extra tables and keep them up to date. Database indexes
improve access speed because they are based on common access paths to data. But they
must be constantly dropped and rebuilt each time the tables are updated. More code is
required to manage this process.
The traditional data model is complex and a complex data model causes the application code
to be complex. It has been found that up to 70% of application code is built specifically for the
performance of an application and adds no value to the core business function. With a
complex data model and complex code, integration with other applications and also
enhancements are difficult, and simply not agile.
Using the raw power of SAP HANA, we can aggregate on the fly in sub seconds from any line
item table. We don't need pre-built aggregates. SAP HANA can generate any view of the data
at runtime, all from the same source tables. SAP HANA organizes data using a column stores,
which means indexes are usually not needed. They can still be created but usually offer minor
improvement. So in addition to losing the aggregates and indexes from the database, we can
remove huge amounts of application code that deals with aggregates and indexes. We are left
with a simplified core data model and also simplified application code. Now it is much easier
to enhance the applications and integrate additional functions.

SAP S/4HANA, Next Generation Business Software
Figure 6: SAP S/4HANA, Next Generation Business Software
Since the beginning of enterprise computing, SAP has rebuilt the business applications
whenever major technology shifts have occurred.
Here are some key moments in SAP's application development history:
1979 - SAP invents ERP. SAP builds standard business software based on mainframe
technology. The name SAP R/2 supports and integrates major business functions in real-
time and handles multi-country and multi-currency implementations. (R means real time.
There was an R/1, but this was not regarded as the first major release.)
1992 - With the rise of the personal computer, the introduction of client-server
architecture means another rewrite of the applications. Here we can exploit the power of a
layered three-tier architecture approach where processing is split across three layers of
processing- client, application, and database. Out go the mono-chromatic, text-based,
messy green screens and in comes a new graphical interface to improve the end user
experience. This is the birth of SAP R/3.
2004 - By now the Web is firmly established as the common business network and
customers demand better integration with their business applications and the Web. SAP
develops a new integration application platform called SAP NetWeaver to enable this. Now
all SAP applications run on a common platform, however customers and partners can also
build and integrate existing applications easily using widely adopted Web standards such
as service-oriented architecture (SOA). A new switch framework was later introduced to
allow customers to selectively enable only the new functions developed by SAP in order to
avoid disruption to their core processes. The SAP R/3 name was changed to SAP ERP.
SAP ERP is part of a larger family known as SAP Business Suite, which also contains many
other line of business (LOB) applications from SAP, such as SAP CRM.

2015 - A new wave of advances in hardware architecture brings massive computing power
at decreasing costs. Huge memory, and multi-core processors arrive to offer massive
computing power. The underlying design of existing SAP applications does not fully exploit
the power of the new hardware. A rewrite of the complete SAP Business Suite is required.
The new business suite is called SAP S/4HANA.
SAP S/4HANA Core and Lines of Business Solutions
Figure 7: SAP S/4HANA Core and Lines of Business Solutions
SAP S/4HANA is not a single product but covers many applications. Customers can start with
the basics components and add to them later. S/4HANA Enterprise Management is a great
place to start. This is known as the simplified core and can be considered as the replacement
for SAP ERP. Here we find support for all core business processes, such as quotation to cash,
procure to pay, and so on. For many customers, this is where their S/4HANA adoption begins.
S/4HANA Enterprise Management can be easily integrated with SAP S/4HANA Lines of
Business (LoB) solutions. These options can be added at any time and provide best-in-class
lines of business solutions and connections to SAP Business Networks. Customers can
choose the LoB solutions that suit their businesses.
In the past, we had multiple add-on applications surrounding the core with overlapping
models and much redundancy (for example, SAP CRM and SAP SRM surrounded the core
ECC). Now overlaps and redundancy have been completely removed from SAP S/4HANA.
SAP S/4HANA is built natively and optimally to run only on the SAP HANA platform.
LoB Finance Integration to Business Networks
SuccessFactors
Integration SAP S/4HANA – Employee Central: ECPayroll (Function module web service
covering finalized, COBL checks ongoing, cost center replication not yet started)
Ariba
Invoice Management (buyer side): Payment Advice and Cancel Payment Advice

Discount Management (buyer side): Payment Proposal and PayMeNow
Concur
Implementation SAP S/4HANA – Concur: Reuse of ERP add-on (delivery by Concur

product)
Fieldglass
Integration SAP S/4HANA planned in a joint project with Fieldglass, LOB PROC, MDG (FIN
contributes cost center and internal order replication)
Key Aspects of SAP S/4HANA
Figure 8: Key Aspects of SAP S/4HANA
SAP S/4HANA is built on SAP HANA, and so inherits all the capabilities of this powerful in-
memory data management and application platform. This includes advanced text mining,
predictive analysis, simulations, and powerful real time decision support, with access to any
type of data in real time.
A brand new user experience is delivered to improve the productivity and satisfaction of
business users and brings the interface up to a consumer-grade experience optimized for any
device.
SAP S/4HANA can be deployed on-premise or in the cloud or a combination of both to
provide flexible consumption options to customers.
The data model has been simplified. This means unnecessary tables and the data in those
tables have been removed in order to shrink the data footprint dramatically and simplify the
application design and extensibility.

Technical and Business Values
Figure 9: Technical and Business Values
As an example of the reduced data footprint, you can move from a 7TB ERP (on any
database) down to an SAP S/4HANA system, which requires less than a terabyte of data. This
is achieved through aggressive data compression and system architecture simplification. It
offers a higher throughput, 3 to 7 times faster at processing of your data. It is fully flexible
without pre-configured indices, without pre-configured summarizations, and you can use your
data in new ways that until now were impossible.
It is enterprise software designed with big data and agility at its core.
Table 1: Related SAP Links

Where What Link
sap.com SAP HANA http://hana.sap.com/
SAP Service Marketplace Hybrid Scenarios http://service.sap.com/

public/hybrid
sap.com SAP S/4HANA https://www.s4hana.com/

SAP S/4HANA Deployment Options

Relation Between SAP ERP and SAP S/4HANA
Figure 10: Relation Between SAP ERP and SAP S/4HANA
When looking at SAP S/4HANA, you have in one scenario the on-premise editions and in
another scenario the cloud editions. In a lot of use cases or customer cases, hybrid scenarios
are used. This means the customer has a central base (an on-premise installation) as well as a
cloud. This happens for example when new subsidiaries of the customer intend to use the
cloud installation for SAP S/4HANA (instead of on-premise) for their own business areas.
An on-premise installation provides a lot of control and flexibility in the sense that a
consultant gets the requirements of their project from their customer and based on these
they define what they customize for the customer. In the end, the customer has a highly
customized solution that matches their requirements and fits to their processes generally
close to as they are already.
When it comes to the cloud edition, this is different. In SAP's current set of use cases, the
reasons most customers give for deciding to use the cloud solution is that they want to get rid
of all the customizing and to be more efficient in the implementation phase and to be even
more efficient when it comes to upgrades.
The most important thing to understand here is that the customer does not have access to
the IMG in the cloud edition. The personalization of an SAP S/4HANA cloud solution is done
with a self-service configuration SAP Fiori Uniform Resource Identifier (URI) which can be
found in the Manage Your Cloud User Interface in the SAP S/4HANA solution. That means
that the flexibility of the cloud solution is defined by self-configuration SAP Fiori URIs. There
are also some possibilities of extensibility, but again here it is important to know that
extensibility is clearly defined by the organization as to what changes are allowed with
extensibility.
The following On-Premise and Cloud solutions are available:
Private Cloud (typically single-tenant):

- Resources dedicated to one customer accessed through a Virtual Private Network

(VPN).
- Owned, managed and operated by the customer, a third party, or both.
- On or off premises of the customer.
Hybrid Cloud:
- Resources are a mix of two or more distinct clouds.
- Integrated by standardized or proprietary technology enabling data and application
portability.
Public Cloud (multi-tenant):

- Resources shared by multiple customers accessed via the Internet.
- Self-service access and tools.
- On the premises of the third party cloud provider (not customer).
Note:
Link to SAP solution roadmaps: http://go.sap.com/solution/roadmaps.html
SAP S/4HANA Cloud Editions
Figure 11: SAP S/4HANA Cloud Editions
A cloud edition supports a business process and defines which functions are available for your
company. It contains all apps required for the business processes.
SAP S/4HANA Marketing Cloud: Use this cloud service to understand what your
customers are thinking and saying. Merge interactions, to profile your customers based on
scoring. Build target groups, and address the right customers. Trigger e-mail campaigns,
and analyze the success of the e-mail campaigns.

SAP S/4HANA, Enterprise Cloud: This cloud edition aims at providing a holistic set of
various scenarios for your enterprise. It includes the following specific financial, logistics,
and procurement scenarios, as well as the project and engagement management scenario.
It allows you to run almost all of SAP's applications including SAP Simple Finance, SAP
Business Suite applications, and SAP Business Warehouse.
SAP S/4HANA Professional Services Cloud: SAP S/4HANA Professional Services Cloud
aims at providing a complete end-to-end Web experience of a customer project-based
service delivery. The key business value of this commercial project management solution
involves the integration of multiple processes that commences from project creation,
staffing and time recording, procurement, sales order processing and billing, to accounting
and financials.
Note:
You can explore an SAP S/4HANA Cloud trial here: https://
go.sap.com/cmp/oth/crm-s4hana/s4hana-cloud.html
Explain SAP Fiori Application and Tools

Scenario
You want to ensure that your users have the best possible experience when interacting with
SAP Business Suite. You want to ensure that users can access business critical applications
on any device without compromises. Finally, you want to ensure that the solution integrates
with your existing IT system landscape and can expand to cover your specific needs. You
want to make sure that SAP Fiori meets these requirements.
Figure 12: SAP Fiori User Experience Paradigm
There are five pillars to the SAP Fiori User experiences paradigm:
Role-based: Users have access to the applications where they perform their tasks, and the
applications are specific to completing this task.
Responsive: The application interface is responsive; it adapts to the size and device used
by the users to access it.
Simple: Simple application scope, which means one user, one use case, and up to three
screens for each application.
Coherent: The applications are developed with a coherent structure; apps all speak the
same language, and can be implemented in multiple landscapes and environments.

Instant value: Instant value through a low adoption barrier, both on the IT-system side and
on the user-adoption side.
Figure 13: What is SAP Fiori?
Transaction apps offer task-based access to tasks such as change, create, display
(documents, master records), or entire processes with guided navigation.
Analytical apps provide insight to action. They give you a visual overview of complex topics for
monitoring or tracking purposes.
Fact sheets give you the opportunity to search and explore your data. They provide a 360
degree view on essential information about an object and contextual navigation between
related objects.
Figure 14: SAP Fiori Launchpad - One Entry Point for the User

The SAP Fiori launchpad is the single entry point for the user to interact with the system. It is
role-based and persona centric. The users access those applications that are specific to their
role within the company and allow them to perform the specific tasks as per their
requirement. There is embedded search, collaboration, and feed functionality.
The SAP Fiori launchpad offers themes and can be personalized to meet branding
requirements.
It offers a stable URL for book-marking and sharing and as it is browser based, it works with
multiple devices and browsers.
The launchpad also offers active tiles through which the user can receive updated information
directly from the front page without opening the application.
Figure 15: SAP Fiori Launchpad User Personalization
The following personalization options are available in SAP Fiori launchpad:
Adding applications from the catalog assigned to them.
Removing applications that they do not want to use.
Modifying and adding applications for filtered report results.
For example, if the user is a group cash manager who is interested in the German market, the
user can create an application to take them directly to the cash position of the German
market. They can arrive at the cash position directly with one click from the SAP Fiori
launchpad home page.

Figure 16: SAP Fiori Launchpad Designer
In SAP Fiori launchpad designer, you can do the following:
Configure tiles for static app launchers, dynamic app launchers, and to configure the
target mapping.
Create preconfigured groups and catalogs for the launchpad home page, for assigning to
users.
Transport configurations, correction request packages, or the customizing workbench.
Note:
SAP Fiori Launchpad Designer help document: https://go.sap.corp/fldhelp
Figure 17: SAP Fiori Theme Designer

In the SAP Fiori theme designer, you can design custom themes for the launchpad. For
example, you can do the following:
Change font color
Change background color
Add images
Assign a new theme to users
Table 2: Related SAP Links

Where What Link
SAP Service Marketplace Note 2356208 https://launch-

pad.support.sap.com/#/
SAP S/4HANA "SAP FIORI
notes/2356208
FOR SAP S/4HANA 1610”:
Release information
SAP Service Marketplace Note 2346431 https://launch-

pad.support.sap.com/#/
SAP S/4HANA 1610: Release
notes/2346431
Information Note
LESSON SUMMARY
You should now be able to:

Unit 1
Lesson 2
Explaining the SAP Treasury and Risk
Management Solution
LESSON OBJECTIVES
Corporate Treasury: The Strategic Role and Main Tasks
Figure 18: Corporate Treasury: The Strategic Role and Main Tasks
Strategic or tactical
Much has been written over the years about the role of the treasury. The modern treasury
group is strategic, collaborates with the businesses it serves, and uses automation, offshoring
and treasury centers of excellence to consolidate and standardize tactical areas.
CFO mandates
Treasurers clearly have strong mandates to be strategic. More than 70% of respondents
noted the following mandates from their CFOs:
Liquidity risk management
Efficient capital markets access

Lesson: Explaining the SAP Treasury and Risk Management Solution
Steward for risk management company
Strategic advisor to the business
Value-add partner to the CFO in areas such as mergers and acquisitions (M&A)
Leading, governing and driving working capital improvement initiatives
Enhanced governance and control over domestic and overseas operations
Creation of scalable treasury organization to support company growth
Source: survey by Deloitte 2015:

Responses were received from the treasury groups of more than 100 top corporations from
around the globe, representing a wide array of global scales, industrial footprints and
geographic headquarters.
Strategic Challenges Treasury Organizations Face
Figure 19: Strategic Challenges Treasury Organizations Face
Key challenges persist

Fifty percent of treasurers noted their biggest challenges are the ability to repatriate cash and
to manage foreign exchange (FX) volatility. These challenges continue, despite the ongoing
trend toward leveraging technology solutions.
The primary challenges facing treasury groups today have not yet been resolved with the
increased investment in treasury technology, a trend that has existed over the past few years.
Inadequate systems, FX management, and visibility to global operations continue to be
difficult. Most corporate treasury groups rely on multiple ERPs for data sources and use
multiple solutions (some manual) to address their company's needs. This may lead to
increased operational difficulties and risk rather than providing sufficient solutions to address
these challenges.
Source: survey by Deloitte 2015

Key Drivers SAP Identified: Input for Further Development of the SAP Treasury Solutions
and S4HANA Use
Figure 20: Key Drivers SAP Identified: Input for Further Development of the SAP Treasury Solutions and
S4HANA Use
Treasurers Task Profiles and the SAP Solutions Provided
Figure 21: Treasurers Task Profiles and the SAP Solutions Provided
Our training: SAP Treasury and Risk Management.

Separate trainings exist for Cash and Liquidity Management, Payments and Bank
Communication.
TRM: Treasury and Risk Management.

An Integrated Solution: Connectivity and Coordination
Figure 22: An Integrated Solution: Connectivity and Coordination
Strong treasury and cash management are critical needs in times of reduced bank lending
and general liquidity challenges. Businesses need cash to operate, and when it can't be
procured easily from the outside, it must be generated and conserved from within. In addition,
today's challenges in treasury and cash management are very different from that of several
years ago. This all puts significant additional pressure on corporate treasury operations to
adapt and evolve.
Today more than ever, companies need to better integrate their treasury functions into their
overall finance operation, to gain both efficiency, as well as effectiveness. Their older treasury
and cash silos can no longer remain stand-alone, but must become more integrated with the
cash generating (accounts receivable) and cash depleting (accounts payable) operations of
the company, so that every economy can be gained, and every impact to daily cash position
can be predicted and understood.
Enterprises rightfully expect the treasury function to provide real-time analysis of cash
positions and an apparatus to allocate cash to strategic locations and geographies
instantaneously, or to procure it if it is needed from the most efficient and lowest-cost source.
New standards for financial reporting also require better functions and controls. Treasury
managers need analytical and transactional tools to execute trades and hedging transactions
that are visible, and comply with accounting standards and that are auditable. In short, much
more coordination and visibility is required by today's corporate treasury function across the
board, along with much tighter integration with operational and enterprise finance and
accounting systems.

The End-to-End Treasury and Risk Management Solution Map including

Integration to other Modules
The End-to-End Treasury and Risk Management Solution Map
Figure 23: The End-to-End Treasury and Risk Management Solution Map
SAP Treasury and Financial Risk Management covers the complete value chain from
payment, cash and treasury operations through comprehensive risk management. The native
integration into SAP Financials offers the unique possibility to do proper working capital
management and unify payment processes for all sites and subsidiaries around the world.
The blue box outlines the main focus of our training. Separate trainings exist for:
Bank Communication Management
Cash and Liquidity Management powered by SAP HANA
As well as for SAP Workflow (generic), FI-GL, and so on.
Bank Account Management is covered in this training as far as required for Treasury and Risk
Management.
This training emphasizes on business background and processes. Customization is not
covered. Customization is explained in the subsequent training.
Treasury Solution map as of 2016.

The TRM Solution Architecture with Focus on Integration
Figure 24: The TRM Solution Architecture with Focus on Integration
This picture provides an overview on the Treasury and Risk Management solution with focus
on:
Integration: depending on the company connections to external trading platforms can be

defined as well as automatic market data upload, connection to trade repositories and the
house banks.
Also, the parts of the solution which are enabled for HANA can be distinguished from parts
which are natively built on HANA.

TRM - The Big Picture: Processing, Hedging, Risk, Organization, Products
Figure 25: TRM - The Big Picture: Processing, Hedging, Risk, Organization, Products
The above image provides an overview on the Treasury and Risk Management as a "big
picture".
On the following pages we are going to emphasize important information from different
perspectives:
The Transaction Manager
The Transaction Manager process
Product Groups and Products
Hedge Management, Hedge Accounting, Exposure Management
The Analyzers

FIORI TRM Tiles - The Modern User Interface with S4HANA
Figure 26: FIORI TRM Tiles - The Modern User Interface with S4HANA
Business users and end users will in the future use Fiori to access the system application
functions. Therefore our training introduces the Fiori way of system operation.
FIORI/ Personas Treasury Management Cockpit
Figure 27: FIORI/ Personas Treasury Management Cockpit

TRM Basic Structures
Figure 28: TRM Basic Structures
FSCM: Financial Supply Chain Management
Figure 29: Transaction Manager Basic Structures: Product Oriented Grouping
The Transaction Manager distinguishes the main product groups:
Money Market
Foreign Exchange
Derivatives

Securities
Trade Finance
This order is often used to structure FIORI. Also, it structures the configuration of the system.
The product groups are also referred to as submodules of Transaction Manager.
The Transaction Manager: Product Groups with Products
Figure 30: The Transaction Manager: Product Groups with Products
This is an overview on the most important products covered in Transaction Manager. Most of
them are introduced and processed in the following units.

Deal Management
Figure 31: Deal Management 1
The deals are either manually created or created by a data bridge to online marketplace, bank
or broker.
The basic schema is the same for all product categories. Details can be different depending
on product category (for example, additional tabs providing information on interest rates for
variable interest time deposits).
This is an overview, only. Details including practice are provided later in this training.

Figure 32: Deal Management 2
The deals are either manually created or created by a data bridge to online marketplace, bank
or broker.
The basic schema is the same for all product categories. Details can be different depending
on product category (for example additional tabs providing information on interest rates for
variable interest time deposits).
This is an overview, only. Details including practice are provided later in this training.
LESSON SUMMARY

Unit 1
Lesson 3
Explaining the Transaction Manager Main
Process
LESSON OBJECTIVES
The Transaction Manager Main Process
Figure 33: The Transaction Manager Main Process
We proceed step by step and highlight the most important job tasks and functions.

Lesson: Explaining the Transaction Manager Main Process
Standard Deal Processing
Figure 34: The Transaction Manager Main Process: Standard Deal Processing
These are the main steps of the Transaction Manager process.

In this lesson we are going to walk through this process (in an overview, the details and
practice follows later) and explain important functions and features of the system.
Deal Creation
Figure 35: The Transaction Manager Main Process: Deal Creation
Limit Management by Credit Risk Analyzer.

Service functions examples: NPV Calculator, Option price Calculator, different check
functions, for example deviation from market interest rate causes warnings.

Settlement
Figure 36: The Transaction Manager Main Process: Settlement
The step Settlement is subject to configuration (can be switched off/ automatic settlement
after confirmation is possible).
Europe: automatic EMIR reporting is possible.
EMIR: European Market Infrastructure Regulation.
Posting
Figure 37: The Transaction Manager Main Process: Posting
"Posting" in terms of the Transaction Manager means posting to the General Ledger.
Posting can be performed separately from Payment.
In many companies posting is a day end procedure. But it can also be performed more
frequently.

Payment
Figure 38: The Transaction Manager Main Process: Payment
The Treasury Payment program allows you to act separately from the FI-Accounts payable
payment program.
In case a deal is made at the house bank where the money resides, no payment is required.
The electronic account statement is then used to shift the money to a different account (for
example. cash GL account to fixed term deposit GL account).
A step ‘Release payment’ can be added in configuration.
Evaluation
Figure 39: The Transaction Manager Main Process: Evaluation
GAAP: Generally Accepted Accounting Principles, for example,. IFRS, US GAAP, German
Commercial Code (HGB), and so on.
TRM is a multi GAAP subledger responsible for positions management and valuation.
Multi GAAP: valuation procedures are available to cover most accounting principles. The
valuations are executed in parallel for the GAAPs.

Account determination can be performed separately per GAAP.
Reporting
Figure 40: The Transaction Manager Main Process: Reporting
Ad hoc reporting: Point and click, Unified databases, Position, P&L, Period, Cash Flow
Reporting tools: SAP Query, ABAP List, Other 3rd-party providers, BI, SAP BusinessObjects
Dashboards (formerly Xcelsius ®), Lumira dashboards
Results database:
Portfolio Hierarchy, Drill-down, Historic results
Management reports: Positions, Performance, Ratios, Compliance
Middle office: Risk exposure, Controlling, Compliance
Data export: Excel, Flat files, BI
Limit Report
From this report the user can dig into the details of the amounts up to every single deal or
financial risk object which can for example also contain a General Ledger Account.
Accounting
The GL Postings are derived by TRM when the postings are handed over to the GL. The
flexible approach allows to derive different GL accounts per Company Code and by GAAP.

The Transaction Manager main process: Linkage with the Companies

Organization
Organization
Figure 41: The Transaction Manager Main Process: Organization
The Transaction Manager uses the typical basic Treasury organizational structure. In the
system, transactions are structured accordingly.
Organization, Job Roles/ Tasks and Functions
Figure 42: The Transaction Manager Main Process: Organization, Job Roles/ Tasks and Functions
Major tasks are structured according to the basic treasury organization schema.

Hint:
The introduction of Fiori allows you to structure system access and use
according to your company’s needs with low efforts!
The tasks/ functions listed here are examples, the full list can not be shown on one screen.
Completing the Transaction Manager Main Process: Correspondence
Figure 43: Completing the Transaction Manager Main Process: Correspondence
Several BADIs exist that can be adjusted to the companies requirements.

Completing the Transaction Manager main process: Authorizations, Dual/ Triple

Control, Change reporting
Figure 44: Completing the Transaction Manager Main Process: Authorizations, Dual/ Triple Control, Change
Reporting
In Treasury, a small group of people handles large amounts of money.

Therefore a responsible use of authorizations and dual, triple and even quadruple control is
inevitable. Memorizing changes including user information is a must.
While the process step Settlement allows you to change a contract, the following use of the
workflow does not allow changes: options are acceptance or rejection.
Authorizations and the use of the workflow are not discussed or demonstrated during this
training. The connection points to the Workflow are described in the customizing training.
Also, the workflow use is demonstrated there.

Linked with the Transaction Manager processes: Risk Management

Risk Management
Figure 45: Linked with the Transaction Manager Processes: Risk Management
Market Risk Analyzer and Credit Risk Analyzer are used by most of the TRM customers. Two
more Analyzers exist: Portfolio Analyzer for Portfolio Analysis and Benchmarking (e.g. to
indices) and Accounting Analyzer for analysis of Accounting figures. In this training we
concentrate on Risk Analyzer and Credit Risk Analyzer.
Cash and Liquidity Management Integration
Figure 46: Linked with the Transaction Manager Processes: Cash and Liquidity Management Integration
Cash - and Liquidity Management receives detailed information on any TRM deal in a
realtime manner: Cash Mgmt. Is able to distinguish the status of the deal.

The TRM transactions are assigned to the Cash Management planning levels flexibly in
configuration: adjustments can be made flexibly. More information is provided during the
configuration training.
LESSON SUMMARY

Unit 1
Lesson 4
Describing the Core Treasury Processes
LESSON OBJECTIVES
The Debt and Investment Process

The Treasury and Risk Management Core Processes
Figure 47: The Treasury and Risk Management Core Processes
In our training we take a walk using these core processes to explain the solution:
We start with the Debt and Investment Process. We use this process to explain architecture,
process, organization, major products, major features of the TRM Transaction Manager in
depth (to save on time, we do not repeat this groundlaying information later on, instead we
add missing delta information). Also we have the opportunity to practice a lot during the
exercises. In the last lesson we provide an introduction into the Trade Finance process.
In the Insurance industry, where large amounts need to be invested, TRM is called Financial
Asset Management.
Afterwards we continue with the FX Risk Management process. Here we focus on FX-
Derivatives and elaborate on Hedging and Hedge Accounting. In one lesson we concentrate
on derivatives used for the Management of Interest Risk.
After we have acquired the knowledge on the Transaction Manager, we continue with
information on Market Data and finally Market Risk Analyzer and Credit Risk Analyzer. This
rounds up the processes because all the processes named before profit from these important
functions!

Lesson: Describing the Core Treasury Processes
The Debt and Investment Management Process: Business Background
Figure 48: The Debt and Investment Management Process: Business Background
FAM: Financial Asset Management. This is the naming of the Debt and Investment
Management in the Insurance Industry. The Insurance Industry uses the investment products
(e.g. purchase of good rated bonds) to a high extent and in high numbers. Therefore a specific
naming is used (and different license fees are applied).
The Debt and Investment Management Process: Products
Figure 49: The Debt and Investment Management Process: Products

The product areas Foreign Exchange and Derivatives are discussed in the subsequent unit:
The FX Risk Management Process. Pragmatically we add a brief info on Trade Finance to the
Debt and Investment Management unit.
OTC = Over the counter contracts (products) concluded with one or few business partners,
for example, Fixed Term Deposit, Deposit at Notice, Commercial Paper, Facility, OTC option,
forward.
In contrast to: Exchange traded contracts (products). These are contracts which are traded at
an exchange, which have a unique identification number (ISIN) and which are traded in
numbers for example, share, bond, exchange traded option, and future.
The FX Risk Management process

The FX Risk Management Process: Areas
Figure 50: The FX Risk Management Process: Areas
Picture from: Review Balance Sheet FX Risk: FX Risk of a single Company Code: Detail
Analysis.
In the unit FX Risk Management process we focus on the FX related products and explain FX
Spot, FX Forward, FX Swap, Cross Currency Swap, FX Options. Also FX Hedging and Hedge
Accounting are explained. In one lesson we concentrate on further derivatives especially
these used for the Management of Interest Risk.
Of course, the Market Risk Analyzer and Credit Risk Analyzer are used in the FX Risk
Management process as well.

The FX Risk Management Process: Products
Figure 51: The FX Risk Management Process: Products
Hint:
After the explanation of the derivatives, a lesson on the EMIR/ Dodd-Frank Act
regulations follows. This includes information on the SAP Trade Repository
Reporting by Virtusa Polaris.
The Interest Risk Management Process
Figure 52: The Interest Risk Management Process: Products

Hint:
After the explanation of the derivatives a lesson on the EMIR/ Dodd-Frank Act
regulations follows. This includes information on the SAP Trade Repository
Reporting by Virtusa Polaris.
Of course, the Market Risk Analyzer and Credit Risk Analyzer are used in the Interest Risk
Management process as well!
The Trade Finance Process
Figure 53: The Trade Finance Process: Business Background and System Coverage
The Trade Finance process, but as always the devil is in the detail meaning a complex process
is required to cover the Letter of Credit (LC) handling.
Trade Finance Process for LC in an overview:
LC Order (the exported goods are paid by an LC) 1), 2)
Execute the order (the order is created in TRM and is executed) 1), 2)
Sending the Correspondence via SWIFT (TRM Correspondence) 3) 4)
Settle the contract (TRM: Settlement) after 1), 2)
Presentation by adding the documents (documents proofing the shipment/ arrival) after
5): 6)
Accept and Settle the presentation 7)
Financing based on Presentation 8), 9), 10), 11)
Terminate the LC

Posting.
The Trade Finance process: Products
Letter of Credit
Bank Guarantee
LESSON SUMMARY

Unit 1
Learning Assessment
1. Name the three SAP Fiori User Experience Paradigms
2. Name the three different SAP Fiori App Types
3. SAP S/4HANA can be deployed on-premise and as cloud edition.

Determine whether this statement is true or false.
X True
X False
4. The data footprint increased with the introduction of SAP S/4HANA.

X True
X False
5. Treasury and Risk Management belongs to S/4HANA. What are the benefits?
Choose the correct answers.
X A SAP S/4HANA is built on SAP HANA and so inherits all the capabilities of this
powerful in- memory data management and application platform.
X B A brand new user experience is possible
X C Flexibility: SAP S/4HANA can be deployed on-premise or in the cloud
X D The data model has been simplified
X E The cost of the implementation can be saved

Unit 1: Learning Assessment
6. What are examples of typical questions arising from the Treasury and Risk Management
job roles?
X A Treasury Operations Manager: "How do I ensure highly secure and quick payments
and minimize external fees"?
X B Cash Manager: "How do I improve cash and liquidity forecasting and gain more
accurate and timely insight into global cash balances"?
X C Treasury Finance Manager: "How do I improve the companies strategy"?
X D Financial Risk Manager: "How do I pinpoint my financial risks and take more
effective steps to mitigate them"?
7. Treasury and Risk Management - the big picture: which main components does the
Treasury and Risk Solution consist of?
X A Transaction Manager
X B General Ledger
X C Risk Analyzers
X D Hedge Management
X E Cost Center Controlling
8. Which is the right order the Transaction Manager steps are mostly used in?
Arrange these steps into the correct sequence.
0 Valuation
0 Payment
0 Create Deal
0 Reporting
0 Posting
0 Settle Deal

9. Which of the following is the meaning of OTC as used in the SAP Treasury and Risk
Management module?
Choose the correct answer.
X A Order to Cash
X B Offer to Cash
X C Over the Counter
10. The Trade Finance submodule of Treasury and Risk Management is used for which types
of instruments.
X A Investments
X B Letters of credit
X C Bank guarantees
X D Interest rate derivatives

Unit 1
Learning Assessment - Answers
1. Name the three SAP Fiori User Experience Paradigms
Role based; Responsive; Simple, Coherent, Instant Value
2. Name the three different SAP Fiori App Types
Transactional; Factsheet, Analytical
3. SAP S/4HANA can be deployed on-premise and as cloud edition.

X True
X False
4. The data footprint increased with the introduction of SAP S/4HANA.

X True
X False
5. Treasury and Risk Management belongs to S/4HANA. What are the benefits?
X A SAP S/4HANA is built on SAP HANA and so inherits all the capabilities of this
powerful in- memory data management and application platform.
X B A brand new user experience is possible
X C Flexibility: SAP S/4HANA can be deployed on-premise or in the cloud
X D The data model has been simplified
X E The cost of the implementation can be saved
This is correct.

Unit 1: Learning Assessment - Answers
6. What are examples of typical questions arising from the Treasury and Risk Management
job roles?
X A Treasury Operations Manager: "How do I ensure highly secure and quick payments
and minimize external fees"?
X B Cash Manager: "How do I improve cash and liquidity forecasting and gain more
accurate and timely insight into global cash balances"?
X C Treasury Finance Manager: "How do I improve the companies strategy"?
X D Financial Risk Manager: "How do I pinpoint my financial risks and take more
effective steps to mitigate them"?
This is correct.
7. Treasury and Risk Management - the big picture: which main components does the
Treasury and Risk Solution consist of?
X A Transaction Manager
X B General Ledger
X C Risk Analyzers
X D Hedge Management
X E Cost Center Controlling
This is correct. The General Ledger and the Cost Center Controlling only receive
information from the Treasury and Risk Management solution.
8. Which is the right order the Transaction Manager steps are mostly used in?
5 Valuation
4 Payment
1 Create Deal
6 Reporting
3 Posting
2 Settle Deal
This is correct.

9. Which of the following is the meaning of OTC as used in the SAP Treasury and Risk
Management module?
X A Order to Cash
X B Offer to Cash
X C Over the Counter
This is correct. The meaning of OTC is Over the Counter that is used in the SAP Treasury
and Risk Management module.
10. The Trade Finance submodule of Treasury and Risk Management is used for which types
of instruments.
X A Investments
X B Letters of credit
X C Bank guarantees
X D Interest rate derivatives
That is correct. The Trade Finance submodule of Treasury and Risk Management is used
for Letters of credit and Bank guarantees.

UNIT 2 General Master Data
Lesson 1
Capturing Banks Master Data Using Bank Account Management 53
Lesson 2
Completing the House Bank Master Data in the Business Partner 69
UNIT OBJECTIVES
Capture banks master data using Bank Account Management
Complete the house bank master data in the business partner

Unit 2
Lesson 1
Capturing Banks Master Data Using Bank
Account Management
LESSON OBJECTIVES
Functional Features of Bank Account Management

Scenario
You are interested in the detailed functions in Bank Account Management.
Figure 54: House Bank Overview

Unit 2: General Master Data
Figure 55:
Functional Integration of Bank Account Management
Figure 56: Functional Integration of Bank Account Management

Lesson: Capturing Banks Master Data Using Bank Account Management
Function Overview of Bank Account Management
Figure 57: Function Overview of Bank Account Management
In Bank Account Management, attributes are provided, reflecting controls on both banks and
companies. Besides all the information provided by SAP-recognized pre-delivery, customers
also have the flexibility to extend information according to their own special requirements.
The solution also provides the standard bank account hierarchy that helps customers
manage the bank accounts and bank account relationships.
The solution also provides free style user-defined groups, which help users group bank
accounts according to the specialized requirements of end users. The signatories maintained
in the Bank Account Management master data can be integrated with Bank Communication
Management (BCM) payment approval so that it simplifies signatory management, which was
previously maintained in the release strategy of the BCM component for the payment
approval.
For the approval process of bank accounts opening, changing, and closing, the solution
provides a workflow to manage the approval process for the company wherein SAP delivers
the predefined workflow steps. This workflow process is also flexible enough for the
customers to change or define according to their requirements.
The bank account review process helps the customer to easily manage and review bank
accounts yearly or quarterly. Cash managers can initiate the review process followed by a
review by internal company contacts to finish the workflow. The cash manager can then very
quickly review of all the review processes for the bank accounts.
We also provide the Upload and the Download Bank Accounts functionality to help the
customers to migrate bank account or make mass changes to bank accounts. Customers can
download all the bank accounts into an excel file, make the mass exchange, and upload the
file again to the system.

Bank Accounts
Manage Banks App
Figure 58: Manage Banks App
The Manage Banks app provides you with an overview of all the banks in your system. You can
add new banks, contacts, and banking relationships to your database. You can also create,
display, and change data for existing banks that your company, your customers, and your
suppliers use to transact business.
The figure, Manage Banks - List of Banks, shows the first step in the creation of a new bank
process.
Manage Banks - List of Banks
Figure 59: Manage Banks - List of Banks

Manage Banks - Create Bank
Figure 60: Manage Banks - Create Bank
As shown in the figure, Manage Banks - Create Bank, when creating a new bank, you need to
enter the correct Control Data and Address for the new bank. You can also enter a credit
risk rating for the bank, if desired. If the bank is no longer valid, a deletion indicator can be set
on the bank.
Manage Banks - Display the Bank in Specified Signatory
Figure 61: Manage Banks - Display the Bank in Specified Signatory
When you select the bank in the list view, you can access the following types of information as
shown in the figure, Manage Banks - Display the Bank in specified signatory:
1. Link to Business Partner : Directs you to the Maintain Business Partner app.
2. Advanced Address : Directs you to Display Advanced Address information.

3. Display House Bank information : Directs you to the Display House Bank for the specified
signatory.
4. Display Contact information : Directs you to the Display Contact for the specified signatory.
New Bank Account Master Data
Figure 62: New Bank Account Master Data
In S/4HANA, house bank accounts are master data, as opposed to configuration.

With bank account master data, you can define the following:
General Data tab: Define common account properties such as the bank account number,
IBAN number, properties for bank statement import, contact persons, and so on.
Payment Signatories tab: Define payment signatories for approving payments through a
bank account.
Overdraft Limits tab: Maintain overdraft limits for a bank account, which can later be
shown on the Cash Position Details app.
Additional Data tab: Define data such as closing date, organizational data, and technical
data.
Connectivity Path tab: Maintain links between the bank account and the corresponding
house bank account or other account records either in a central or a remote system.
Attachments tab: Upload attachments, which can be a file or a hyperlink.

New Bank Account Master Data - Connectivity Path
Figure 63: New Bank Account Master Data - Connectivity Path
On the Connectivity Path tab, as shown in the figure, New Bank Account Master Data -
Connectivity Path, the user can link a bank account to its corresponding house bank account
in the central system or to account records in remote SAP or non-SAP systems. For different
connectivity scenarios, different ID categories have been provided.
For more information about how to use different ID categories and maintain the connectivity
correspondingly, check the field help of the ID category field. Starting from SAP Simple
Finance on-premise Edition 1503, the transaction code FI12 for maintaining house banks and
house bank accounts is no longer supported. To create new house bank accounts, you must
define house bank accounts on the Connectivity Path Tab.

Bank and Bank Account Hierarchy
Figure 64: Bank and Bank Account Hierarchy
The following functions are provided to help you group and organize banks the bank accounts:
Standard bank hierarchy: Add the banks into the hierarchy by leveraging the business
partners. The bank accounts under each bank will be displayed automatically in the bank
hierarchy. So, from this view, you can have a complete view of all the banks and bank
accounts within the company.
Account list: Display all bank accounts in a flat structure. By leveraging the framework of
Web Dynpro tables, you can easily sort groups and bank accounts in the account list.

Free Style Bank Account Group
Figure 65: Bank Account Group (Free Style)
In the Free Style Bank Account Group, end users can define bank account groups according
to their individual requirements, which can be very specific or personalized. The user can set
whether a group is for public or personal usage, and then create cash pools directly on the
bank account groups. It makes the work of creating and maintaining cash pools much easier.
Overdraft Limits
Figure 66: Overdraft Limits
Overdraft limits are the maximum credit allowed by the bank on a particular overdraft
account. You can define several overdraft limits for one bank account for different currencies
and different validity periods. The system will automatically calculate the total overdraft limit
for a specific date and you can see the overdraft limit information in the Cash Position Details
app.

Payment Signatures
Figure 67: Payment Signatures
Payment signatories are people who have the authorization to approve payments. With Bank
Account Management, you can define different approval processes for different bank
accounts by configuring signatory groups and approval patterns.
Please note that this function is integrated with the Bank Communication Management
approval processes. For the signatories, they can approve the payments in another SAP Fiori
app called Approve Bank Payments.
Attachments
Figure 68: Attachments
In the Attachment tab, you can attach important documents, such as documents from the
banks related to the bank accounts.

Change History
Figure 69: Change History
With bank account change history, you can see who has changed something and at what time.
Exact Search and Fuzzy Search
Figure 70: Fuzzy Search
Both the bank hierarchy view and account list view provide the Exact search option.
With Exact search, the user enters a complete string, for example a complete number or
description of the bank account.

In the account list view, the Fuzzy Search option is provided. This search allows the user to
enter an incomplete description or number and the system identifies all bank accounts that
match your search for at least 70% and higher.
Workflow for Bank Account
Figure 71: Workflow for Bank Account
In addition to the Bank Account Master Data, you can also use workflow processes to
centrally manage your bank accounts. This is especially used for larger corporates with
subsidiaries around the globe. You can use workflow processes to monitor the opening,
modifying, and the closing process of bank accounts.
You can also use it to initiate and manage the annual bank account review. The workflow for
bank accounts is based on the SAP Business Workflow. SAP has delivered several predefined
workflow templates. You can use these templates or adapt them to your own needs.
Workflow for Bank Account: Open New Bank Account
Figure 72: Workflow for Bank Account: Open New Bank Account
In the predefined workflow for opening a new bank account, the following process is defined:
1. Request:

The subsidiary cash manager decides that the company needs a new bank account. The
subsidiary cash manager then completes a request and submits it to the group cash
manager.
2. Approve:
The group cash manager sees the request in the bank account worklist, compares the
request with existing bank accounts in the company code, and decides whether to accept
or reject the request.
3. Open in the bank:

The bank relationship manager starts to negotiate with the bank regarding the contract.
After everything is finalized and the bank account is officially opened in the bank, the bank
relationship manager can key in all of the detailed information for the bank account in the
Bank Account Master Data.
4. IT configuration:
The IT consultants take care of all the necessary configurations and settings, for example,
the connectivity paths. They then enable the bank account with the payment and bank
statement processes so that the bank account can be used.
Workflow for Bank Account: Tools for Approver
Figure 73: Workflow for Bank Account: Tools for Approver
Using the change history function, you can check previous changes to a bank account, such
as who has changed something or who created information for the bank account.
Also, you can use the existing bank account function to check existing bank accounts and
then decide whether a new bank account is needed or not.

Workflow for Bank Account: Mass Signatory Change Approval
Figure 74: Workflow for Bank Account: Mass signatory change approval
When a signatory leaves a company, it is not uncommon that records have to be maintained
for a large number of bank accounts.
You also have to consider that when a new payment signatory is authorized, you have to
assign the signatory to a certain number of bank accounts. In order to help you with these
scenarios, the mass signatory change function can help you maintain signatories in multiple
bank accounts with a single action.
With this function, you can add a new signatory to choose bank accounts, or replace existing
signatories with a new signatory. You can also revoke one signatory in multiple bank accounts
by editing the validity information of the signatory. The figure, Workflow for Bank Account:
Mass signatory change approval, outlines this process.

Bank Account Review Process
Figure 75: Bank Account Review Process
While working with thousands of bank accounts, it is very important to ensure that the data is
correct and up-to-date. Therefore, cash managers have to perform regular bank account
reviews to ensure that all of the data is correct. To help them with this task, there is a
predefined workflow process for bank account reviews.
With this process, cash managers can trigger the bank account review process and monitor
the status of the bank account review. Note that if you want to use this function, you must
ensure that you have defined the general contact field on the Bank Account Master Data -
General Data tab under the Internal Contact section, as only those who have been defined as
internal general contacts will receive the review reports triggered by the cash managers.

Create House Bank
Figure 76: Create House Bank
LESSON SUMMARY

Unit 2
Lesson 2
Completing the House Bank Master Data in the
Business Partner
LESSON OBJECTIVES
The Use of the SAP Business Partner in TRM
Figure 77: The Use of the SAP Business Partner
A Business Partner was created during the first step "Create a Bank" in the Bank Account
Management: Bank Account Management interacts with the Business Partner function: the
Business Partner number is assigned. Also, relationships between Business Partners are
created out of Bank Account Management in the Business Partner function.

Access from Fiori
Figure 78: The SAP Business Partner: Access from Fiori
From Fiori, Bank Account Management, and the Manage Bank Accounts app, it is possible to
access Business Partner maintenance. The picture above shows the Business Partner
maintenance.
Transaction: BP
General Information and Use in TRM
Figure 79: The SAP Business Partner: General Information and Use in TRM

Lesson: Completing the House Bank Master Data in the Business Partner
Hint:
The technical names can be switched on and off by using the Button SAP GUI ->
Options -> Interaction Design -> Visualization 1 -> Flag: Show Keys within
dropdown lists (Option: sort by keys).
Visualization 2 allows to show the system name in the task bar button.
Roles 00000 Business Partner (generic) and FS0000 Financial Services Business Partner are
automatically generated when the Business Partner is created from Bank Account
Management.
Roles in TRM
Figure 80: The SAP Business Partner: Roles in TRM
Note:
While the SAP Business Partner allows you to create new roles flexibly, this is not
recommended for TRM, as it is rarely necessary. The SAP delivered roles provide
functionality, e.g. standing instructions, to the business partner they are
assigned to.

The SAP Business Partner: Standing Instructions
Figure 81: The SAP Business Partner: Payment Transactions
More information on payments are provided in the following unit on Payments.
Figure 82: The SAP Business Partner: Standing Instructions
Prerequisite for the availability of the button: the Business Partner is displayed in the role
Counterparty.

Authorizations
Figure 83: The SAP Business Partner: Standing Instructions - Authorizations
Hint:
The authorizations are checked when a contract is created. Without appropriate
authorization, creation is prohibited and an error message is issued.
Payment Details
Figure 84: The SAP Business Partner: Standing Instructions - Payment Details
More information on payments are provided in the following unit on Payments.

Payer/payee: Incoming and outgoing payments are settled using this business partner.
Use:
If the business partner is the house bank, it is not required to enter data in this field, as
payments are made exclusively using the house bank account. The business partner
settles all the payments, and is therefore automatically the payer/ee.
If the business partner does not act as the house bank, you have to enter a payer/ee in the
payment details. The result is that payments are not made to the business partner, but to
the payer/ee.
When payments are due, they are drawn to the payment details specified in the master
data for the payer/ee (business partner or alternative payer/ee), which means that these
must be maintained accordingly.
Bank details ID: the key identifying a business partner's bank details. Retrieves the bank
details stored for Payer/ Payee within the tab Payment Transactions .
Create Payment request: a payment request is the prerequisite for the use of the specific
TRM payment program.
Indicator Individual payment
This indicator is used to determine whether payment on an individual basis is necessary or
whether flows are allowed to be paid together with other flows (for example compensation or
netting). This indicator is only significant for flows that can generate payment requests.
If the indicator is NOT set, payment may be made on an individual or joint basis.
If it is set, payment is to be made on an individual basis.
Indicator Same direction necessary for joint payment

This indicator is used to determine whether flows are allowed to be paid as part of a joint
payment regardless of the direction of the payment (incoming or outgoing) or whether the
direction has to be the same for all flows.
If the indicator is NOT set: flows can be grouped regardless of payment direction.

If the indicator is set: flows can only be grouped if they have the same payment direction.
Payment method: method of payment, for example, money transfer or check.

The system supports multi-level payment methods. By entering a bank chain, you can
process payments using several banks. Up to three intermediate banks are supported.
More information on payments is provided in the following unit on Payments.
More information on payments is provided in the following unit on Payments.
Figure 87: The SAP Business Partner: Standing Instructions - Payment Details/Payment Detail ID

The assignment of the payment details to specific trade types is a mandatory step. Without
assignment the information is not inherited completely to the deal. Users will receive warning
messages when saving a deal if there are incomplete payment details.
Derived Flows
Figure 88: The SAP Business Partner: Standing Instructions - Derived Flows
Derived flows automatically add flows to the flows of the deal: the flows are derived from
existing deal cash flows. For example, a tax flow is derived from an interest flow (incoming
interest). Withholding tax cash flows can be added to a trade based on derived flow standing
instructions.
Navigation
Figure 89: The SAP Business Partner: Standing Instructions - Navigation

Hint:
If required, separate transactions are available to access the Standing
Instructions directly. They can be made available as Fiori tiles.
General Business Partner Transaction: BP.
The SAP Business Partner: Relationships
Figure 90: The SAP Business Partner: Relationships
Hint:
The limit setting for groups of companies/ affiliated groups of House Banks
allows risk analysis and risk mitigation.

Procedure: To Create a House Bank (Part 2)
Figure 91: To Create a House Bank (Part 2)
Note:
This is part 2 of the House Bank Creation. The previous part can be found in the
previous lesson.
The Business Partner itself including BP number is created from Bank Account Management.
Also, BP Relationships are created there.
LESSON SUMMARY

Unit 2
Learning Assessment
1. The new Bank Account Management in SAP S/4HANA Cash Management facilitates an
integrated opening, changing, and closing process for all involved parties.
X True
X False
2. The new Fiori app Manage Banks provides the following functions and features:
X A You can add new banks, contacts, and banking relationships to your database.
X B It is possible to perform reporting of GL Account Totals.
X C You can also create, display, and change data for existing banks that your
company, your customers, and your suppliers use to transact business.
X D You can authorize traders
X E You can set limits for the overall business to be allowed with the house banks
3. The House Bank data is completed in the Business Partner application. The main
information added is:
X A Roles
X B Payment Information
X C Bank Address and Business Partner number
X D Standing Instructions
X E Authorizations

Unit 2
1. The new Bank Account Management in SAP S/4HANA Cash Management facilitates an
integrated opening, changing, and closing process for all involved parties.
X True
X False
This is correct. Accountants in the Subsidiaries can get rid of tedious manual
reconciliation processes when creating, changing, or closing a bank account.
2. The new Fiori app Manage Banks provides the following functions and features:
X A You can add new banks, contacts, and banking relationships to your database.
X B It is possible to perform reporting of GL Account Totals.
X C You can also create, display, and change data for existing banks that your
company, your customers, and your suppliers use to transact business.
X D You can authorize traders
X E You can set limits for the overall business to be allowed with the house banks
This is correct. You can create, change or display banks in your system.
3. The House Bank data is completed in the Business Partner application. The main
information added is:
X A Roles
X B Payment Information
X C Bank Address and Business Partner number
X D Standing Instructions
X E Authorizations
This is correct. Important roles are TR0151 Counterparty and TR0152 Depository Bank, or
authorizations for products.

UNIT 3 The Debt and
Investment
Management process
Lesson 1
Explaining the Debt and Investment Management Process 84
Lesson 2
Using the Money Market Trading Functions 88
Lesson 3
Employing the Back Office Functions - Part One 112
Lesson 4
Describing the Back Office Functions: Correspondence 133
Lesson 5
Executing Postings in Accounting 159
Lesson 6
Performing Payments 176
Lesson 7
Performing the Period End Process 199
Lesson 8
Using Credit Lines and Mirror Transactions 227
Lesson 9
Employing the Back Office Functions - Part Two 237
Lesson 10
Managing Securities and Other Exchange Traded Products 249
Lesson 11
Executing Money Market Funds 283
Lesson 12

Unit 3: The Debt and Investment Management process
Replacing LIBOR 289
Lesson 13
Performing Analysis in the Transaction Manager 302
Lesson 14
Executing Leading Edge SAP Fiori Reporting Apps 305
Lesson 15
Gaining Efficiency with the Trade Finance Process 317
UNIT OBJECTIVES
Explain the debt and investment management process
Use the money market trading functions
Perform settlement
Use collective processing
Create netting proposals
Perform interest fixing
Explain the correspondence framework architecture and functions
Create a correspondence object
Explain the SAP Treasury and Risk Management accounting functions and processing
alternatives
Create GL postings
Review the SAP Treasury and Risk Management postings
Explain the SAP Treasury and Risk Management payment functions and processing
alternatives
Perform payments using the SAP Treasury and Risk Management payment function
Review the SAP Treasury and Risk Management payments
Understand the purpose of SAP Multi-Bank Connectivity
Know the process of implementing SAP Multi-Bank Connectivity
Articulate the benefits of implementing SAP Multi-Bank Connectivity
Explain the business background of the period end process: valuation and accruals
Perform valuations in the period end process

Create accruals in the period end process
Create and analyze facilities
Explain and create mirror transactions
Explain and perform a prolongation
Manage reversals
Explain the management of securities and other exchange traded products in SAP
Treasury and Risk Management
Create security accounts and security class data
Trade securities
Perform securities accounting tasks
Distinguish and explain supporting back office tasks
Execute money market funds
Learn about Benchmark Reform
Know what changes on SAP with the benchmark replacement
Know where to go to get more information
Perform analysis in the transaction manager
Execute leading edge SAP Fiori reporting apps
Gain efficiency with the trade finance process

Unit 3
Lesson 1
Explaining the Debt and Investment
Management Process
LESSON OBJECTIVES
The Debt and Investment Management Process Overview
Figure 92: The Debt and Investment Management Process
Financial Market:
A financial market is a market that brings buyers and sellers together to trade in financial
assets such as stocks, bonds, commodities, derivatives and currencies. The purpose of a
financial market is to set prices for global trade, raise capital, and transfer liquidity and risk.
Although there are many components to a financial market, two of the most commonly used
are money markets and capital markets:
Money markets are used for a short-term basis, usually for assets up to one year.
Conversely, capital markets are used for long-term - assets, which are those with
maturities of greater than one year. Capital markets include the equity (stock) market and
debt (bond) market.

Lesson: Explaining the Debt and Investment Management Process
Together, money markets and capital markets comprise a large portion of the financial
market and are often used together to manage liquidity and risks for companies,
governments and individuals.
Source: Investopedia (www.investopedia.com). Read more: Financial Markets: Capital vs.
Money Markets | Investopedia: http://www.investopedia.com/articles/investing/052313/
financial-markets-capital-vs-money-markets.asp#ixzz4lUnmptqZ
http://keydifferences.com/difference-between-money-market-and-capital-market.html
http://www.investopedia.com/articles/investing/052313/financial-markets-capital-vs-
money-markets.asp
Figure 93: The Debt and Investment Management Process: Products
The product areas Foreign Exchange and Derivatives are discussed in the subsequent unit
The FX Risk Management Process. Pragmatically we add a brief info on trade finance to this
Unit.
OTC = Over the counter. Contracts (products) concluded with one or few business partners.
For example, fixed term deposit, deposit at notice, commercial paper, facility, OTC option,
forward.
In contrast to: exchange traded contracts (products). These are contracts which are traded at
an exchange, which have a unique identification number (e.g. ISIN) and which are traded in
numbers, for example, share, bond, exchange traded option, future.

Figure 94: The Debt and Investment Management Process: Major Steps
We use the Debt and Investment Management process to explain these process steps very
detailed step by step in our training. Here we start with the product group Money Market.
Figure 95: The Debt and Investment Management Process: Organization
The Transaction Manager uses the typical basic treasury organizational structure. In the
system, transactions are structured accordingly.

Lesson: Explaining the Debt and Investment Management Process
Figure 96: The Debt and Investment Management Process: Fiori Coverage
LESSON SUMMARY

Unit 3
Lesson 2
Using the Money Market Trading Functions
LESSON OBJECTIVES
The Debt and Investment Management Process: Deal Creation
Figure 97: The Debt and Investment Management Process: Deal Creation
We use the Debt and Investment Management process to explain this process in a very
detailed step by step method in our training. First, we start with money market contracts.
Even if deal capture is fully automatic in your company, it makes a lot of sense for a power
user to practice it a few times during this training. This knowledge might be useful anyway to
cover exceptional cases!

Lesson: Using the Money Market Trading Functions
Figure 98: Deal Creation in Money Market: Fiori Tiles: Deal Capture, Fast Entry Functions
Figure 99: Deal Creation in Money Market: Fiori Tiles: Deal Capture, Fast Entry Functions
Company Code: 4 digit code, usually used for the single company, which publishes a financial
statement.
Business Partner : the business partner the deal is concluded with. Usually the house bank or a
broker.
Product Type and Transaction Type are explained on the subsequent pages.
Securities Transactions also require the Securities ID Number.
The transaction currency is inherited from the Company Code. A different currency has to
be entered in the Entry screen.

Hint:
It can neither be changed after entering the subsequent screens nor after
saving the contract.
Information on the portfolio can be entered as well. The portfolio structure is subject to
configuration.
An external number can be assigned as well.
Important Products of the Money Market Product Group
Figure 100: Product Types, Product Categories, Transaction Types
The product categories can not be enhanced or altered. But they offer configuration
alternatives as soon as the product types are configured.
The product configuration allows you to define mandatory process steps (for example, with or
without settlement) or allows you to configure fixed values or available selections (for
example, for Accounting).
The product configuration is one important topic in the subsequent training on customizing.

Figure 101: Product Categories in Money Market
Deposit at Notice, Commercial Paper and Facility are explained later in more detail.
Figure 102: Important Products in Money Market: Time Deposits
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 the structure characteristics and conditions.
When trading with deposits at notice, investments and borrowings are made without defined
due dates. The period of notice, the payment date, and the interest payment cycle are entered
in addition to the amounts and conditions.

Figure 103: Important Products in Money Market: Commercial Paper and Facility
Commercial Paper trading includes the purchase and sale of individual commercial paper
tranches. A characteristic of commercial paper is that no interest payments arise during the
term. By entering a nominal amount and the target yield, the payment amount that the
investor has to pay to the debtor at the start of the term is determined by discounting.
Interest can also be determined based on 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.
Figure 104: Important Templates in Money Market: Interest Rate Instrument
In opposite to the products explained on the prior two pages, which are products from the
market, the following product categories are SAP terms:
Interest rate instruments are used to map money market transactions, which include
different forms of interest calculations and repayments.

Cash flow transactions in Money Market enable you to map a wide range of transactions.
You enter the term manually and also the cash flow that results from the particular issue
structure of the transaction. This includes position changes, expenses, revenues, and
payments.
Figure 105: Important Templates in Money Market: Current Account-Style Instrument
The Current Account-Style Instrument: Business Function: FIN_TRM_MME
Figure 106: Interest Rate Instrument Current Account-Style Instrument Comparison
Interest rate instrument Current Account-Style Instrument comparison.

Figure 107: Important Templates in Money Market: Cash Flow Transaction
Check functions: for example, it checks whether the investment = repayment.
Figure 108: Product Type and Transaction Type
Other senses of the flow type:
In the FX-Area the transaction type distinguishes spot and forward transactions.
In the derivatives area swaps are distinguished by flow type: Payer versus Receiver swap.

Deal Capture Detail Description

Fiori App and Entry Screen
Figure 109: Deal Capture: Fiori App and Entry Screen
Overview
Figure 110: Deal Capture: Overview
Deal Capture: Fiori app and entry screen: the typical Entry screen used for capturing most of
the Treasury contracts. In the background different functions (transactions) are used. While
the basic structure is similar, additional functions and tabs are provided.

Structure
Figure 111: Deal Capture: Structure: The Contracts Main Information
The contracts main information: the screen provides a clear structure with tabs and below the
tabs clear functional areas.
Figure 112: Deal Capture: Structure Input Aids
The input aids work in most of the TRM input screens.

The input aids, the working day check and further checks such as the comparison of interest
rates to interest rates from the market data are subject to configuration (see subsequent
training on configuration).

Figure 113: Deal Capture: Structure: Detailed Coverage of Interest and Repayment Conditions
The Interest Rate Instrument allows to you to cover complex interest and repayment
agreements. Including variable interest contracts based on reference interest rates.
Hint:
The button Expand Interest rate structure is used to display the workday shift
information.
Figure 114: Deal Capture: Structure: Detailed Coverage of the Deal: Detail View Buttons

Buttons on the right side of the screen allow you to open popup windows with further
information and/ or further options.
Figure 115: Deal Capture: Structure: Graduated Interest Conditions
The interest rate instrument (Cat. 550) allows you to cover different interest conditions:
In the detail view the button Copy is used to create and alter the interest conditions.
The button Conditions then allows you to display the result.
Administration Accounting and Further Information
Figure 116: Deal Capture: Administration Accounting and Further Information

The most important use of the General Valuation Class is the determination of the valuation
(for example amortized cost versus fair value) during key date valuation. More information on
the General Valuation Class is provided in the lesson "Performing the Period End Process".
Other Flows
Figure 117: Other Flows
Other flows allows you to add further value flows manually. Examples are fees or
commissions.
The flows which can be inserted here are subject to configuration: additional flow types can be
added.
Payment Details
Figure 118: Deal Capture: Payment Details
Detailed information on the different payment options is provided in the lesson on Payments.

Figure 119: Deal Capture: Payment Details Detail Window
Detailed information on the different payment options is provided in the lesson on Payments.
Cash Flows
Figure 120: Deal Capture: Cash Flows
Hint:
The flow 5000 Taxes 1 comes from the Business Partner standing instructions
derived flows.

Excursion: Trader Authorization
Figure 121: Excursion: Trader Authorization
Function: Trader Authorizations ( TBT1)
Hint:
The Trader Authorization Function provides a copy function.
Figure 122: Excursion: Trader Authorization
Function: Trader Authorizations ( TBT1)

Configuration:
Define traders
Define user data (trader to user assignment, setting defaults).

Configuration:
Abbreviation for one million: Single figure indicator that should be used as an abbreviation
for one million.
Abbreviation for one thousand: Single figure indicator that should be used as an
abbreviation for one thousand.
System reaction indicator for working day check: the working day check examines whether
an entered date falls on a working day on the basis of a particular calendar. The system
reaction depends on the settings fixed here:
- 0 = A selection dialog is generated.
- 1 = A warning message is generated.
- 2 = An error message is generated.
- 3 = No working day check is carried out.
Control flag for rate entry check: With this rate entry check, the system checks the forex
spot or swap rates you enter against market or system data. The relevant tolerance group
is the deviation you defined in FI for the maximum currency difference. You can define the
following checks:
- 0 = Rate and swap entry check
- 1 = Only rate entry check
- 2 = Only swap entry check
- 3 = No check.
Foreign Exchange: Date String from Spot Value Date: If you have set the Date string
indicator, the system interprets and calculates the dates entered in the value date fields
from the spot value date and not from the contract conclusion date when you enter foreign
exchange or currency options.
Example:
The contract conclusion date is 03/08/YYYY.
1. You have not set the Date string indicator. The entry '+2' calculates the 03/10/YYYY for
currency pair EUR/USD.
2. When you set the indicator, the system calculates spot value date = 03/10/YYYY + 2
working days -> the 03/12/YYYY
Note:
The spot value date is usually 2 days. In customizing for basic functions in
treasury choose Define Leading Currency to enter a different value for each
currency pair if the spot value date is not 2 days for this pair.

Cash Flow Structure/Life Cycle with Flow Types and Update Types: Money Market
Figure 123: Cash Flow Structure/Life Cycle with Flow Types and Update Types: Money Market
The life cycle information of products is very useful to understand products and to alter or
create product types.
The flow types and update types are a first step to configuration.
The flow types represent the value flows. They can be reviewed in the transaction cash
flow tab.
The update types are connected to the flow types. There is usually one for inflow and one
for outflow of funds. They are used in accounting. They are a major input information for
GL account derivation.
Transaction Management versus Position Management:
The transaction management processes the single transaction.
The position management is responsible for the handling of positions as a whole.
This becomes more evident when we arrive at securities. For example, securities are
purchased two times = two Transactions = handled by transaction management. Later on
the position is evaluated = one action taken for the whole position by position
management.

Cash Flows Layouts
Figure 124: Deal Capture: Cash Flows Layouts
Additional individual layouts may be entered as well.
Figure 125: Deal Capture: Cash Flows Layouts: Calculation View and Payment View
The different views allow you to check the contract from different perspectives. It is facilitated
to check the calculations.

Figure 126: Deal Capture: Cash Flows Layouts: Posting View
The different views allow you to check the contract from different perspectives. It can be
determined from the contract whether postings have been executed already.
Figure 127: Deal Capture: Cash Flows Layouts: Posting View
The different views allow you to check the contract from different perspectives. It can be
determined from the contract whether postings have been executed already. The posting can
be audited as well.

Interest Rate Adjustments
Figure 128: Deal Capture: Interest Rate Adjustments
Hint:
Separate apps exist:
To capture the interest automatically from Market Data by a program run
To capture the reference interest rates manually on contract level.
Memos
Figure 129: Deal Capture: Memos

This facilitates communication with Back Office and Accounting.
Status
Figure 130: Deal Capture: Status
The actual status of the contract: Contract or Settlement (a contract with settlement can not
be posted before settlement).
The processing category determines the steps the contract needs to take. E.g. with or without
settlement, with or without separate payment release (additionally to workflow release).
Usually contracts need to be released. Therefore TRM is connected to the SAP Workflow.
While Settlement allows to check and change, the workflow usually only allows to check,
release or reject without the option to change the data.

Market Risk Analyzer Analysis Parameters
Figure 131: Deal Capture: Market Risk Analyzer Analysis Parameters
Hint:
This tab is visible in case the Market Risk Analyzer (MRA) is activated.
A detailed explanation of the MRA follows in a later lesson!
Credit Risk Analyzer Limit Check
Figure 132: Deal Capture: Credit Risk Analyzer Limit Check

Hint:
This tab is visible in case the Credit Risk Analyzer (CRA) is activated.
A detailed explanation of the CRA follows in a later lesson!
General Service Functions
Figure 133: Deal Capture: General Service Functions
These general functions are available with the deal capture of other product groups, such as
Securities or Derivatives, as well.

The Position Indicator, Key to Accounting
Figure 134: Deal Capture: The Position Indicator, Key to Accounting
GAAP: Generally Accepted Accounting Principles. For example IFRS, US GAAP, German
Commercial Code and so on.
As mentioned before:
TRM acts as a subledger. Postings are transferred to the General Ledger.
TRM can carry multiple GAAPs in parallel (no technical limitation on number).
Hint:
By selecting a Valuation Area (one line) and pressing the button Position
Management Procedure the procedure and its steps are displayed.
More information is provided in the lessons on Accounting and Valuation.

Procedure: To Manually Capture a Contract
Figure 135: To Create a Money Market Contract
Currency if not equal to CC currency: the currency is inherited from the Company Code. If the
contract is in a different currency it needs to be provided from the entry screen. It can not be
altered when the structure screen arrives..
LESSON SUMMARY

Unit 3
Lesson 3
Employing the Back Office Functions - Part
One
LESSON OBJECTIVES
Perform settlement
Settlement
Figure 136: The Debt and Investment Management Process: Deal Settlement
detailed step by step in our training.
Besides settlement, we describe major back office tasks and tools in this lesson.

Lesson: Employing the Back Office Functions - Part One
Back Office
Figure 137: The Debt and Investment Management Process: Back Office
From an organizational perspective, we now enter the back office. Besides settlement, we
describe major back office tasks and tools in this lesson.
We use the Debt and Investment Management process to explain these functions and process
in a very detailed step by step training method.
Depending on the way in which your company is organized, financial transactions can be
forwarded to the back office area once they have been created in Trading. Back office
processing contains control and change functions, so that any entries made can be checked
here and changed as necessary.
Post-processing includes the following main functions:
Enhancing transaction data, for example, adding information that is relevant for the back
office.
Preparing postings and payments, for example, checking the accounts to be used later in
the automated processes. If you have not already done so, you now have to assign an
account assignment reference and payment details to the financial transaction. Without
this information, you cannot post this Treasury flow to Financial Accounting (see account
assignment reference).
Generating correspondence in the form of dealing slips (internal correspondence) or

confirmation (external correspondence), after saving the contract.
By saving the settlement activity, the system changes the activity category of the
transaction to document that it has been checked and processed in back office
processing.
If a transaction has the processing category "WITH settlement activities", the contract can
be posted only after the transaction has been settled.

Hint:
The Fiori groups and tiles can be adjusted to the company’s needs! Our training
system provides an example.
Figure 138: The Debt and Investment Management Process: Back Office
This app is used for all product groups!
FTR_Edit
Figure 139: Transaction Edit Financial Transaction FTR_Edit
FTR_Edit: Edit Financial transaction is a powerful transaction. It then branches out to

specialized transactions.
The Default Entry allows you to pre-select the work options according to product categories.
In our example for the processing of the Interest Rate Instrument, the following options are
available:
Change
Display

Settle
Reverse
History
Figure 140: Transaction Edit Financial Transaction FTR_Edit Search
The above image highlights how the transaction allows you to search for contracts. A variety
of search options is available using major data fields filed in the contracts.
Figure 141: Transaction Edit Financial Transaction FTR_Edit: Change, Display, Settle, History
Reversal and Rollover are explained in a later unit.

FTR_Edit: Change
Figure 142: Transaction Edit Financial Transaction FTR_Edit Change
The button Change in FTR_Edit opens the contract capture screen. As in Trading, you can call
information about transactions and make subsequent adjustments.
You can check, change, or add information that is relevant for posting and payment. If you
have not already done so, you now need to 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).
The account assignment reference or the payment details of the particular business partner
can be set as default values. You can supplement or change these default values. Account
assignment references are created independently of the valuation area. You can assign
account assignment references to positions variably, dependent on the valuation area, or
control account determination differently for each valuation area and account assignment
reference.
One more option is the change of the capital structure. Example: a trader calls the back office:
we were asked by the cash management colleagues if we could invest 1 M more in two days.
The button Other Changes in capital structure allows you to enhance the contract with further
capital movements. It can be used during create, via change or during settlement.
The capital changes are inserted in the popup window. The button Copy transfers the
information and closes the window.

FTR_Edit: Settlement
Figure 143: Transaction Edit Financial Transaction FTR_Edit Settlement
Settlement in terms of FTR_Edit allows you to check and to alter data. In addition to that, a
new status (Activity Category) is reached in the contract: Settlement.
A product which is configured to be managed using this status can be posted after this status
has been reached.
Settlement is not to be confused with Release using the SAP workflow:
The workflow makes sure that the user who has created/settled the contract cannot be
the user who has the right to release or reject it.
Also, the person in charge to release or reject the contract cannot alter it.

Figure 144: Transaction Edit Financial Transaction FTR_Edit: Settlement Status, Posting flag
Settlement in terms of FTR_Edit allows to check and to alter data. In addition to that, a new
status is reached in the contract: Settlement.
Hint: This status is available with the processing category „With settlement". A processing
category „Without settlement" exists as well.
Flagged for posting. The posting program compares due date with current date and posts
(only) the flows which are due. All others remain as planned transactions until their date has
come!
Figure 145: To Perform Settlement
The checks which are performed during settlement vary by company, product group and
product, business partner.

FTR_Edit: History
Figure 146: Transaction FTR_Edit — Edit Financial Transaction History
The History function enables you to view the previous activity sequence for a selected
transaction. You can call a list of the activities that 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.
Excursion: Change Documents
Figure 147: Excursion: Change Documents
The system 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.

Collective Processing and Mass Processing
Figure 148: Collective Processing and Mass Processing
As we use the Debt and Investment Management process, product group Money Market as an
example: Collective processing functions are available with most product groups!
Figure 149: Money Market Collective Processing (TM00) Selection Screen
The selection screen allows detailed selection of contracts to be displayed on the subsequent
page: this is an outtake; in the system, more selection data fields are available.

Figure 150: Money Market Collective Processing (TM00) Functions
Besides the functions mentioned above, standard functions such as summarization or Excel
inplace/Excel export are available.
Figure 151: Transaction Management: Overarching Function for Collective Processing FTR_00
Besides the functions mentioned above, standard functions such as summarization or Excel
inplace/Excel export are available.
Variants allow to define display variants, e.g., all Interest Rate Instruments of a Company
Code.
Processing: selection of a single contract + function. Exception: Mass settlement: by selection
of several contracts using CTRL + Select.

Figure 152: FTR_MASS_SETTLE — Mass Settlement Selection Screen
FTR_MASS_SETTLE - Mass Settlement, is opposite to the Collective processing functions,

does not provide a workplace window. Instead, the contracts selected are settled without
further options for review.
Figure 153: FTR_MASS_SETTLE - Mass Settlement Log Details
The log, together with the test run mode, allows troubleshooting before the productive run.

Netting: Functions
Figure 154: Netting: Functions
Netting is a special way of settling transactions together. While you can always settle all
transactions at once, netting represents a specific part of these transactions. All netting
transactions are explicit arrangements between the business partners aimed at simplifying
the processing of payments.
Transactions are blocked so that changes cannot be made to relevant fields (particularly due
dates, amounts, house bank and payment data).
The decision to create a netting transaction is usually made shortly before the payment flows
are due, usually on the same day the transactions are posted. Only then you will know which
transactions can be grouped for net payment (for example, forex spot and forward exchange
transactions). You can group flows in netting transactions if they have the same:
Company code
Payer/payee
Payment date
Payment methods
Currency
Settings for other payment program criteria
You can net transactions in the money market, foreign exchange, derivatives and securities
areas, or across several of these areas.
Another prerequisite is the permission for netting which can be found in the payment details
of the transaction.
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 the corresponding payment requests belonging to the same netting
transaction are assigned to 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).
The result of netting: only one total amount is paid.
Figure 155: Netting: Proposal List Selection Screen
The result is displayed on the next page.

Figure 156: Netting: Proposal List Result and Netting Creation
As mentioned before, the netting can also be created by the separate function Create.
Figure 157: Netting: Netting Display and Save
A number is provided on the bottom of the screen for each Netting .

References between Transactions
Figure 158: References Between Transactions
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 defines the meaning of a reference.
Some references are composed 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 (such as netting).
You can compose and process all references under Reference - Collective Processing.
Figure 159: References Between Transactions: Processing

Another function which is available is Collective processing of References : all transactions with
references are displayed and can be analyzed, changed or deleted.
Variable Interest Calculation: Interest Rate Adjustment Schedule
Figure 160: Variable Interest Calculation: Reference Interest Rates
Graph from: https://www.emmi-benchmarks.eu/euribor-org/about-euribor.html
Figure 161: Variable Interest Calculation: Interest Rate Adjustment Schedule
Hint:
Usually the contract needs to be settled before the interest rates can be entered.

Figure 162: Variable Interest Calculation: Manual and Automatic Update
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 using the transaction TI10 or
automatically using the transaction TJ05 .
With manual interest rate adjustment, you use the reference rate to enter the interest rate
value for each transaction.
With automatic adjustment, the system reads a table to see whether the current value for
a reference interest rate is available from the Market Data.
The Interest Rate Adjustment tab page provides you with an overview of the interest
adjustment data that have been entered for the transaction already and also the interest rates
still to be fixed.
A function is available for reversing interest rate fixing.
For variable interest rates, you can enter the interest rate for the first period as soon as you
enter 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 available.

Figure 163: Variable Interest Calculation: Manual Update
Only one interest rate is captured at a time.

The same applies to reversals. Only one fixed rate can be reversed at a time.
Figure 164: Variable Interest Calculation: Contract Display and Planned Cash Flows Update
Planned Cash Flows: Cash flows in the future.

For example:
First Interest: 0.4
Interest from Fixing: 0.43 - 0.05 = 0.38. Planned CF update therefore uses 0.38.

Figure 165: Variable Interest/Security Prices Calculation: Planned Record Update Strategy and Function
Planned Record Update Strategy (Interest)

The planned record update strategy determines the value to be used for displaying the
interest rate flows from interest derivatives and interest rate instruments that have not yet
been adjusted in the cash flow and for transferring them to Cash Management.
The following strategies are available:
Zero update: flows whose interest rates have not yet been adjusted are assigned 0.
Update with interest rates maintained automatically: the values of flows whose interest
rates have not yet been adjusted are calculated on the basis of the interest rates that were
determined by automatic interest rate adjustment.
Update types with interest rates maintained manually: the values of flows whose interest
rates have not yet been adjusted are calculated on the basis of the interest rates that were
determined by manual interest rate adjustment.
Update with current interest rates: the values of flows whose interest rates have not yet
been adjusted are calculated on the basis of the most up-to-date interest rates,
irrespective of whether these were determined by automatic or manual interest rate
adjustment.
Update with interest rates maintained automatically/manually: the values of flows whose
interest rates have not yet been adjusted are calculated on the basis of the interest rates
that were determined by automatic interest rate adjustment. If no interest rates were
adjusted automatically, then interest rates are used that were adjusted manually.

Note:
This planned record update strategy is best suited in situations where automatic
interest rate adjustment is generally used, but in exceptional cases, manual
interest rate adjustment is also possible (for example, for an unusual reference
interest rate).
Planned Record Update Strategy (Security Prices)

The planned record update strategy determines the value to be used for displaying the
security price compensation flows from total return swaps that have not yet been adjusted in
the cash flow and for transferring them to Cash Management.
The following strategies are available:
Zero update: Compensation flows whose security prices have not yet been adjusted are
assigned 0.
Update with security prices maintained automatically: the values of compensation flows
whose security prices have not yet been adjusted are calculated on the basis of the
security prices that were determined by automatic security price adjustment.
Update with security prices maintained manually: the values of compensation flows whose
security prices have not yet been adjusted are calculated on the basis of the security
prices that were determined by manual security price adjustment.
Update with current security prices: the values of compensation flows whose security
prices have not yet been adjusted are calculated on the basis of the current security
prices, irrespective of whether these were determined by automatic or manual security
price adjustment.
Update with security price maintained automatically/manually: the values of

compensation flows whose security prices have not yet been adjusted are calculated on
the basis of the security prices that were determined by automatic security price
adjustment. If no security prices were adjusted automatically, then security prices are
used that were adjusted manually.
Note:
This planned record update strategy is best suited in situations where
automatic security price adjustment is generally used, but in exceptional cases,
manual security price adjustment is also possible.
The Update Planned Records function ( TJ09 ) allows mass update of the Planned Records to
make sure Cash Management has the most accurate information. When entering a contract,
for example by FTR_Edit, the update is performed automatically. To avoid entering all
contracts manually, TJ09 can be used. After a run, a log is provided. Drill through is possible
from the log to the single contracts.
LESSON SUMMARY
Perform settlement


Unit 3
Lesson 4
Describing the Back Office Functions:
Correspondence
LESSON OBJECTIVES
The Concept and Functions of the Correspondence Framework

Correspondence Requirements
Figure 166: The Debt and Investment Management Process: Correspondence Requirements
We use the Debt and Investment Management process to explain these processes in a very
detailed step by step method of training.

Correspondence Management
Figure 167: The Debt and Investment Management Process: Correspondence Management
Options: the system can be implemented both for manual and automatic handling and a mix
of both.
BADIs (Business Application Programming Interfaces) allow you to insert your own program
routines for Correspondence Handling.
Dimensions of Correspondence
Figure 168: Correspondence: Dimensions of Correspondence
We can distinguish the following important dimensions:
External versus internal correspondence: external versus internal recipients
Type: under correspondence we understand both Confirmation/ Counter-confirmation,

Electronic Bank Statements but also all other kinds of messages.

Lesson: Describing the Back Office Functions: Correspondence
Control: the configuration allows a flexible setup: both automatic and manual processing
and a mix is possible. For example,. correspondence with House Bank A works fully
automatically, while with House Bank B it is performed manually.
Automatic Functions: functions are available to perform tasks automatically:

- Check for availability of new files and automatic upload.
- Automatic matching of incoming with outgoing correspondence/ contract.
- Automatic settlement after successful check of incoming correspondence values with
contract values.
- SAP Integration Package for SWIFT provides a single, integrated gateway to the Society
for Worldwide Interbank Financial Telecommunication (SWIFT) network.
The Correspondence Process with Functions
Figure 169: Correspondence: The Correspondence Process with Functions (1/ 2)
Real Straight Through Processing: from deal capturing via integrated correspondence
monitor to parallel accounting with a highly sophisticated authorization concept behind it.
Figure 170: Correspondence: The Correspondence Process with Functions (2/ 2)

In the area of correspondence, several BAdIs are available to adjust to the companies
requirements.
Correspondence Trigger
Figure 171: Correspondence Trigger: How is Correspondence created?
The configuration background of correspondence is explained only as far as it is useful for the
business/ processing user. Further detailed information is provided in the subsequent
training on customizing!
Correspondence is triggered on the following level:
On Company Code Level
Per Product Category, Product Type and Transaction Type
By Activity
Correspondence is created:
Recipient sender type
Correspondence Class
An internal recipient can be entered additionally

Figure 172: Correspondence Trigger: How is Correspondence created - Example
The example: in CC 1010, after settlement of an Investment in a 550/ 55A Interest Rate
Instrument a correspondence is created: a Deal_MM message to House Bank A. An additional
message is sent to the back office.
Figure 173: Correspondence Trigger: How is Correspondence created - Example
The Correspondence Activity starts a derivation process: a Communication profile together

with a Business Partner group with attributes are derived. They provide the information
required to create the Correspondence Object and the message itself.
An item used by all three elements is the Correspondence class. It provides information on
the Purpose of a message. Example: Deal_MM (Confirmation Money Market) or
SEC_STMNT_HOLD (Statement of Holdings).
All these items are explained from a business perspective on the next pages! The
configuration is explained in detail in the subsequent training.

Communication Profiles
Figure 174: Correspondence: Communication Profiles Overview
The Communication Profile bundles information on Correspondence classes. It combines a

multitude of Correspondence classes.
All these items are explained from a business perspective on the next pages! The
configuration is explained in detail in the subsequent training.
Usually the Communication profile bundles information on multiple Correspondence Classes.
See here the sample configuration communication profile PR_DEFAULT content:
Correspondence class Correspondence recipient type Communication channel

Figure 175: Correspondence: Communication Profiles Determine the Correspondence
business/ processing user. Further and detail information is provided in the subsequent
Correspondence uses Communication profiles. There can be n communication profiles. Each
Communication profile holds information on one to n correspondence classes.
Usually the Communication profile bundles information on multiple Correspondence Classes.
Figure 176: Correspondence: Communication Profile - Example
This example: in case the communication profile PDF_STANDARD is used (derived) and a
Deal_MM message with receiver COUNTERPARTY is created, this message is processed via
printing a PDF form PDF_CNF_MM.

Business Partner Group with Attributes
Figure 177: Correspondence: Business Partner Group with Attributes
The flags and information is defined on the level of BP Group, Correspondence class,
Correspondence recipient type.
Alert Wait Time: this is the time frame until when correspondence objects can wait for delivery
in case of outgoing correspondence, or matching in case of incoming correspondence, or
counter confirmation in case of delivered outgoing correspondence. This is maintained in
order to send notification as alerts for correspondence based on the value of this field.
The BP Group with Attributes allows you to apply different settings for a Correspondence
Class, depending on the BP Group. For example, for BP Group A Release is required for a
DEAL_MM message. For BP Group B it is not.

Figure 178: Correspondence: Business Partner Group with Attributes - Example
The flags and information is defined on the level of BP Group, Correspondence class,
Correspondence recipient type.
Derivation Strategy
Figure 179: Correspondence: Derivation Strategy Communication Profile and BP Group
Derivation strategies are in place to derive Communication profile and BP Group for outbound
correspondence. They are maintained separately for external and internal correspondence.
The data fields Business Partner/ Company Code/ Recipient Sender Type can be used to
create derivation rules (the data fields can be left blank).

The derivation rules can use Product Group/ Product Category/ Product Type/
Transaction Type/ Activity Category. It is possible to do the derivation using only a part of
the derivation tree.
Figure 180: Correspondence: Derivation Strategy - Example
In this example the derivation is created on basis of House Bank and / Recipient Sender Type.
The Company Code is left empty. Therefore the rule works for all Company Codes.
Derivation strategies are in place to derive Communication profile and BP Group for outbound
correspondence. They are maintained separately for external and internal correspondence.
The data fields Business Partner/ Company Code/ Recipient Sender Type can be used to
create derivation rules (the data fields can be left blank).
The derivation rules can use Product Group/ Product Category/ Product Type/
Transaction Type/ Activity Category. It is possible to do the derivation using only a part of
the derivation tree.

Correspondence Object
Figure 181: Correspondence: Correspondence Object Overview
The correspondence object is not the message itself. It is a snapshot of the contract and the
correspondence information at the time the correspondence has been initiated.
A Correspondence Object is the container for all technical and business information required
for the creation and processing of a correspondence.
Figure 182: Correspondence: Correspondence Object Information
The pictures show the Correspondence Object overview and the detail views on conditions
and on flows.

Access from Contract
Figure 183: Correspondence: Access from Contract
The bottom line shows the status of the Correspondence Object: initiated. This means that
the Object is created but the message is not yet created. After saving the contract the
Correspondence Object is saved as well.
The detail log provides in depth information on the correspondence creation. See next page.
The Detail Log
Figure 184: Correspondence: The Detail Log Provides in Depth Information

The detail log provides in depth information on Correspondence creation: the derivation path
and the profiles derived are shown.
This log is therefore very useful for system setup, test and error handling.
Correspondence Object: Status Map
Figure 185: Correspondence: Correspondence Object: Status Map
The Correspondence Status map shows the possible status the Correspondence Object can
get in the business context.
Status:
Initiated
Acknowledgement awaited
Send error
Delivered
Completed
Matched
Received
Reversed
In approval
Rejected
Returned

Processing Correspondence with the Correspondence Monitor
Figure 186: Correspondence: The Correspondence Monitor
Note: A correspondence object (CO) is the container for all technical and business
information required for the creation and processing of a correspondence.
Transaction name: FTR_COMONI
.
Figure 187: Correspondence: Correspondence Monitor - Standard View
Standard view: in this view, all the correspondence objects selected based on the selection
parameters are displayed in one single list.

Figure 188: Correspondence: Correspondence Monitor Assignment View and Matching View
CO: Correspondence Object.

For better usability, two more views are made available in the Correspondence monitor
Assignment view: in this view, the selected correspondence objects are displayed divided
in two list. The top half shows all the COs already assigned to a deal and the lower half
shows all the COs yet to be assigned to a deal. It is possible to choose an unassigned CO in
lower half and assign it to the deal to which any CO in the upper half is assigned to.
Matching view: in this view, only the COs selected based on selection parameters which
are relevant for matching are displayed. The COs relevant for matching are divided based
on their direction (such as incoming or outgoing). The outgoing COs relevant for
matching/linking (such as status Delivered and Matched ) are shown in the upper half and
the incoming COs relevant for matching/linking (such as status Received and Matched )
are shown in the lower half. It is possible to choose COs in both the halves and match
them.

Figure 189: Correspondence: Correspondence Monitor - Assignment View

Assignment view: the selected correspondence objects are displayed divided in two areas.
The top area shows the COs already assigned to a deal and the lower half shows the COs yet
to be assigned to a deal. It is possible to select an unassigned CO in lower area and assign it to
a deal to which a CO in the upper area is assigned to.
Figure 190: Correspondence: Correspondence Monitor - Matching View

Matching view: in this view, only the COs selected based on selection parameters which are
relevant for matching are displayed. The COs relevant for matching are divided based on their

direction (such as incoming or outgoing). The outgoing COs relevant for matching/linking
(such as status Delivered and Matched ) are shown in the upper half and the incoming COs
relevant for matching/linking (such as status Received and Matched ) are shown in the lower
half. It is possible to choose COs in both the halves and match them.
Figure 191: Correspondence: Correspondence Monitor - General Services - Part 1

General Services available in the Correspondence Monitor:
Correspondence object details
Preview/View correspondence
Create correspondence objects manually
Correspondence Logs ( Action log, Status log, Release log, Change documents)
Add attachments
Maintain attachment (View and Delete)
Refresh correspondence monitor
Navigate to assigned deal/ security account
Assign CO to deal
Show all the COs assigned to the same deal
Show matches/linkages
Add notes/ free texts to a CO
Maintain notes

Figure 192: Correspondence: Correspondence Monitor - General Services

General Services available in the Correspondence Monitor:
Correspondence object details
Preview/View correspondence
Create correspondence objects manually
Correspondence Logs ( Action log, Status log, Release log, Change documents)
Add attachments
Maintain attachment (View and Delete)
Refresh correspondence monitor
Navigate to assigned deal/ security account
Assign CO to deal
Show all the COs assigned to the same deal
Show matches/linkages
Add notes/ free texts to a CO
Maintain notes
Logs
Action Log
Status Log

Release Log
Change Docs
Figure 193: Correspondence: Correspondence Monitor - Status Dependent Services

Depending on the status of the CO, different services are offered:
Send for approval
Create message and send
Change
Resend
Automatic Link/Match
Reverse Linkage(s)/Match(es)
Forced match
Complete
Reverse
Reverse completed
Reconcile
Manually mark the receipt of ACK/NACK for an outgoing correspondence
Create cancellation for delivered correspondences

Procedure to Create a Correspondence Object Manually
Figure 194: Correspondence: Create Incoming Correspondence Object Manually

A separate function is available to create COs manually. This function can also be accessed
from the Correspondence Monitor.
There can be many business reasons to create COs manually:
In some cases it could be unnecessary to establish an automatic data bridge
In other cases errors may have occurred
Also, during implementation, it can be useful to create test data.

Figure 195: Correspondence: Create Incoming Correspondence Object Manually: Dialog Part 1

A dialog asks you to select options on how the CO is to be created.
It can be decided whether incoming or outgoing correspondence is to be created and which
correspondence category is selected therefore.
Figure 196: Correspondence: Create Incoming Correspondence Object Manually: Dialog Part 2

Options for Entering Correspondence Objects Manually: In Detail
'01' Fast Entry: this option provides a very fast method for manually entering incoming
correspondence data with minimal transaction details and correspondence administration

details. This method is only available for correspondences related to money market and
foreign exchange transactions.
'02' No Template: this method takes the user to a detailed entry screen for incoming and
outgoing correspondences. The entry screen is almost empty and requires the user to enter
all correspondence details, both administrative data and transaction-specific data.
'03' Transaction as Template: this method takes the user to a detailed entry screen for
incoming and outgoing correspondences. This entry option is only available for
correspondences relating to specific transactions. The system fetches the transaction data
and enters it into the correspondence entry screen on the basis of the transaction details
specified by the user as a template. The administrative details, however, remain empty and
have to be filled by the user.
'04' Securities Account as Template: this method takes the user to a detailed entry screen for
incoming and outgoing correspondences. This entry option is only available for
correspondences relating to securities account transfers. The system fetches the securities
account transfer data and enters it into the correspondence entry screen on the basis of the
securities account transfer details specified by the user as a template. The administrative
details, however, remain empty and have to be filled by the user.
'05' Correspondence Object as Template: This method takes the user to a detailed entry
screen for incoming and outgoing correspondences. With this entry method, the system
fetches all template details provided by another correspondence. Both the administrative
details as well as the transaction and securities account transfer details are copied from the
correspondence specified as the template. The data can then be modified where necessary.
Figure 197: Correspondence: Create Incoming Correspondence Object Manually: Fast Entry

The Fast Entry screen allows you to capture main deal information in short time. The picture
provides an example of a Deal Money Market confirmation.

Figure 198: Correspondence: Create Incoming Correspondence Object Manually: Save

The new CO can now be inspected and saved.
Figure 199: To Create a Correspondence Object Manually
Manual Correspondence Object creation can be useful for the following:
Technical error/ correspondence missing or not arrived electronically
Special cases, such as business partner without electronic data exchange
System implementation and test.

Procedure to create a Treasury Management Free Text Message MT 399
Figure 200: Correspondence: SWIFT Integration Package from SAP: Outgoing
The SAP Integration Package for SWIFT provides Real-time integration with SWIFT. It can be
used together with the Bank Communication Management.
Key Benefits:
Straight-through payment processing
Improved security and reliability
Lower processing costs
The SWIFT Integration Package is a PI box and the SWIFT gateway is another separate box.
Figure 201: Correspondence: SWIFT Integration Package from SAP: Incoming
The SAP Integration Package for SWIFT provides Real-time integration with SWIFT. It can be
used together with the Bank Communication Management.

Figure 202: Correspondence: Create a Treasury Management Free Text Message MT 399

Swift: you use the MT 399 free text message to contact the bank with whom you made or are
making a deal. It does not serve as a confirmation. You would normally only use this message
type to make an enquiry or communicate about a deal confirmation.
Figure 203: To Create a Treasury Management Free Text Message MT 399
Create an outgoing Correspondence Object: use the tile Create Correspondence

FTR_COCREATE or call the function Create from Correspondence Monitor.
Swift: you use the MT 399 free text message to contact the bank with whom you made or are
making a deal. It does not serve as a confirmation. You would normally use this message type
only to make an enquiry or communicate about a deal confirmation.

LESSON SUMMARY

Unit 3
Lesson 5
Executing Postings in Accounting
LESSON OBJECTIVES
alternatives
Create GL postings
The Debt and Investment Management Process: Accounting Overview, TRM

Subledger and General Ledger Tasks Share
Figure 204: The Debt and Investment Management Process: Accounting Overview
detailed step by step training method.
In this lesson, an overview on accounting is provided. Details on Posting are added and the
step posting is executed.
In the following lessons, the details on Payment and on Valuation and Accruals are added.
Valuation in Transaction Manager aims for Accounting to create the Financial Statement.
Valuation in terms of Risk Analysis including calculation of figures like Value at Risk and
Sensitivities with What if Analysis and Scenario Analysis are provided from Market Risk

Analyzer. When the Transaction Manager requires Net present values for Fair Value
calculations they are provided from Market Risk Analyzer.
Figure 205: Accounting: TRM Subledger and General Ledger Tasks Share
After the transactions have been entered in Trading and checked and completed in the back
office. They are then processed for accounting.
Functions for the transfer to financial accounting - such as posting reports or posting in
position management are grouped together here.
The Treasury subledger relies on financial accounting functions. Financial transactions and
positions need to be entered accurately for the closing operations. Accounting therefore
includes tasks such as the periodical accrual/deferral of expenses and revenue and valuation
activities.
You can only post transactions that have reached contract or settlement status (depending
on the processing category) at internal level (system level).
If you do not want to post the flows for a particular transaction for the time being, you can
block these flows for posting.
Postings: double entry postings.

Lesson: Executing Postings in Accounting
Figure 206: TRM Provides the General Ledger with TRM Infos to Create the Monthly, Quarterly and Annual
Financial Statement
TRM provides double entry postings to the GL. They are used to produce the Financial
Statement:
Statement of Financial Position = Balance Sheet
Profit and Loss Statement (P+L)
Notes.
All actions taken in TRM: Investment, Borrowing, earned profit, paid cost amounts need to be
shown in the financial statement.
FV = Fair Value
FX = Foreign Exchange.

Figure 207: TRM Transaction Management and Position Management
Transaction Management and Position Management support each other. While Transaction
Management handles single transactions, the Position Management takes care of all actions
taken for a position as a whole. As described above:
The evaluation of the position.
Or the handling of a sale of a part of the position.
Or the calculation of accruals or a position.
Accounting: Posting, Payment, Bank Processing: Standard and Alternative

Procedures
Figure 208: Accounting: Posting, Payment, Bank Processing: Standard Procedure
Posting, payment and Bank Communication use different programs. This facilitates handling
and segregation of duties.

Treasury has its own payment program ( F111 ), which is separate from the Accounts Payable
payment program in Accounts Receivable ( F110 ).
Details on the alternatives are provided in the lesson on payments.
Information on Bank Communication Management is provided in a separate Training: Bank
Communication Management.
Figure 209: Accounting: Posting and Payment: "Pay without Posting"
Post Flows: TBB1

Fix, Post, Reverse Business Transactions: TPM10
Payment Request: F111
Treasury employs its own payment program ( F111 ), which is separate from the Accounts
Payable payment program in Accounts Receivable ( F110 ).
Details on the alternatives are provided in the lesson on payments.
Payment Without Posting background:
Payment Without Posting - Application: Overview of new procedure (from ERP 6.0 EhP 5):
The new functionality concerns both the transaction management and the TR position
management. The user can pay without posting:
if a new business function is activated
if the payment is done via a payment request (-> VTBFHAPO-SPAYRQ = X)
In TBB1there is a new checkbox Pay only. When Pay only mode is selected then no posting is
done and a new method is called which triggers TRPR. The postings can later be done via
TPM10both for the operative valuation area and the parallel valuation areas.
Prerequisites:

The new business function is activated.
Customizing has to be enhanced (activate cash management update via position

management.)
Cash Management data has to be migrated.
Subledger Cash Flows TPM13: a new status "P" is available.
Figure 210: Accounting: Payment Request Processing
Display Payment Requests: F8BT

Reset Cleared Payment Requests: F8BW
Post Flows: TBB1
Payment Request: F111 .

Basic Posting Schema TRM GL Postings
Figure 211: Basic Posting Schema TRM GL Postings: Investment and Clearing Account: Day of Investment
This simple posting example explains the postings created by TRM. In our example, we see
the initial posting of a Time Deposit, 1.000 EUR, 3 Months, 20 EUR Interest. The initial posting
is executed on the day the investment is done.
The example is continued on the following page.
The interplay with the postings derived from the Electronic Bank Statement is explained later
on.
Figure 212: Basic Posting Schema TRM GL Postings: Investment and Clearing Account: Repayment, Interest

This simple posting example explains the postings created by TRM. Now we see additionally
the postings executed on the day the investment matures. The funds return. The interest is
paid.
The example is continued on the following page.
Figure 213: Basic Posting Schema TRM GL Postings: Electronic Bank Statement, Current Account
GL Account Derivation Major Control Information

Now we introduce our Current Account at our House Bank.
The postings derived from the Electronic Bank Statement clear the Bank Clearing Account
and show the movements at our Current Account.
The use of the Bank Clearing Account and the link with the Electronic Bank Statement allows
you to monitor and double check the funds movements.

Figure 214: Accounting: GL Account Derivation Major Control Information
Flow types and update types

:
The flow types represent the value flows. They can be reviewed in the transaction, cash
flow tab,
The update types are connected to the flow types (or they are generated by TRM
Accounting internal procedures). Usually there is one for inflow and one for outflow of
funds. They are used in accounting.
The Position Indicator hosts the Account Assignment Reference. It is derived in configuration.
It can be differentiated by the Valuation Area. Usually it encodes information on the type of
contract and additional control information for accounting. In our case, it includes information
on whether the contract is with external or internal business partners (Unaffiliated/ affiliated).
Update type and Account Assignment Reference are major input information for GL account
derivation.
For example, MM1100- Investment Increase + 2012 Asset ST Unaff. GL Account (shortened
example; detailed information is provided in the subsequent training on Customizing).

Post Flows (TBB1)
Figure 215: Accounting: Post Flows (TBB1): Posting to GL Tile and Entry Screen
In many companies Post Flows ( TBB1) is executed on a daily base during the day end
procedures. But it is also possible to start more than one time a day.
For example:
In the case of an urgent payment TBB1 can be started during the day for this specific
contract(s) and the payment would be executed.
At the end of the day, TBB1 can be started one time for all transactions that are not FX in
the standard way,
For transactions in FX it can be started as pay without posting. Posting would then be
caught up the next day, using the same FX-Rates as the bank, with the app Fix, Post and
Reverse Business transactions ( TPM10).
Hint:
The button Variants in the upper left corner allows you to store and retrieve
selections as variants.
Hint:
In many companies this function as other day end functions are executed using
automatic batch processing.
Flag: Only post flows of the selected currencies

When you post, you first select all transactions that at least have a flow that has been marked
for posting in one of the chosen currencies. Then when you process the flows, this indicator

controls whether all flows relating to the transactions are to be posted independently of the
currency specified or not:
If the indicator is not set, the flows of the transactions selected are processed
independently of the currency specified.
If the indicator is set, only the flows of the transactions selected are processed in the
chosen currencies.
Exception:
This checkbox is ignored for all transactions which are displayed as a single business
transaction in position management. Flows are therefore posted in all currencies in case at
least one currency is selected. Due to the fact that all flows for a business transaction can only
be posted (and paid) together, a single flow in a currency that has not been selected, for
example other flows, would prevent the posting of all remaining flows for this transaction. This
exception is relevant for the following product categories:
All security transactions
700 Futures
730 Repos
740 Forwards
750 Listed options
Example:
For a forex transaction between currency a and currency b and selection of currency a, the
system behaves as follows:
If this indicator is not set, the flows are processed in currency a and currency b.
If this indicator is set, then only the flows in currency a are processed - this means that
only one side of the transaction is posted.
Flag: Check Transaction Release

If this indicator is set, the system checks if the selected transactions are "released" before the
function is performed. Transactions are normally released as part of a workflow.
If this indicator is set during posting of flows, then it is only possible to post flows that belong
to released transactions, or to transactions for which release is not relevant.
Hint:
Posting Release is an additional step which is defined in configuration on the level
of Product Type and Transaction Type. In our system Automatic Posting release
is switched on for all products. Therefore no additional release is required.

Figure 216: Accounting: Post Flows (TBB1): Posting to GL Postings creation
Hint:
The payment log is only created in case payments are executed.
It is crucial to remove errors as otherwise the GL will not be supported with the postings.
Figure 217: Accounting: Post Flows (TBB1): Posting log (Test Run)
Hint:
The posting log structures the information in different lines.
In the picture we can differentiate the two valuation areas 001 and 002 and also the posting
keys 40 and 50.

We can see the following:
GL accounts with description
The company code
The update types
The amounts
Figure 218: Accounting: Post Flows (TBB1): Payment log (Test Run)
Hint:
It is possible to drill through to the Payment Request.
Figure 219: Accounting: Post Flows (TBB1): Posting log (Productive Run)
The drill through is helpful for auditing and reporting!

Figure 220: Accounting: Post Flows (TBB1): Payment log (Productive Run)
Hint:
In case the flag “Payment request" is NOT set in the Payment details, no
Payment Request is created. Therefore TBB1 then directly shows the Posting.
The Payment log is not displayed as no Payment Request is created!
Figure 221: Accounting: Post Flows (TBB1): Comparison
Contract with payment request:
12021000 Short Term Investments, unaffiliated 1,000.00

11001030 Bank 1 - Other Interim Transfers (Payment Request Account) - 1,000.00
Contract without payment request:
12021000 Short Term Investments, unaffiliated 1,000.00
11001080 Bank 1 - Cash Receipt (Bank Clearing Account) - 1,000.00
The accounts are sample accounts from the training system.

A posting schema for posting with payment requests is provided in the subsequent lesson on
payment.
Posting Journal (TPM20)
Figure 222: Accounting: Posting Journal (TPM20) Entry Screen
The Posting Journal Entry Screen allows to select postings very precisely using a multitude of
selection criteria.
This is necessary considering the high numbers of postings created by mid-size to large TRM
organizations!

Figure 223: Accounting: Posting Journal (TPM20) Results
The Posting Journal provides access to each single posting with detail information and a link
to the GL Posting and Payment Requests.
Procedure: To post to the General Ledger
Figure 224: To post to the General Ledger
The Post Flows ( TBB1) transaction as well as the Fix, Post, Reverse Business Transactions:
TPM10 are usually part of the mostly automatic day end processing.
To execute manually is expected in the following situations:
In special cases, such as when automatic processing caused errors
During implementation and test.

LESSON SUMMARY
alternatives
Create GL postings

Unit 3
Lesson 6
Performing Payments
LESSON OBJECTIVES
alternatives
The TRM Payment Program, Payment Methods and Procedures
Figure 225: The Debt and Investment Management Process: Accounting - Payment
In some countries it is not necessary to perform payments from Treasury because the house
banks debits and credits the house bank accounts according to orders provided. In this case
the postings are covered in Treasury using the (electronic) bank statements.
This is especially the case for incoming payments, as they are triggered by the sending party.

Lesson: Performing Payments
Netting of payments: allows you to save bank fees and minimizes reconciliation efforts.
Accounting Accounts Payable Vendor Payment Program ( F110 ): this payment program
processes domestic and foreign payments for vendors and customers.
Treasury Payment Request Payment Program ( F110 ): additional option for automatic
payment in the SAP system for TRM. Unlike the standard payment program, the payments
are not based on open items (customer items) but on payment requests.
Both programs create payment documents and supply data to the payment medium
programs.
Figure 226: When is a Payment required?
The transfer between accounts at the same house bank is performed by TRM posting to a
bank clearing account. This account is then cleared by the electronic bank statement. See T-
Account example in the previous lesson on posting.

Figure 227: Posting and Payment: Process Summary
Posting, payment and bank communication use different programs to facilitate :
handling
segregation of duties.
Pay without posting:
In the standard procedure it happens that the FX rate used for posting differs from the FX
rate used by the bank.
Pay without posting allows you to do posting the same day the payment is executed and
therefore use the same FX rate
In this case the posting program therefore only creates the payment requests, not the
postings themselves
The postings are then executed by another program: Fix, Post, Reverse Business
Transactions.
Post Flows: TBB1

Payment Request: F111
Vendor Payments: F110

Figure 228: In Treasury a Small Group of People Handles Very Large Amounts of Money: Double or Triple Control
is Crucial
Usually not all steps are used: in most cases a final release step is defined with scaled double
or triple control, depending on the amount.
Communication: internal messages, for example to superior, auditor.
Not shown here:
Deal creation is also protected by authorization, also internal messages can be created
Also it is possible to use the workflow to release new Business Partners and changes to
Business Partners.
Payment Details
Figure 229: Payment Details: Overview Screen with Control Information
The payment information usually is forwarded from the Business Partner standing
instructions: this saves time and reduces errors
Adjustments can be made in the contract
Later changes in the Business Partners Standing Instructions are not pushed forward to
the contracts to avoid unwanted overwrite.

Figure 230: Payment Details: Payment Control, House Bank Info, Payment Methods, Payer/Payee
Payer/payee: Incoming and outgoing payments are settled using this business partner.
The Payer/ee field is filled in the Payment Details for the business partner in Standing
Instructions.
If the business partner is the house bank, you do not need to enter data in this field, as
payments are made exclusively using the house bank account. The business partner
settles all the payments, and is therefore automatically the payer/ee.
If the business partner does not act as the house bank, you have to enter a payer/ee in the
payment details. The result is that payments are not made to the business partner, but to
the payer/ee.
When payments are due, they are drawn to the payment details specified in the master
data for the payer/ee (business partner or alternative payer/ee), which means that these
must be maintained accordingly.
Dividing Payment Requests using Grouping Definition

Determine grouping definition: Payment requests are divided into individual payments using
the grouping definition.
If transactions have been linked manually (netting), they are given a joint unique group
definition.
This ensures that they are paid jointly and that no "unrelated" transactions can be given the
same definition "by accident", thus impacting this netting agreement.
If transactions are not linked manually, you can make settings to determine how the grouping
definition is to be put together:
If different flows are to be paid separately from each other (via payment requests),
although they have matching criteria (such as the same company code, partner, currency,
value date), you must assign these flows to different grouping definitions if need be.

If you select the transaction no., this creates a very high level of segregation as only flows
within one transaction can be grouped.
If you select the product category as the grouping definition, only flows which have
different product categories are separated. It also allows you to group flows within the
same product category, where applicable.
If you leave the entry for the grouping definition, flows of all product categories can be paid
on a joint basis, if the flows fulfil the above-mentioned matching criteria.
Figure 231: Payment Details: Payment Control
Payment Transaction Indicator and Generate Payment Request Indicator

Payment transaction indicator
In connection with account determination in the posting interface, this indicator controls
whether a payment transaction is involved or not. Here, account determination should be set
up as follows:
If the indicator is NOT set, postings are made via clearing accounts.
If the indicator is set, the posting is made via the payer/payee so that corresponding
payments can be generated using the accounts receivable payment program.
If a product type is not posted in a company code on the debit side (for example the
indicator FI-Posting is not equal to 3), then posting always takes place via clearing
accounts (the indicator is not observed).
Generate payment request indicator

Use this indicator to determine whether a payment request is to be created or not. If the
indicator is NOT flagged, then NO payment request is generated. In case it is flagged, a
payment request is generated.
With the payment transaction indicator in connection with the Payment request indicator, you
can control whether a payment transaction is involved or not.

If payment transaction indicator is set and the payment request indicator is NOT set, then
you post via the payer/payee and corresponding payments can be generated using the
accounts receivable payment program.
If payment transaction indicator is NOT set and the indicator payment request is set, then
you post via the payment clearing account and corresponding payments can be generated
using the payment program for payment requests.
If both indicators are set, you post via the payer/ payee; the customer account receives a
payment block and corresponding payments can be generated using the payment
program for payment requests.
If both indicators are NOT set, you post via clearing accounts if the account determination
is set correspondingly.
If a product type is not posted in a company code on the debit side (for example, the indicator
FI-Posting is not equal to 3), then posting always takes place via clearing accounts (the
indicator is not observed).
Figure 232: Payment Details: Advanced Methods for Control and Netting
Payment method supplement: characteristic in an open item for the grouping of payments.
Items with different payment method supplements are settled individually. When printing a
form, it is possible to print separately according to payment method supplement. Checks can
thus be divided into several groups that are then subject to a number of different checking
procedures in the company before being mailed, for example. When entering invoices, the
payment method supplement is copied from the master record of the customer/vendor. You
can overwrite this supplement.
Determine grouping definition: Payment requests are divided into individual payments using
the grouping definition.
If transactions have been linked manually (netting), they are given a joint unique group
definition. This ensures that they are paid jointly and that no "unrelated" transactions can
be given the same definition "by accident", thus impacting this netting agreement.

If transactions are not linked manually, you can make settings to determine how the
grouping definition is to be put together.
If different flows are to be paid separately from each other (via payment requests),
although they have matching criteria (e.g. same company code, partner, currency, value
date), you must assign these flows to different grouping definitions if need be.
If you select the transaction no., this creates a very high level of segregation as only flows
within one transaction can be grouped.
In case you select the product category as the grouping definition, only flows which have
different product categories are separated. It also allows you to group flows within the
same product category, where applicable.
If you leave the entry for the grouping definition, flows of all product categories can be paid
on a joint basis, if the flows fulfil the above-mentioned matching criteria.
Individual payment indicator: this indicator is used to determine whether payment on an

individual basis is necessary or whether flows are allowed to be paid together with other flows
(such as compensation or netting). This indicator is only significant for flows that can
generate payment requests.
If the indicator is NOT set, payment may be made on an individual or joint basis.
If it IS set, payment is to be made in on individual basis.
Same direction necessary for joint payment: this indicator is used to determine whether flows
are allowed to be paid as part of a joint payment regardless of the direction of the payment
(incoming or outgoing) or whether the direction has to be the same for all flows.
If the indicator is NOT set: flows can be grouped regardless of payment direction.
If the indicator is set: flows can only be grouped if they have the same payment direction.
Figure 233: Payment Details in the System Payment Details Entry Screen: No Payment
No payment is executed:

Usually the funds are at the house bank already and therefore they do not need to be
transferred
In some countries the payment is induced using other functions, therefore the TRM
payment functions are not used.
Basic Posting Schema TRM GL Postings
Figure 234: Basic Posting Schema TRM GL Postings: Use of Payment Requests
Repayment and Interest payment are not shown here as usually for payments received the
payment programs are not used. Please see previous lesson on posting.
Figure 235: Basic Posting Schema TRM GL Postings: Use of Payment Requests and Netting

Repayment and Interest payment are not shown here as usually for payments received the
payment programs are not used. Please see previous lesson on posting.
TRM Posting PGM: TBB1 Post Flows
TRM Payment PGM: F111 .
Display Payment Requests
Figure 236: Accounting: Payment Display Payment Requests
The Treasury Payment Program Automatic Payment transactions F111 depends on payment
requests: the program checks for new payment requests. After the payment run is executed
successfully, the payment requests are set to cleared.
Figure 237: Accounting: Payment Display Payment Requests
The payment requests can be displayed.

Payment (F111) Automatic Payment Transactions
Figure 238: Accounting: Payment (F111) Automatic Payment Transactions Process
The Automatic Payment Transactions Process is continued with the Bank Communication
Management. This is not shown here.
Figure 239: Accounting: Payment (F111) Automatic Payment Transactions Entry Screen
In our training: the identification is defined "Payment Run" PR01, PR02, and so on.
Parameter setting: see next page!

Figure 240: Accounting: Payment (F111) Autom. P. Transactions Entry Screen: Parameter Setting
Dynamic Selection: a wide range of parameters is available to select payments. It is possible

to select single contracts or even single flows.
Selection of Payment method(s) to be executed: multiple selections possible.
Go back with Back and Save!
Figure 241: Accounting: Payment (F111) Automatic Payment Transactions Entry Screen

Hint:
Usually for the payment proposal no payment medium is created.
Figure 242: Accounting: Payment (F111) Automatic Payment Transactions Payment Proposal
Hint:
The payment proposal is a mandatory step. No payment run is possible without
payment proposal!

Figure 243: Accounting: Payment (F111) Automatic Payment Transactions Payment Proposal
Proposal list RFZALI20: More Edit Proposal Proposal list .
Figure 244: Accounting: Payment (F111) Payment Proposal Creation: Log
Payment Proposal Creation: Log.

Figure 245: Accounting: Payment (F111) Payment Proposal Creation: Log
The above image depicts the payment proposal creation: log.
Figure 246: Accounting: Payment (F111) Payment Proposal List
Payment Proposal List: allows you to review the payments before the payment run is started.

Payment Proposal List: the List provides Totals by:
Business area
Country
Currency
Payment Method
Bank Account.
In many companies the Payment Proposal List is printed, double checked and signed by the
responsible persons before the payments are executed. But also the SAP Bank
Communication Management provides workflow checks for review and release of payments.
The process is usually defined individually during the implementation project.

Figure 249: Accounting: Payment (F111) Automatic Payment Transactions Payment Run
Proposal list "RFZALI20": More -> Edit -> Proposal -> Proposal list.
Figure 250: Accounting: Payment (F111) Automatic Payment Transactions Payment Run Mgmt.
While Payment Proposals can be deleted, Payment Runs are stored in the system without the
option for deletion.

Procedure to Perform Payments
Figure 251: To Perform Payments
The payment program ( F111 ) is often started manually. Other reasons to start it manually are
the implementation project, trouble shooting in general and testing. Also, in many companies,
a fast track for urgent payments is defined. Then the F111 is started manually upon request
for one or few urgent payments (see following page).
Forward the payment medium to the bank communication management or use another way
to process the payment:
Another (competitors) module which provides the connection to the bank
or, in case checks are used, the printer is started
or, in case a disc is used the disc is sent to the bank.

Procedure to Perform Urgent (Intra Day) Payments
Figure 252: To Perform Urgent (intra day) Payments
A special payment method, such as "SEPA FAST TRACK" can be defined in customizing. The
use of this method is to distinguish the fast payment in the company handling in Treasury and
bank communication management.
The selection options of the F111 allow you to select single contracts or even flows.
Such a fast track is not shown in our training system. The subsequent training on
configuration show how the payment program is configured.
Figure 253: Accounting: Payment (F111): Special Cases, Exceptions, Errors

It stands to reason that the functions described above are protected by authorizations! The
authorization concept together with the use of the workflow with dual or triple control assure
the proper use of the functions.
Multi-Bank Connectivity
Figure 254: Multi-Bank Connectivity
Bank connectivity is key to Treasury. A Treasury department typically has various files that
are transferred to and from the banks daily. Examples of these files are the following:
Outgoing payment files
Incoming payment acknowledgement files (payment status)
Incoming bank statements (account statements)
Most corporates have bank accounts and do business with multiple banks and therefore need
to connect to the banks on a daily basis. Host-to-host connections with the banks can be
setup for straight-through processing of payments or business users may need to login to the
bank portal to manually execute payments. The trade-off is the cost of setting up host-to-host
connections and maintaining that software on an on-going basis versus having risky, time-
intensive manual processing. With Multi-Bank Connectivity, SAP customers have another
option.
SAP Multi-Bank Connectivity connects corporates directly with financial services institutions
without leaving the SAP ecosystem. An advantage of using Multi-Bank Connectivity is SAP

customers do not need to introduce another third party vendor, such as a bank
communication software vendor, into their end-to-end system processes. The use of SAP
Multi-Bank Connectivity results in improved control, efficiency, and transparency of the
financial accounting process. As the solution automatically updates payment status and cash
positions in the ERP system once updates are available from the banks it further improves
and streamlines the company’s treasury operations.
The file types currently supported are the following:
Outgoing payment files
Outgoing trade confirmation files
Incoming payment acknowledgement files (payment status)
Incoming bank statements (account statements)
The Multi-Bank Connectivity solution provides corporates with a multi-bank, digital channel
between their ERP systems and their banks. In addition, the solution also offers embedded
SWIFT connectivity.
This corporate cloud banking network provides measurable improvement to the accounts
payable and accounts receivable functions through automation of all the manual and error-
prone steps associated with the execution and reconciliation of payments, order-to-cash
applications, and order entry documents.
The on-boarding to the solution is very straight-forward and delivered through a private cloud
owned and managed by SAP that is secure and partitioned by each customer and their
network of banks.
Three-Step Process
As with rolling out new functionality, the on-boarding process for SAP Multi-Bank
Connectivity involves a testing phase before going live.
SAP has identified a simple three-step process to using SAP Multi-Bank Connectivity where
the first step involves the on-boarding to the network enabling connectivity, security and
message type mapping where needed.
The second step involves the testing of the exchange of messages. The individual members
confirm with SAP that they wish to connect and SAP Multi-Bank Connectivity Operations
activates the service between the members and inform the pair they are now ready for an
end-to-end test. Once end-to-end testing is complete, the product level connection is
activated for productive usage.

Once information is flowing between members, SAP runs and manages the inter-connectivity
to ensure seamless and smooth running of the network, delivering real-time messages
between the different parties.
Step 1: On-boarding
- Connect to MBC
- Agree on payment message format
- Perform connectivity tests
Step 2: Bank activation and testing

- Perform end-to-end connectivity testing
- Finalize service activation
Step 3: Run and Manage

- Monitor, manage, and deliver financial messages
- Add new banks and services as needed
Each network participant has a unique “tenant” for processing and a unique partition (with
unique encryption) for data storage. There is separation of data and processing by each bank
and each corporate participant, as well as digital signing and encryption of data, ensuring that
integrity, security, and authentication are complete.
Advantages of Using Multi-Bank Connectivity
The key advantages of using Multi-Bank Connectivity are:
The process to implement bank communication to multiple banks is fast. It is much less
effort than to implement host-to-host connections to the banks.
There are cost reductions compared to maintaining disparate e-banking systems.
The SAP customer does not need to worry about system maintenance or upgrades as
Multi-Bank Connectivity is a cloud application maintained by SAP.
The SAP customer has just one channel to connect to all financial institutions.
Let SAP support the bank communication process.
SAP customers can more easily change their banking relationships, if necessary.
Multi-Bank Connectivity offers secured connectivity.

Straight-through processing is achieved with one software vendor (SAP).
For questions or to get started with Multi-Bank Connectivity, SAP customers should contact
their SAP Account Executive.
LESSON SUMMARY
alternatives

Unit 3
Lesson 7
Performing the Period End Process
LESSON OBJECTIVES
The Period End Processing: Valuation and Accruals
Figure 258: The Debt and Investment Management process: Accounting - Valuation and Accruals
detailed step-by-step training method. The product groups explained later mostly use the
same functions for performing the period-end process. The valuation is discussed first. The
topic Accruals is presented afterwards.
Valuation in Transaction Manager aims for Accounting to create the financial statement.
Depending on the company, it has to be published on a quarterly or annual basis. Usually,
monthly financial statements are created for internal purposes. In some companies,
valuations are executed on a daily or weekly basis.
Sensitivities with What if Analysis and Scenario Analysis are provided by Market Risk Analyzer
(the MRA is explained in a later unit). When the Transaction Manager requires net present
values for fair value calculations they are provided by Market Risk Analyzer.

Accounting Background, Valuation Class and General Valuation Class, Position

Management and Position Indicator
Figure 259: Accounting - Valuation TRM Subledger: Multi GAAP
There is no limitation on the number of GAAPs to be run in parallel. A limitation rather arises
from the business needs: in larger corporations sometimes more than 20 GAAPs are required
worldwide. But they are required for different Company Codes. In most cases it is sufficient to
run two to three GAAPs for one Company Code (the Company Code usually sets the level for
the single company = single Financial Statement).
Figure 260: Accounting - Valuation IFRS 9 in a Nutshell
Source: https://en.wikipedia.org/wiki/IFRS_9
It replaces the earlier IFRS for financial instruments, IAS 39, from 2018. However, early
adoption is/ was allowed.

Lesson: Performing the Period End Process
Valuation Classification and Measurement
Figure 261: Accounting - Valuation Classification and Measurement: Holding Categories
A holding category has to be assigned by acquisition of a financial instrument.

A set of rules exist to change a contracts holding category.
Figure 262: Accounting - Valuation: What is the Difference Between Fair Value and Amortized Cost?

Figure 263: Accounting - Valuation Classification and Measurement: General Valuation Class
(e.g. Amortized cost versus Fair Value) during Key Date Valuation.
(e.g. amortized cost versus fair value) during Key Date Valuation.
One Operative Valuation area is mandatory. The Operative Valuation area is the area which
performs the payments.
One to n parallel valuation areas are optional.
Valuation area usually is equal to an accounting system, for example IFRS, US, or GAAP. In
each Valuation area specific holding categories = valuation classes are used.

For Configuration see subsequent training.
Figure 266: Accounting - Valuation The Position Management Procedure
LAC: Linear Amortized Cost

Position Management Procedure: the position management procedure determines how
positions are managed and valued in the parallel valuation areas. To comply with the legal
requirements of the relevant accounting principles, you have to first define the necessary
procedures to be carried out as part of a key date valuation. You then set the sequence of the
key date valuation procedures within the position management procedures. In this way, you
can combine the relevant procedures for amortizations, one-step rate/price valuations,
security price valuations, and foreign currency valuations according to the respective
requirements.

The assignment of the position management procedure can be made dependent on several
factors, (such as the valuation area, valuation class, and product type).
Example for Important Configuration Options (many more exist)
Linear Amortized Cost (LAC): When calculating the amortization, the position is assumed
to have a constant annual amortization rate.
Scientific Amortized Cost (SAC): When calculating the amortization, the position is
assumed to have an exponential amortization rate. It calculates the net present value of
the position for the amortization key date by discounting the flows that arise from this
position after the key date.
Indicator Gross or Net Procedure
Net: in the case of the net procedure the position is posted along with its acquisition value
(book value = acquisition value) and is amortized over the remaining term (book value =
acquisition value + amortization).
Net; Separate Balance Sheet Accounts for Amortization: Negative and positive
amortizations for a position caused by changes to the position, transfer postings or key
date valuations are posted to different accounts in Financial Accounting. The assumption
is that only one of these accounts can show a balance other than zero. After posting the
amortizations, the balance of both accounts is automatically compared for this position. If
both accounts show a balance for this position, the account with the lower balance is
cleared via the account with the higher balance by adjustment flows.
Gross: In the case of the gross procedure the premium/discount is posted to the position
as accrued/deferred assets/liabilities (book value = acquisition value + premium/
discount) and as part of the amortization it is written back over the remaining period
affecting net income (book value = acquisition value + premium/discount +
amortizations).
Gross: Premium/Discount Not Included in Book Value: A special gross procedure case.
The premium/discount is posted and written back over the remaining term affecting net
income but the book value does not contain the premium/discount (book value =
acquisition value + amortizations). This ensures that the amount of the foreign currency
write up/down is the same for one position in different valuation areas.
Gross; Separate Accounts for Accruals/Deferrals: In the case of the gross procedure of
amortization, the accruals/deferrals can be managed (depending on whether premium or
discount) in separate accounts for accounting purposes. The assumption is that only one
of the accruals/deferrals accounts can show a balance other than zero. So the accrued/
deferred assets can show balances on the debit side and the accrued/deferred liabilities
can only show balances on the credit side. This setting ensures this by generating
appropriate adjustment flows in the case of a change.

The Position Management Procedure
Figure 267: Accounting - Valuation The Position Management Procedure: FX Valuation
This example is based on the purchase of a share position. You can see the original purchase
and the valuation which is performed later on. Both the share price and the exchange rate
have changed. The new position value is the result of these two changes.
The example is continued after the different options for valuation are explained.
Figure 268: Accounting - Valuation The Position Management Procedure: FX Valuation
For key date valuation, all relevant valuation steps defined in the position management
procedure are performed - for example, amortization, security, and forex valuation.

Figure 269: Accounting - Valuation Position Management Procedure: Example 2 Step (1/ 2)
This example (CC Currency = EUR):
a share bought at 10,00 USD, Exchange rate: 1,00 -> Value = 10,00 EUR
Valuation: market value 11,00 USD, Exchange rate: 1,20-> Value = 13,20 EUR
Difference: 3,20 EUR
Figure 270: Accounting - Valuation Position Management Procedure: Example 2 Step (2/2)
For key date valuation, all relevant valuation steps defined in the position management
procedure are performed - for example, amortization, security, and forex valuation.
The example shows a 2-step procedure, the security price valuation is executed first.

The advantage of the 2-step procedure is that the valuation result = valuation adjustment
amount is split into two components: Security and FX component. Therefore it is possible
to analyze the two components separately.
The amount of higher degree, which is caused by the change of Security and FX together,
is added to the second step. The decision on the order of steps therefore determines
where the higher degree value difference is added.
Securities: Impairment
Figure 271: Securities: Impairment
For detailed information please see: https://en.wikipedia.org/wiki/

Impairment_(financial_reporting)
The impairment requirements in the new standard, IFRS 9 Financial Instruments, are
based on an expected credit loss model and replace the IAS 39 Financial Instruments:
Recognition and Measurement incurred loss model.
The expected credit loss model applies to debt instruments recorded at amortized cost or
at fair value through other comprehensive income, such as loans, debt securities and trade
receivables, lease receivables and most loan commitments and financial guarantee
contracts.
Source: Ernst & Young: Impairment of financial instruments under IFRS 9 December 2014
Impairment:
Record or Clear Impairment (TPM70)
Reverse Impairment (TPM71)
Price Maintenance for Special Security Valuation (TPM73)
Reference Report for Impairment (TPM75)

Figure 272: Securities: Recording Impairment
To record an impairment, you first need to maintain the price to which the write-down is to be
made in a table. The table VALV_SP_VAL_SEC is maintained with transaction TPM73.
You need to fill in the following fields:
For bonds (percentage-quoted securities): Valuation area, valuation class, company code,
ID number, relevant category (securities account, lot, securities account group, portfolio)
security price type (defined in the configured impairment procedure) key date, category
(3=Impairment), and security price.
For stocks (unit-quoted stocks): The same as for percentage-quoted securities but with
the security currency included.
For loans: Valuation area, valuation class, company code, contract, net present value type
(defined in the configured impairment procedure) key date, category (3=impairment), net
present value, and currency of the net present value.
Manual Valuation
The easiest way to change a position value is the Manual Valuation.
Important: the manual valuation, in opposite to the Impairment procedure, does not take care
of amortization. Therefore it can not be used for positions which are amortized. It can be used
for positions at Market Value or Net Present value.
As a first step, the values need to be captured using TPM74 - Enter Values for Manual
Valuation (maintenance view TRLV_VALV_MANUAL VAL). The prices here are not
specified for each unit or as a nominal price, but for each position managed by the
Transaction Manager.
At period-end, a Valuation ( TPM1) is to be executed using Valuation Category Manual

valuation with or without reset.

The Valuation Process
Figure 273: Accounting - Valuation The Valuation Process
When the valuation is started, every position is checked for the necessity to value. If this is
given, the valuation method is determined (FV/ AC/ …) and where the value can be obtained.
This value is then compared with the current value. A value adjustment posting is then
created.
Basic Posting Schema
Figure 274: Accounting - Valuation Basic Posting Schema: Value Adjustment Posting
This simple posting example explains the postings created by TRM. In our example, we see
the initial posting of a Time Deposit, 1.000 EUR, 3 Months, 20 EUR Interest. The initial posting

is executed on the day the investment is done. At period-end, a valuation is executed. It is

reversed on the following day. The reversal is an option (the use of the reversal is a
customizing setting done at the company code level).
Hint: the valuation is not to be reversed when the annual Financial Statement is prepared.
Then the valuation is fixed. The balance sheet position values are carried forward to the next
business year. The P+L results are determined including the results from valuation.
Options for Key Date Valuation
Year-end valuation (always without reset) : The key date valuation without reset is normally
used for year-end valuation as part of year-end closing. A key date valuation without reset
permanently changes the book value of the position. The book value after the key date
valuation is the starting point for all subsequent calculations of rate gains, for example, as
well as for future valuations.
Mid-year valuation without reset/ Mid-year valuation with reset : You can use this key date
valuation with reset for monthly or quarterly valuations. The results of the valuation are
reset one day after the valuation key date. The key date valuation with reset does not
therefore change the position permanently, but only for the period between the valuation
key date and the reset key date. In the case of a valuation with reset, the reset
automatically occurs and is posted in the same run as the valuation. The reset key date is
one day after the valuation key date. With a key date valuation, all the relevant valuation
steps defined in the position management procedure, such as amortization, security and
forex valuation, are performed.
Cash Flow Structure/Life Cycle: Focus on Valuation
Figure 275: Cash Flow Structure/Life Cycle: Focus on Valuation
Reporting until this date => includes the Valuation. Reporting after this date excludes the
Valuation because of the reversal.
Hint: the valuation is not to be reversed when the annual Financial Statement is prepared. At
that point, the valuation is fixed. The balance sheet position values are carried forward to the
next business year. The P+L results are determined including the results from valuation.

Cash Flow Valuation: Flow Types and Update Types
flow tab.
The update types are connected to the flow types. Usually one for inflow and one for
outflow of funds. They are used in accounting. They are a key input for GL account
derivation.
Cash Flow Valuation: Transaction Management versus Position Management
The Transaction Management processes the single transaction.
The Position Management is responsible for the handling of positions as a whole.
purchased two twice = two transactions = handled by Transaction Management. At period-
end, the position is valued = one action taken for the whole position by position
management.
Securities: Valuation Categories
Figure 276: Securities: Valuation Categories
With reset: the system automatically creates offsetting postings on the day following the key
date valuation. The use with or without reset depends on each company's decision.
Creation of the annual Financial Statement: reset is not defined (not permitted), as the value
changes according to GAAP need to be fixed and reported.
Manual valuation: with manual valuation, the system does not read the security prices
(maintained for each exchange), but reads the prices from a special table. In the table, values
are specified for each position to which a write-up or write-down is to be made. You maintain
this using the maintenance view TRLV_VALV_MANUAL VAL or transaction TPM74. The prices
here are not specified for each unit or as a nominal price, but for each position managed by
the Transaction Manager.

Procedure to Calculate and Save Net Present Values
Figure 277: Accounting - Valuation Calculate Net Present Values
The Net Present Values (NPVs) required for a Fair Value Valuation are calculated by the
Market Risk Analyzer: as this function is implemented there, it is used by the Transaction
Manager valuation step as well.
Transactions:
TPM60- Determine NPV
TPM60CVA - Determine NPVs including Credit Valuation Adjustments (CVA) and Debit
Value Adjustments (DVA).
Hint on additional Functions:
JBNPV- Enter NPVs to enter the NPVs manually, in case they are calculated outside the
system.
TPM74 - Enter values for manual valuation allows you to enter book values manually.

Figure 278: Accounting - Valuation Calculate Net Present Values Entry Screen
NPV: Net Present Value.

Key date of the evaluation: in many cases month end; needs to be the same date as for key
date evaluation (and accruals) as the key date evaluation retrieves the NPVs.
Clean Price Calculation: in addition to the NPV, the clean price of the financial transaction
(loan, money market or swap) are also calculated.
Calculation of the Intrinsic Value: the system calculates the intrinsic value and the time value
of a financial transaction (OTC option) in addition to the NPV.
Calculation of Risk-Free NPV: the system calculates the risk-free NPV in addition to the NPV.
To compute the value, the system needs risk-free yield curve data maintained in the
evaluation type.
Separate NPV (In/ Out): Calculation of NPV for Each Side (In versus out).
Price/NPV Type for OTC Transactions: in the NPV table you can store several net present
values for an OTC transaction. These are identified by the price/NPV types defined in the IMG
activity Define Price/NPV Type. In the course of a mark-to-market evaluation or a key date
valuation you use the price/NPV types to determine which of the stored NPVs are accessed.
Save values with warnings: allows to store values when warnings can be neglected.

Figure 279: Accounting - Valuation Calculate Net Present Values Results

The calculated and saved NPVs are shown in a list. Further columns show values which are
additionally requested such as the Clean Price.
As usual, beneath list features, access to Detail Log and Calculation Bases is provided.
Figure 280: Accounting - Valuation Calculate Net Present Values Results: Detail Log

The Detail Log provides in depth information on the calculations performed: amounts from
the contracts cash flow, discount factors, single NPVs, summarized NPV.

Figure 281: Accounting - Valuation Calculate Net Present Values Results: Calculation Bases

The calculation bases used for the calculation can be analyzed: Yield Curves and, if applicable,
FX rates.
Figure 282: To Calculate and Save Net Present Values
As long as no contracts are excluded from calculation the NPVs are calculated and stored for
all transactions. The key date valuation performed later on selects by itself whether a FV
valuation is required. Only for these contracts the NPVs are retrieved.

Procedure to Run the (month end) Valuation
Figure 283: Accounting - Valuation Perform the Key Date Valuation
Transactions:
Execute Valuation ( TPM1)
Reverse Valuation ( TPM2).
Valuation Entry Screen
Figure 284: Accounting - Valuation Valuation Entry Screen Part 1

Key date of the Evaluation: in many cases month end.

Valuation Category: the following valuation categories are supported:
Year-end valuation: the positions are valued in accordance with the assigned position
management procedure, and the relevant valuation flows are generated.
Mid-year valuation with reset: In addition to the valuation flows, reset flows are generated
for the day following the valuation key date. You can therefore see the effects of the
valuation only on the valuation key date.
Mid-year valuation without reset: this works in the same way as the year-end valuation.
Manual valuation without reset: this valuation category allows to write-up or write-down a
position to a fixed book value, independent of the valuation rules defined. You need to
maintain these in the table TLVT_MANUAL_VAL in position currency and valuation
currency. (For index-linked bonds you also need to enter the "clean" book value.) For
example with transaction TPM74. During the valuation run the system runs through the
steps defined in the position management procedure, however it always writes up or writes
down the position to the defined book value. The following valuation steps support manual
valuation:
- Security valuation
- Foreign currency valuation
- One-step price valuation
- Index valuation
Manual valuation with reset: In addition to the manual valuation flows, reset flows are
generated for the day following the valuation key date. You can therefore see the effects of
the valuation only on the valuation key date.
Figure 285: Accounting - Valuation Entry Screen Part 2
Different FI Posting Date: the posting date for updating Accounting is different from the
subledger posting date. This data field is used only in exceptional cases, should the posting

date for updating Accounting be different from the subledger posting date, for example, if the
posting period in FI is already closed and cannot be reopened.
Valuation Log
Figure 286: Accounting - Valuation Log
The Valuation Log provides in depth information on the valuation including drill through to
further lists and details.
Figure 287: Accounting - Valuation Log: Message Log
The message log provides information on valuations without value change.

Figure 288: Accounting - Valuation Log: Flows
The flow list provides information on the value changing amounts which result from the
valuation (value flows). This is very useful for detailed analysis and analysis in case of errors.
Figure 289: Accounting - Valuation Log: Logs and Messages
The posting log provides information on the GL Postings.

The number of the posting is provided, as well as the account numbers and names.
A drill through to the posting in the general ledger is possible.

To Run the (month end) Valuation
Figure 290: To Run the (month end) Valuation
The Run Valuation entry screen provides a multitude of parameters to limit the contracts to
be valued.
The frequency of the valuation runs varies depending on the company. In some companies it
is performed daily, in some companies weekly, in others monthly.
The most important valuation run is performed to determine the values of the annual financial
statement:
Usually the results are checked in depth, often starting from the largest positions to the
smallest and/or by comparison with previous reportings and/ or analysis of special cases.
Usually objectives exist for the different balance sheet positions and P+L/OCI results.
Usually this leads to changes/ corrections/ amendments until the final valuation can be
run which is then included in the annual financial statement.
Procedure to Perform the (month end) Accruals Run
Figure 291: The Debt and Investment Management Process: Accounting - Accruals

Cash Flow Structure/Life Cycle: Focus on Accruals
Figure 292: Cash Flow Structure/Life Cycle: Focus on Accruals
Reporting until this date => includes the accruals. Reporting after this date excludes the
accruals because of their reversal.
Hint:
The accruals are not to be reversed when the annual financial statement is
prepared. Then the accruals get fixed. The balance sheet position values are
carried forward to the next business year and are closed from the postings the
accruals are created for. The P+L results are determined including the results
from the accruals.
The flow types represent the value flows. The can be reviewed in the transaction cash flow
tab.
The update types are connected to the flow types. Usually one for inflow, one for outflow of
funds. They are used in accounting. They are a major input information for GL account
derivation.
Transaction Management versus Position Management
The Position Management is responsible for the handling of positions as a whole.
purchased two times = two transactions = handled by Transaction Management. Later on

the position is evaluated = one action taken for the whole position by position
management.
Accruals/Deferrals
Figure 293: Accounting - Accruals/Deferrals Perform the Accrual/Deferal Run
Transactions:
TPM44- Create Accruals
TPM45 - Reverse Accruals.
Difference between TPM44 - Create Accruals and TPM45- Reverse Accruals: TPM44- Create
Accruals creates accruals including offsetting reversals one day later. Reverse Accruals
reverses the original accruals run: both accruals and their reversals are reversed. This is used
for example. in case the calculation went wrong because of erroneous contract data.
Two Different Accrual/Deferral Procedures in Configuration
Two different Accrual/Deferral procedures are available in configuration. Our system is
configured to work under the reset procedure.
In the Reset Procedure, the profit-based flow is posted as affecting net income. Income is
adjusted during accrual/deferral and the amount not yet affecting net income is posted as
a liability or asset. The reset procedure generates an offsetting posting which posts the
asset or liability back to the profit and loss account. If a profit and loss statement is output
in the meantime, it will contain the profit/loss that occurred during the calculation period.
In the case of the difference method, the profit-based flow is posted to an asset or liability
item on the due date without affecting net income. These items are then accrued/
deferred gradually, affecting net income by degrees.
Depending on the accrual/deferral procedure, the accrual/deferral flow and profit-related

flow must be posted as follows:
Flow Reset Procedure Difference Procedure
Accrued revenue Bank to revenue Bank to receivables

Accrual of accrued revenue Receivables to revenue Receivables to revenue

Accrued expenses Expenses to bank Payables to bank
Accrual of accrued expenses Expenses to payables Expenses to payables
Deferred revenue Bank to revenue Bank to accrual and deferral (debit)
Deferral of deferred revenue Revenue to acc/def Accruals and deferrals to revenue (debit)
Deferred expenses Expenses to bank Accruals and deferrals to bank (credit)
Deferral of deferred expenses Acc/def to expenses (credit) Expenses to acc/def (credit)
Figure 294: Accounting - Accruals/Deferrals: Run Accrual/Deferral of Expenses and Revenues Entry Screen Part
1
Key date of Accruals/ Deferrals: in many cases month end.

Indicator for Including Key Date: this indicator shows whether or not the key date is within the
time period in question. The time period is defined for the accrual/deferral function by the key
date and the inclusion indicator for the key date.
Example: there are two interest flows, Z1 and Z2.
Z1 is calculated from 1/1/01 through 12/31/01
Z2 is calculated from 1/1/02 through 12/31/02
If you carry out an accrual/deferral with key date 01/01/02 with the inclusion indicator set
to inclusive (technical value 1), Z2 is accrued/deferred for the calculation period "one day."
If the inclusion indicator is set to exclusive (technical value 0), Z1 is accrued/deferred for
the calculation period [1/1/01; 12/31/01].
Accounting - Accruals/Deferrals: Selection Parameters

Month End Indicator for Key Date: if the relevant date is the last day of the month, it should be
regarded as the month end for corresponding interest calculation methods.

Check Transaction Release: if this indicator is set, the system checks if the selected
transactions are "released" before the function is performed. Transactions are normally
released as part of a workflow.
If this indicator is set during posting of flows, then it is only possible to post flows that belong
to released transactions, or to transactions for which release is not relevant.
Accrue/Defer Only Fixed Variable Interest Flows:
if you set this checkbox, the system accrues or defers only fixed variable interest flows and
interest flows with fixed interest rates.
if you do not set this checkbox, the system also accrues or defers variable interest flows
for which the interest rate has not yet been fixed. The system determines the interest rate
on the basis of the planned record update strategy.
Figure 295: Accounting - Accruals/Deferrals: Run Accrual/Deferral of Expenses and Revenues Results
The accruals results report depicts the accruals calculation and shows the amount and posing
date for accrual and the reversal of the accrual.

Figure 296: Accounting - Accruals/Deferrals: Posting Log
The postings can be reviewed in detail. This includes drill through to the GL posting by clicking
on the posting number.
Figure 297: Accounting - Accruals/Deferrals: Messages
Hint:
Before the month end procedures like Valuation and Accruals are performed, all
planned cash flows are to be posted (Tile Post Flows, TBB1). For this reason the
warning message as of above is issued!

To Perform the (month end) Accruals Run
Figure 298: To Perform the (month end) Accruals Run
The Create Accruals/ Deferrals entry screen provides a multitude of parameters to limit the
contracts to create Accruals/ Deferrals for.
The frequency of the Accruals/ Deferrals runs varies depending on the company. In most
companies it is performed on a monthly base.
LESSON SUMMARY

Unit 3
Lesson 8
Using Credit Lines and Mirror Transactions
LESSON OBJECTIVES
Facilities: Concept, Creation, Reporting
Figure 299: The Debt and Investment Management Process: The Facility
We use the Debt and Investment Management process to explain these process steps in a
very detailed way in our training.
A facility is an agreement by a lender and one or more borrowers on the general terms (= line
of credit) for a series of drawings against credit. The lender can name more than one party (=
borrower) that is entitled to draw on the line of credit. These borrowers may have different
drawing rights as far as time limits and amounts are concerned. In total, these will not exceed
the agreed credit limit.
Any utilization of this credit facility is called a drawing.

Figure 300: The Debt and Investment Management Process: The Credit Line Business Need
In our training system we grouped the facility functions in one group to facilitate processing.
This can be altered in your company's system.
Figure 301: The Facility: The Facility Overview
Sample customizing:
56A: Bilateral Facility/ 100 granting, 200 borrowing
56B: Syndicated Facility/ borrowing
Contract Categories which can be assigned to a facility:
Fixed Term Deposit
Deposit at Notice

Lesson: Using Credit Lines and Mirror Transactions
Interest Rate Instrument
Cash Flow Transaction
Figure 302: The Facility: Apps
Transactions:
Create Facility: TM61
Facility Utilization: TM_60
Facility Overview of charges: TM_60A
Hint:
Settlement is performed using FTR_EDIT.
A facility needs to be settled before it can be used.

Figure 303: The Facility: Charges and Interest
Sample customizing:
56A Bilateral Facility
56B Syndicated Facility
Utilized part of the facility: It needs to be aligned whether the interest on the utilized part of
the facility is covered by the drawing.
Figure 304: The Facility: Overview Functions
The tab Profiles provides several options to report and analyze the facility. Here is the list of
drawing objects together with drawing amounts and dates.

Figure 305: The Facility: Overview
Analysis: Drawings list and amount utilized list.
Analysis: Amount not utilized and amounts overdraft.

The tab Cash Flow allows you to display the actual or estimated planned amounts; in this case
the fee for the not utilized part of the facility (quarterly payment).
Procedure to Create a Facility
Figure 308: To Create a Facility
Hint:
A Facility needs to be settled before it can be used.
Settlement is performed using FTR_EDIT.

Procedure to Create and Assign Contracts to the Facility
Figure 309: To Create and Assign Contracts to the Facility
Contract Categories which can be assigned to a facility:
Fixed Term Deposit
Deposit at Notice
Interest Rate Instrument
Cash Flow Transaction.
Mirror Transactions: Concept and Creation
Figure 310: The Debt and Investment Management Process: Mirror Transactions Business Need

Mirror Transactions is a function which automatically creates the complementary contract

and therefore both saves work and assures quality as the data such as amount, dates and
interest rate are the same.
Figure 311: Mirror Transactions: Overview
A Mirror Transaction is created together with the original transaction but opposite flow
directions: borrowing instead of investment and vice versa
Our training system:
55G Interest Rate Instrument mirrored, 100 Investment
Configured to work in Company Code 1010 with Business Partner BP1000B.
CF: Cash Flow.
Figure 312: Mirror Transactions: Prerequisites

Detailed information on configuration is provided in the subsequent training on Customizing.
Figure 313: Mirror Transactions: The MIR Link
The reference MIR is created automatically. The category MIR is reserved for Mirror
transactions.
Figure 314: The Facility:A Link of the Category MIR Connects the Transactions
Clicking on the link (previous page) provides access to the references: both transactions
are displayed with company code information and transaction number.
Drill through to the transaction detail display is possible.

Procedure to Create a Transaction with Automatic Mirror Transaction
Figure 315: To Create a Transaction With Automatic Mirror Transaction
Hint:
Insert the Company Code and Business Partner data: the combinations of
Product Type, Transaction Type, Company Code and Business Partner to create
Mirror Transactions need to be captured in customizing beforehand.
LESSON SUMMARY

Unit 3
Lesson 9
Employing the Back Office Functions - Part
Two
LESSON OBJECTIVES
Manage reversals
The Prolongation (Rollover)
Figure 316: The Debt and Investment Management Process: Back Office Part Two: Rollover
The lesson Back Office part two completes the back office tasks and functions. Here, tasks
and functions, which are often used after posting, payment and period closing are described.

Figure 317: Back Office Part Two: Prolongation of Time Deposits: Entry
The app Edit Financial Transactions is a “Cockpit" providing access to a multitude of

functions. Please also see the lesson Back Office part 1.
The functions (=buttons) available are highlighted. They are made available according to the
product category. The information on the product category either comes from the product
type selected, or from the selection pane on the right side of the screen: Default Entry
Financial Transaction . The functions available differ from product category to product
category.
Figure 318: Back Office Part Two: Prolongation of Time Deposits: Features
The pictures are outtakes from the structure screen at prolongation.

Lesson: Employing the Back Office Functions - Part Two
Figure 319: Back Office Part Two: Prolongation of Time Deposits: Status
In the history, the status themselves can be looked up as well as their initial date and the
executing user.
Procedure to Perform a Rollover
Figure 320: To Perform a Rollover
It is assumed that, in case postings result from the prolongation, the postings are included in
the day end process (Post Flows ( TBB1)).

Reversals
Figure 321: The Debt and Investment Management Process: Back Office Part Two: Reversals
detailed step by step in our training.
The lesson Back Office part two completes the Back Office tasks and functions. Now tasks
and functions are described, which are often used after posting, payment and period closing.
In this lesson we concentrate on the Reversal options provided with Edit Financial
Transactons ( FTR_EDIT). Valuation/ Accruals have their own reversal functions which are
described in the lesson on Valuation/ Accruals.
Figure 322: Reversals: Concept: Turn Back to the Previous Activity Status
A reversal involves resetting the last change made to the transaction, that is, resetting the last
transaction activity recorded by the system. If there are postings associated with the reversed

activity, these are cancelled with corresponding reverse postings (see also "Reverse
Documents"). To execute the reversal, you have to enter a reason for the reversal in the
corresponding field. The reversal function reverses the most recent activity and reactivates
the previous one.
Figure 323: Reversals: Concept: Turn Back to the Previous Activity Status
A reversal involves resetting the last change made to the transaction, that is, resetting the last
transaction activity recorded by the system. If there are postings associated with the reversed
activity, these are cancelled with corresponding reverse postings (see also "Reverse
Documents"). To execute the reversal, you have to enter a reason for the reversal in the
corresponding field. The reversal function reverses the most recent activity and reactivates
the previous one.
Figure 324: Reversals: Status Maintenance Example

Hint:
A contract can be amended and can be processed further except when the
status Contract - Reversed is reached. This status depicts that the contract is not
to be processed further. Therefore no further processing is possible for a
contract in status Contract - Reversed (deactivates the contract "once and for
all").
Figure 325: Reversals: Processing Including Postings
The transaction Fix, Post, Reverse Business Transactions ( TPM10) is a transaction which is
complementary to Post Flows ( TBB1). Both belong to Accounting.
Figure 326: Reversals: Edit Financial Transactions (FTR_EDIT) Reversal Function

The app Edit Financial Transactions is a “Cockpit" providing access to a multitude of

functions. Please also see the lesson Back Office part 1.
The functions (=buttons) available are highlighted. They are made available according to the
product category. The information on the product category either comes from the product
type selected, or from the selection pane on the right side of the screen: Default Entry
Financial Transaction . The functions available differ from product category to product
category.
Figure 327: Reversals: Fix, Post, Reverse Business Transactions Overview
Fix, Post, Reverse Business Transactions: TPM10.

This function changes the status of derived business transaction flows from planned and to
be fixed to fixed. At the same time, the system posts the flows that are relevant for posting (=
the flows relating to update types that have account determination settings).
Unfixed postings result from the following cases:
Post Flows ( TBB1) has been executed.
For the Operative Valuation area only or (no posting in not operative valuation areas.)
Pay Only (no posting at all, creation of payment requests).
The Business Transactions which would have been due for posting but are not posted are
transferred from status Planned to status Unfixed.

Figure 328: Excursion: Derived Business Transactions
Derived business transactions are generated in the following cases (examples):
When you enter a security purchase or loan disbursement involving a discount or premium
and manage the position using the gross procedure. The derived business transaction is
used to generate the discount or premium flow.
When you enter position outflows [sale, repayment, exercise, stock swap with payment
and any other position outflows that are not transfer postings], the price gains and losses
are generated as derived business transactions.
If amortization is required by the Position Management Procedure for the position, and the
operative business transaction changes the amortized acquisition value of the position (=
purchase value + capitalized costs + amortizations), the system generates amortization
flows for the total position.
If you make internal transfer postings [securities account transfers, valuation class
transfers, corporate actions, exercising rights, exercising OTC options], the system
generates derived business transactions that transfer the positions per position
component.
When you enter position outflows that are not transfer postings, the system generates
translations that update the position components (proportionate reduction). Translations
are not usually relevant for posting.
When you change the currency (local currency, issue currency or contract currency) over
to the euro, the system generates reconciliation flows. These flows ensure that the
positions are consistent for a certain date.

Figure 329: Reversals: Fix, Post, Reverse Business Transactions: Selections

Figure 330: Reversals: Fix, Post, Reverse Business Transactions: Selections


Figure 331: Reversals: Reversal Posting Example Posting, Reversal, Correction, Posting
Report: Posting Journal ( TPM20).

This example: an Interest Rate Instrument is created, settled, posted. It turns out that the
interest rate capturing is wrong (typo). Now, the settlement is reversed. The reversal
offsetting postings are posted. The contract is corrected, settled, and posted again.
Hint:
The Transaction Manager defines “Reversal" as a new status of the original
transaction. The offsetting reversal postings are generated in the GL!

Figure 332: Reversals: Payments and Reversal
In case a payment has already been sent to the House Bank or even has been executed by the
House Bank there is no automatic process to withdraw: communication with bank and or the
payment receiver (telephone/E-mail, fax, and so on) is then required to make sure that:
the bank payment is stopped, or
the funds are transferred back.
As long as the payment processing inside the company is still ongoing, the payment can be
stopped:
Deletion of the Payment Proposal/Payment Run in the TRM Payment Program ( F111 ):
Deletion, new setup with excluding the undesired payment.
Stop of the Payment in the SAP Bank Communication Management. Deletion, new request
to TRM Payment Program ( F111 ).

Procedure to Perform a Reversal
Figure 333: To Perform a Reversal
As long as no urgent case is given, Perform Post Flows ( TBB1) and Fix, Post, Reverse
Business Transactions ( TPM10) are included in the day end process.
LESSON SUMMARY
Manage reversals

Unit 3
Lesson 10
Managing Securities and Other Exchange
Traded Products
LESSON OBJECTIVES
Trade securities
Management of Securities and Other Exchange Trade Products in TRM

Securities and listed derivatives are different from the other-the-counter trade types
discussed to this point in that securities and listed derivative contracts are exchange traded
and have characteristics, such as interest rate, maturity date, defined in the external market.
For example, the U.S. Treasury bond that has the CUSIP 912810QZ4 has a maturity date of
2/15/2043 and an interest rate of 3.125. Aspects of any trade in this U.S. Treasury bond will
be the same regardless of when the bond is purchased or sole, whereas other-the-counter
trade types are always unique.
SAP supports a variety of listed and non-tradable securities product, which can be managed
as active or passive positions. The master data and processing of exchange traded products
are explained in this lesson.
Securities Master Data: Security Account, Class Data, Position Indicator

Exchange traded versus OTC:
OTC = Over the counter. Contracts (products) concluded with one or few business
partners. For example, fixed term deposit, deposit at notice, commercial paper, facility,
OTC option, forward.
In contrary to: Exchange traded contracts (products). These are contracts which are
traded at an exchange, which have a unique identification number (such as an ISIN) and
which are traded in numbers, for example. share, bond, exchange traded option, future.

Figure 334: The Debt and Investment Management process: The Major Steps are Similar for Securities
In this lesson, we complete the picture in terms of a delta presentation on the delta to
Securities as typical exchange traded contracts (the main process steps are similar).
Figure 335: Securities: What is required to Perform a Securities Transaction?
Securities Management enables to manage security transactions and positions. The resulting
posting activities are automatically transferred to Financial Accounting.
You need to enter master data before you can use the management processes. For example,
before you can map the purchase (or sale) of a security in the system, you first have to enter
its relevant structure and condition characteristics as a class.
A securities transaction is concluded.
A typical Securities transaction is concluded by buying a security via a house bank or a broker
at an exchange and storing it in a securities account maintained at that house bank or broker.

Lesson: Managing Securities and Other Exchange Traded Products
Figure 336: Securities: The Transaction Causes a Position
Business Partner Roles:
Issuer TR0150.
Depository Bank TR0152.
(and, as used already in Money Market: TR0151 Counterparty to conclude transactions).
Transaction: buy and Sell Securities, such as Buy 100 ABC Bond in Security Account 123.
Single Transactions (except TS01 also accessible via FTR_Edit):
Collective Processing:
FTR_00 - Transaction Management
TS00 - Securities
FTR_MASS_SETTLE- Mass Settlement
Security Right:
FWER- Exercise
FWER_STORNO_NEU
- Reverse
Utilities:
TPM40- Securities Account Cash Flow
TM22 - Date Check

Figure 337: Securities: Summary: Master Data, Transaction and Position Management
Master data are required in the following areas:
Business partner: In addition to the minimum number of data entries (name and address)
in the master record, you have to define the role of the business partner.
Security Class: You have to enter master data for each security managed in the position.
This is a prerequisite for any position changes in the trading and back office areas. Class
master data contains the product-specific conditions and all the general structure
characteristics for securities. Other entries include, for example, the exchanges where this
security is traded.
Securities account: You manage and administer securities positions in active, passive, or
lending securities accounts. Use securities accounts to manage and value your positions.
You need securities accounts for all transactions which require position management. The
securities accounts created in the system usually correspond to actual securities accounts
at a bank.
Position indicator: You define the parameters for position management and valuation in
the company code for each security on a securities account basis.
The master data are employed by the Transaction Management, for example, Buy/ Sell
Securities.
The transaction causes the creation of a Position. The Position is maintained in the Position
Management.

Transaction Management and Position Management
Figure 338: Securities: Transaction Management and Position Management
This picture on the overall architecture helps to distinguish the roles of Transaction
Management and Position Management.
Transaction Management: manages single transactions, for example, Buy 100 and Sell 50.
Position Management: manages the whole position (after purchase of 100 and sale of 50,
there are 50 left. Position Management calculates gain or loss from the sale. Later on a
valuation is performed by the Position Management on the remaining 50 as a whole.
Cash Flow Structure/ Life Cycle with Flow Types and Update Types
Figure 339: Cash Flow Structure/ Life Cycle with Flow Types and Update Types: Securities

This picture completes the previous information on Transaction Management and Position
Management.
The flow types represent the value flows. The can be reviewed in the transaction cash flow
tab.
The update types are connected to the flow types. Usually there is one for inflow and one
for outflow of funds. They are used in accounting. They are a major input information for
GL account derivation.
The Position Management management is responsible for the handling of positions as a

whole.
purchased two times = two transactions = handled by Transaction Management. Later on
the position is evaluated and one action is taken for the whole position by position
management.
This example: 04I Fixed-interest bonds.
Security Account
Figure 340: Securities Master Data: Security Account
Securities accounts are valuation and position management units. You need them for all
transactions that require position management.
You can use securities accounts to display securities account statements, evaluate
positions, and transfer securities accounts.
You can assign a securities account to a portfolio as a higher-level position-managing unit

when you create securities account master data.
Average positions are formed at portfolio level.
Functions:

Edit Securities Account: TRS_SEC_ACC

.
Security Account List: FWDP

.
Figure 341: Securities Master Data: Security Account List
Three categories of Security Accounts exist:
Asset Security Accounts: Securities we purchased.
Liability Security Accounts: Securities we issued.
Lending Security Accounts: Securities lending; sale is prevented.
Asset Securities Account: For securities accounts in this category, all positions can be
managed except for issue positions or positions belonging to securities lending
transactions.
Issuance Securities Account: Issuance securities accounts contain only positions for
securities issues. The system makes sure that issue positions cannot be transferred to
asset securities accounts or lending securities accounts. It also ensures that asset
positions or positions that belong to securities lending transactions are not transferred to
an issuance securities account.
Lending Securities Account: For a securities lending transaction, the lent securities are
transferred at the start of the term from the asset securities account to a lending
securities account. At the end of the term, the securities are returned to the original asset
securities account. The system ensures that the positions in the lending securities account
cannot be sold or cleared during the term of the securities lending transaction.
Tabs:
Bank Data
Other
User Data

Figure 342: Securities Master Data: Security Account Master Data: General/Tab Bank Data
General Information and tab Bank Data:

Securities account no.: The number of the securities account at the depository bank.
External Securities Account ID: the securities account ID describes the number under which
the securities account is managed by the custodian bank. This may be an IBAN, for example.
External securities account statements can be managed and reconciled at security

account ID level (transactions RECON4 , RECON5, RECON6).
Dependencies: Multiple securities accounts can have the same securities account ID. In
this case, multiple securities accounts in the system correspond to one securities account
at the custodian bank. These securities accounts should also have the same securities
account number and depository bank in the securities account master data.
Depository bank Partner ID of the bank where the securities account is kept. You first
create the bank as a business partner in the role of "depository bank". Sec. acct number:
Number of the securities account at the depository bank.
Clearing acct.: Account number of the cash clearing account at the depository bank.
House bank: Name of the bank at which the cash clearing account of the new securities
account is kept. You can specify details for several house banks for each settlement
currency.
Account ID: Name of the cash clearing account in the SAP system.
Lock type: You have to specify a lock type if a restraint on disposal applies to the entire
securities account.
Lock flag until: Date when the restraint on disposal for the securities account elapses.
Portfolio: Assignment of the securities account to a portfolio.

Business area: The business area is taken from the securities account master data when
you post a transaction. If the field is empty, the system takes the entry from the account
assignment reference.
You can delete securities account master data if there is no position indicator and no
transactions exist/have existed.
Figure 343: Securities Master Data: Security Account Master Data: Tab Other
Tab Other:
Assignments: Assignment of Business Area and Portfolio is possible.
Hint:
The portfolio can be used as a higher-level position-managing unit.
Class Data
Figure 344: Securities Master Data: Class Data

One major function exists for Class Data Management: Class Data maintenance, transaction
FWZZ.
External Data Providers:
For example, Bloomberg and Reuters.
Also, companies provide additional services as creation and maintenance of the interfaces
to SAP.
Class data tabs:
Search Terms
Basic Data
Conditions
Exchanges
Security Swap
Regulatory
Reporting
Figure 345: Securities Master Data: Class Data: List, Example: Share
The Class data is structured using tabs.

Important: the Product Type is assigned to the Securities Master data. Therefore it is included
in Transactions via the Security which is purchased or sold (this is different from Money
Market!). The Product Type provides via the assigned Product Category the functions of the
Class.

Hint:
This is different! Remember Money Market? The product type has been inserted
with the transaction! With exchange traded financial instruments (which have
class master data) the Product Type arrives via the master data!
Figure 346: Securities Master Data: Class Data: Share
Function Securities Class: FWZZ.

This function is used to manage the master data of all exchange traded contracts.
Figure 347: Securities Master Data: Class Data: Bond

Tabs: Search terms and Basic data.
Hint:
Own Issued Bonds. More and more companies issue their own bonds. They can
be captured in the system:
Securities Account with category: Liability Securities Account
Class Data: the own bond
Transaction types: Selling (following the sample content: such as 200 Selling) and
Payment of Interest
Figure 348: Securities Master Data: Class Data: Example: Bond
The calculation of the bonds Cash Flow allows:
Information to Cash Management
Posting of the Debit Position: comparison with the electronic bank statement.
The button Cash Flow is located on top of the screen.

External Versus Internal Position
Figure 349: Securities Master Data: External Versus Internal Position
For each financial Position in the area of exchange traded Financial Instruments an External
and an Internal Position is maintained.
It is important to distinguish the External and the Internal Position Management:
The external Position Management communicates with the "world outside" using
numbers. Numbers are usually undisputable. Examples are the purchase or sale of a
number (no. of shares, nominal of bonds) of a certain financial instrument. This includes
the values achieved by buying and selling, as they are determined by the market.
In opposite to that, the internal Position Management is responsible for the valuation and
handling according to the rules of the accounting systems. One accounting system might
request a valuation according to fair value, another accounting system might determine an
amortized cost valuation for the same financial position!
For non exchange traded financial instruments (=OTC) only the internal position is
maintained, because with OTC contracts the counter is always = 1 (one contract).

The Position Indicator: Securities/Exchange Traded
Figure 350: Securities Master Data: The Position Indicator Securities/Exchange Traded
In comparison to Money Market, as Money Market are typical OTC contracts, their number is
always 1. Therefore, a specific Securities Account Position Indicator is not necessary!
In the securities account position indicator, you can define information about the custody
type, grouping of positions, or holding. You can use this information for evaluation purposes
as well as for characteristics for account assignment reference. Customizing settings are
required A BAdi implementation is optional.
With subledger position indicators, you can specify, for example, how you want the positions
of a particular ID number to be managed and evaluated. The main functions of the position
indicator include allocating account assignment references (automatically if required) and
assigning valuation and position management parameters. You can change the proposed
values in the subledger position indicator for account assignment reference and position
management as long as no postings for the position exist.
You can create position indicators manually or automatically. You determine the process you
require in Customizing.

Accounting-Position Differentiation Terms
Figure 351: Securities Master Data: Accounting-Position Differentiation Terms
A position represents the smallest unit in a financial subledger. The position is the basis for
system valuations and for generating derived flows.
Differentiation terms are used to determine how the positions are set up. Some differentiation
terms are predefined in the system and others can be selected, depending on the transaction
type.
From a business perspective it is essential to discuss the appropriate system setup during the
implementation project. The configuration itself is explained in the subsequent training on
customizing.
Training system setup: DEPOT/PF = Security Account + Portfolio
Single Position (Lot Accounting): Consumption Sequences are available (securities and listed
derivatives) for determining the positions to be sold:
LIFO = Last in First out; here, the position bought last is sold first.
FIFO = First in First out; here, the position bought first is sold first.
HIFO = Highest value First out; here, the position carrying the highest value is sold first.
LOFO = Lowest value First out; here, the position carrying the lowest value is sold first.
Manual assignment; here, for every sale a dialog box is displayed where you specify which
positions you want to sell. You also have the option of distributing the sale to different
single positions.
BaDI: Business Add in, procedure by customer.
Special cases: you manage the 'old positions' of zero bonds like positions with manual
assignment, with the limitation, however, that a sale can only ever relate to a single position.
These settings therefore only apply when several single positions have the same Company
code, ID number, Securities/Futures account, General valuation class and perhaps Portfolio
(if the portfolio has been set as a differentiating criterion in a valuation area).

Sample Customizing: the following settings have been made: Across company codes, 'Manual
Assignment' applies. For product category '04J Zero Bonds', the 'Manual Assignment for Zero
Bonds' procedure is applicable.
Figure 352: Securities Master Data: Accounting-Position Differentiation Terms: Examples
The position is the basis for system valuations and for generating derived flows.
Prerequisite: All Share X and all Bond Y are in the same Company code and Valuation area/
Special valuation class.
This example (same color: one position):
2 share positions
2 bond positions

4 share positions,
4 bond positions.

2 share positions,
2 bond positions.
3 share positions,
2 bond positions.

Securities Transactions and Further Process
Figure 356: Securities: Securities Transactions
Id Number (of Class). The product type and product category are determined by the security
class.
External number assignment allows the transfer of the external number in case of an
automatic interface to the bank, broker or trading platform.
Limit data: Here you can enter a corresponding minimum or maximum price and a date up to
which the order is effective.
Figure 357: Securities: Securities Transactions Entry Screen

If, after you have placed a purchase/sales order, you want to execute the transaction, you
have to enter this change in the system ( FTR_Edit).
To do this, you execute the order. You have to add to or change the existing order entries by
entering the actual transaction data. For example, you enter the actual price of the order at
the time of execution.
The general valuation class helps you assign the position in the parallel valuation areas.
Date details (in the sample data, the system assumes you want to execute the order the day
the order is placed):
The position value date tells you when the position is available in the system (usually the
order date plus 2 days).
The calculation date is relevant for financial mathematics with regard to the conditions.
This date enables you to calculate the interest accrued for interest-bearing securities, for
example, and indicates the last day the vendor is entitled to earn interest (usually the order
date plus 1 day).
When you execute an order, the payment date refers to the day you post the payment amount
and the data is updated in Cash Management (usually the order date plus 2 days).
The dates can be set as default values using rules specified in Customizing.
You can use rounding rules for the accrued interest calculation. These are defined in
Customizing.
On the Other Flows screen, the system automatically calculates the accrued interest for
interest-bearing securities. For all types of securities, you can also create other flows, such as
charges, brokerage, or commission, which accrue when you buy and sell securities. You
define the other flows you are permitted to use in Customizing .
When you execute orders, create contracts, and settle (new) transactions in transaction
management, the system displays the transaction cash flow.
For example, a purchase leads to an outgoing payment. The accrued interest is calculated on
the basis of the condition entries that are defined (fixed) in the class master data for this ID
number. Rounding rules can also be included, if required. The transaction cash flow is
displayed using the SAP List Viewer. It is a flexible tool that you can adjust to suit the
particular requirements of your company. You can set your own display variants (please see
the Money Market units for in depth explanations).
As in Money Market, in the Securities area, a collective processing function also exists ( TS00
- Securities Collective Processing). The Collective processing function helps you to manage
transactions efficiently. Information about the individual transactions is displayed in
accordance with the criteria you have selected on the initial screen.
You can display lists of orders, contracts, settlements, and expired orders, and restrict each
of your selections even more (for example, by company code or securities account). The
collective processing list allows you to branch to the relevant transaction to display the
(position) cash flow of the operative valuation area, or the history. You can also use a number
of important processing functions.: For example, you can change, settle, or reverse the
transactions you have selected. The collective processing function allows you to display lists
flexibly using the SAP List Viewer.

Figure 358: Securities - Reporting: Journal of Financial Transactions
The Journal of Financial Transactions ( TJ01 ): provides a list of transactions.

This is not to be confused with positions: several transactions of the same class can add to
the same position.
Figure 359: Securities - Reporting Short Journal of Financial Transactions
The Short Journal of Financial Transactions ( TJ10 ): Provides a short list of transactions.

Figure 360: Securities - Reporting: Subledger Positions List
The Journal Positions List = Subledger Positions list ( TPM12) provides a list of positions on a
key date: Security Account, Class Id with numbers and values.
Buttons are available to branch out to other reports.
Also: Effective Interest rate calculation, refresh, standard functions.
Position Information - available reports (also see subsequent pages):
TPM40- Securities Account Cash Flow
TPM40A - Position Overview
TPM41- Securities Account Position
TPM42- Class Position
Figure 361: Securities: Security Account Class Position List

The Security Account Class Position list ( TPM40A) also provides a list of positions: By Class Id
and Security Account. Numbers are provided, but no values.
Also the standard functions are provided.
Figure 362: Securities: Position Flow List
The Position Flow list ( TPM13) provides a list of the positions single flows: By Class Id and
Security Account. Numbers and values are provided.
Also the standard functions are provided.
The flows status can be looked up:
S Scheduled
F Fixed
Deleted
R Reversed
ToF To Be Fixed
ToR To Be Reversed
OpF Operatively Fixed
P Paid
PR Payment Reversed
PtoR Payment To Be Reversed

Manual and Automatic Debit Position, Manual Postings
Figure 363: Securities: Summary: Posting, Payment, Valuation, Accruals
We use the Debt and Investment Management process to explain these process steps and
functions in our very detailed step by step training. The Valuation is discussed first. The topic
Accruals is presented afterwards.
Valuation in Transaction Manager aims for Accounting to create the financial statement.
Depending on the company, it has to be published on a quarterly or annual base.
Sensitivities with What if Analysis and Scenario Analysis are provided from Market Risk
Analyzer. When the Transaction Manager requires Net present values for Fair Value
calculations they are provided from Market Risk Analyzer.
Figure 364: Securities: Manual Posting
Manual Posting: FWBS.

Also available:
TI90 - Manual Posting Release
TI93 - Lock: Manual posting Block.
You use manual posting for flows that are not entered in Transaction Management and that
are therefore assigned to positions and not to individual transactions.
You can use the manual posting function to enter irregular or subsequent posting activities
(such as one-off commissions) by ID number and securities account. It allows you to include
and process several update types.
The Post function generates actual records that are immediately transferred to Financial
Accounting.
The Save Without Posting function creates planned records that are posted later using the
manual debit position function and then transferred to FI.
Postings that cannot be referenced to a security ID number in a particular securities account

(such as securities account charges) are entered directly in the general ledger in Financial
Accounting.
Figure 365: Securities: Manual Posting Entry Screen
Manual Posting: FWBS.

You use manual posting for flows that are not entered in Transaction Management and that
are therefore assigned to positions and not to individual transactions.
You can use the manual posting function to enter irregular or subsequent posting activities
(such as one-off commissions) by ID number and securities account. It allows you to include
and process several update types.
The Post function generates actual records that are immediately transferred to Financial
Accounting.

The Save Without Posting function creates planned records that are posted later using the
manual debit position function and then transferred to FI.
Figure 366: Securities: Debit Position Overview
Important: The existence of planned records is prerequisite for the Debit position. These are
created using FWUP - Update Planned Records.
The planned cash flows from position management can be posted:
Automatic Debit Position - FWSOMass processing
Manual Debit Position - FWZE Single Positions processing
Reversal functions exist as well:
TPM_POSTAUTREV Reverse Automatic Debit Position (is able to reverse automatic debit
position only)
FWOEZReverse Manual Debit Position (is able to reverse automatic and manual debit
position)
The automatic debit position function enables you to automatically process activities that
occur regularly and have dates and amounts that are fixed in advance. It can be used, for
instance, to post interest, dividend or repayment flows, in other words, flows that are
generated from the conditions.
Planned records must exist (such as planned records for interest received) before you can
use the automatic debit position function.
The automatic debit position function processes planned records generated from the
conditions for payments that occur regularly.
Before you can use the automatic debit position function, you first have to post all the
activities that affect the position for the ID numbers and securities accounts you have
selected up to the date when you want to perform automatic posting.

Figure 367: Accounting - Valuation Basic Posting Schema: Debit Position
There are two procedures for processing activities that recur regularly:
Option 1: When you use the one-step procedure, you post the flows directly to the bank
clearing accounts. These are cleared in Financial Accounting when the bank statement is
imported.
Option 2: In the two-step procedure, you first post the expected payments to receivables
accounts. When the bank statement has been imported, the bank clearing accounts are
cleared from subledger accounting through the triggering of the automatic debit position
function.
When you use the one-step procedure, the automatic debit position function converts the
planned records selected in Treasury and Risk Management to the status of actual record and
transfers the corresponding posting records (in this case: directly via bank clearing)
automatically to Financial Accounting.
The two-step procedure:
In the first step, you post the selected planned records using the automatic debit position
function. The corresponding posting records are transferred automatically to G/L
accounting in FI (in this case, by way of the interim receivables account). In G/L
accounting in FI a cash receipt triggers a posting to the bank clearing account.
In the second step, you fix the planned records for the automatic debit position function.
The corresponding posting records are transferred automatically to G/L accounting in FI.
There, you can clear both the receivables account and the bank clearing account. The
update types of the manual debit position function are generated in settlement currency
and in position currency. This means, for example, that it is also possible to map interest
payments for Euro bonds in USD in the system.
You generally use the manual debit position function to post-process and post activities that
were created by the automatic debit position function. Where the automatic debit position
function posts several activities at once, the manual debit position function only allows you to
process one activity at a time.

Figure 368: Securities: Debit Position Entry Screens
While the automatic Debit Position allows mass processing, the Manual Debit Position allows
you to select single positions. Therefore, it is often used for postprocessing.
Back Office tasks: Securities Account Transfer, Account Assignment Reference

Transfer, Valuation Class Transfer, Corporate Actions
Figure 369: Securities: Functions to perform Transfers are available
Business reason, not to mention: error handling.

The transfer functions are not limited to securities. They can be used for the other product
groups as well, where applicable!
Securities Account Transfer:

FWDU
- Execute
FWDS
- Reverse
Valuation Class Transfer:
TPM15M - Execute Valuation Class Transfer
TPM16M- Reverse Valuation Class Transfer
Account Assignment Reference Transfer:
TPM28 - Execute
TPM29 - Reverse
Portfolio Transfer:
TPM82- Execute Portfolio Transfer
TPM83 - Reverse Portfolio Transfer
Figure 370: Securities: Transfer Method
Specific functions for transfers are required, because a simple change of characteristics, for
example of a valuation class, would not result in the necessary actions, in the first place
transfer postings. Also, additional postings can be required. For example the change of the
valuation class might bare the necessity to release a balance sheet other comprehensive
income (OCI) position.
The transfers methods have the following in common:
A posting is created which transfers the position value out to a specific account for
transfers. The characteristics before transfer are used, for example the existing account
assignment reference. As a result the amount is retrieved, for example from the GL
account derived using the existing account assignment reference.

A split second later another posting is created, using the new characteristics, for example
the new account assignment reference. As a result the amount is stored back, for example
to the new GL account which is derived using the new account assignment reference.
The account for transfers after the transfer is cleared. The amount is stored back in the
position, but with new securities account, valuation class, account assignment or portfolio.
Securities Account Transfer:
Aim: Transfer a position from one security account to another.
Prerequisites: both business partners must be created in SAP and the business partner
role "depository bank " must be matched to each business partner. The security account
must be defined (Function: TRS_SEC_ACC).
Functions:
FWDU- Execute
FWDS - Reverse
After you enter the data for the source securities account and the posting date, the system
displays an overview of the securities account position from which you can select any
number of units to transfer to the target securities account. The system generates the
flows required for the transfer and updates the position of the respective securities
account. The transfer posting is recorded in a posting log.
Valuation Class Transfer:
Aim: A valuation class must be transferred to transfer an asset class or the position
management of a position.
Functions:
TPM15M- Execute Valuation Class Transfer
TPM16M- Reverse Valuation Class Transfer
For this transfer, you select a valuation area and the specific valuation classes on the initial
screen. Valuation classes are transferred at general valuation class level and are valid for
all valuation areas. The transfer posting is recorded in a posting log.
Account Assignment Reference Transfer

:
Aim: The valuation class has been changed, the matched account assignment reference
for future postings needs to be changed.
Functions:
TPM28- Execute
TPM29 - Reverse
You use the ID number to select account assignment reference transfers for a class. The
positions to be transferred are displayed for each account. The new account assignment
reference and posting day are shown on the selection screen. Transfer postings can be
made for one particular area or for all valuation areas. The balance sheet transfer is
recorded in a posting log.
Portfolio Transfer:

TPM82 - Execute Portfolio Transfer
TPM83- Reverse Portfolio Transfer.
Figure 371: Accounting Functions: Summary
FWUP - Update Planned Records:
To provide Cash Management with actual data and the existence of planned records is
prerequisite for the Debit position
Figure 372: Securities: Accounting functions: Derived Business Transactions
There are three options to process Derived Business Transactions:
The decision for one of these options surely considers the systems performance
management
The configuration is done in customizing (see subsequent training).
Derived Business Transactions:

TPM18 - Post and Fix (from status Planned).
TPM27 - Generate Derived Flows (Refresh). Creation including posting.
Figure 373: Securities: Corporate Actions
You map the following activities in the Corporate Actions area:
Stock splits
Stock swaps
Capital reductions
Capital increases from retained earnings
Transferring new stock
Posting subscription rights
Converting issue currency
Other corporate actions

Figure 374: Securities: Corporate Actions
The Corporate Actions Process

:
You define corporate actions centrally for all company codes.
When you have activated the corporate actions, you can post in every company code in
which you manage positions for the relevant securities. From there, you update the
securities positions and generate FI documents, if required.
Prerequisites:
You must also create the position indicators for all the relevant securities or securities
accounts.
For position-changing activities that affect several securities, the relationship between the
securities is mapped by corresponding references, if required.
Examples:
- You assign a reference to a subscription right: this entitles to new stocks.
- You link convertible bonds and warrants to the respective underlying transaction. By
doing this, you create a reference between "warrant bond cum" and "warrant bond ex"
and the warrant.
Relationships between individual securities or particular rights are displayed as a

reference. This is generated automatically when you enter the class master data once you
have specified the ID number of the related security or the data for the displayed right.
Corporate Action functions:
FWK0- Corporate Actions
FWKB- Post: Corporate Actions
FWKS- Reverse: Corporate Actions

LESSON SUMMARY
Trade securities

Unit 3
Lesson 11
Executing Money Market Funds
LESSON OBJECTIVES
Money Market Funds in Securities
Figure 375: Money Market Funds - Background Information
There are two ways money market funds can be supported in Transaction Manager. One way
is using the Interest Rate Instrument product category in the Money Market submodule and
another way is using the Investment Certificate product category in the Securities submodule.
One key difference between the two is the number of digits in the interest rate or dividend
factor for the fund.
The US market’s requirements for money market funds are based on the product category
Investment Certificate in the Securities submodule:
Supports 9 decimal places for a daily dividend factor
Supports daily accrued dividends posting
Supports monthly compounding on the daily dividend
The following list provides a solution summary:
Instead of entering dividend factors into condition details amount field we offer a dividend
factor market data table to upload daily factors via the Import Market Data app.
Position flows will be automatically updated via the FWUP app.

Financial mathematics engine is enhanced to enable the generation of periodical

summarized flows.
Accrued dividends are posted with TPM44 Accrued/Deferred Posting .
Accrued dividends are fixed by FWSO, without any posting needs.
The compounding of periodic summarized flows can be processed in FWZE. The user can
manually enter the amounts and units to be reinvested. This is due to the fact that the
latest fund price is unknown.
Figure 376: Securities Product Types
The figure, Securities Product Types, shows example product types that are supported by
SAP’s Treasury and Risk Management module in the area of securities. The Investment
Certificates product category is used for fund trade types, such as money market fund.
The requirements of a money market fund could be the following (there are different types of
money market funds):
The fund price remains constant at USD 1
Dividends are declared daily
Dividends are on an annualized percentage value
Dividends should be accruable and paid at the beginning of the month.
Typical money market funds aim to maintain a net asset value (NAV) of $1 per share. Any
excess earnings that get generated by the way of interest received on the portfolio holdings
are distributed to the investors in the form of dividend payments.
The entire life-cycle starting with the purchase of fund shares in a securities account and
managing the positions including market data management for factor-based dividends is
supported.

Lesson: Executing Money Market Funds
Figure 377: Fund Types
In this step you can define an additional reporting element for funds. Fund types are defined
to categorize different types of funds being traded. This is a freeform categorization.
For example, the following shows different types of funds that may be created. The fund type
is used in the definition of the class master data for the investment certificate.
1. Real est.: Real estate fund
2. Bond: Bond fund
3. Equity: Equity fund
Figure 378: Master Data Setup
The master data required to trade money market funds using the Securities submodule are
the following:
Create the issuer business partner using the Maintain Business Partner (BP) tile and
assigning the Issuer role.
Create the counterparty business partner using the Maintain Business Partner (BP) tile
and assigning the Counterparty role.
Create the class data for the money market fund using the Securities Class (FWZZ) tile.

Figure 379: Define Class Master Data
After the class data has been defined for the money market fund, the purchase and sale
trades are entered on a periodic basis. Transaction types drive the direction of the trades, for
example, purchase or sale.
Figure 380: Factor Types
Factor types on SAP represent the dividend factors money market funds.
You enter factor values for securities which have factor based dividend conditions, for
example, money market funds. The factors are communicated for the specific financial
instruments and are needed to calculate the amounts of dividends. In detail, the published
factor for money market funds determines for a period (normally one day) the accrued
dividend or daily dividend of a money market fund. The accrued dividend (which is not paid) /
daily dividend for a period (normally one day) is calculated by units * dividend factor.
Factors are also used for mortgage backed security investments.
When entering factor values a security ID, factor type, effective from date, and factor value
are entered.
Factor types will be covered further in Unit 5 - Market Data Management.

Lesson: Executing Money Market Funds
Figure 381: Process Flow Steps
After the trade is entered, it then fits into the Treasury and Risk Management framework
described throughout in this course, which includes the following steps:
1. Use Post Flows tile ( TBB1) for posting the purchase and sale cash flows.
2. Run Accrual/Deferral tile ( TPM44) for daily accrued flows (this includes foreign currency
adjustments).
3. Capitalize the period-end accumulated flows, with Execute Debit Position (FWZE).
4. Fix daily accrued flows with the Automatic Debit Position (FWSO
) – this changes to fixed –
no postings are needed.
5. Update position flows in a batch and background way with Update Planned Records for
Securities (FWUP ) based on the newest Factor Values .
Figure 382: Job Scheduling for Money Market Fund
The Schedule Treasury Accountant Jobs tile that can be used to schedule periodic activities.
With this tile, the Securities Automatic Debt Position (FWSO
) or interest accrual functionality
can be scheduled and run automatically for Money Market Funds.

LESSON SUMMARY

Unit 3
Lesson 12
Replacing LIBOR
LESSON OBJECTIVES
Learning about Benchmark Reform
Figure 383: Benchmark Reform Details
LIBOR, which is short for the London Interbank Offered Rate, is the benchmark interest rate
used in bonds, loans, derivatives, intercompany loans, etc., worth over $350 trillion around
the world. It is being phased out starting at the end of 2021 due to its history of being
manipulated by banks. This is what we refer to as the "benchmark reform".
LIBOR will be replaced by a variety of Alternative Reference Rates (ARRs) or Risk-Free Rates
(RFRs) around the globe - generally by country. This slide shows an example of some of the
requirements included with the benchmark reform. These new rates behave differently from
LIBOR in some significant ways. For example, The Secured Overnight Financing Rate (SOFR)
is expected to be the preferred alternative reference rate for US dollar financial products after
2021. SOFR is based on transactions in the Treasury repurchase market, where banks and
investors borrow or loan Treasuries overnight. Similarly the ESTR reference rate will be used
for EUR financial products after 2021.
SAP customers must actively prepare for a one-time transition on SAP from LIBOR to one of
the alternative rates. In addition to modifying or renegotiating outstanding contracts with the
counterparties of the trades, this task involves preparing and updating the SAP software and
outstanding trades. Currently, conversion of existing instruments is not supported.

Note: The functionality covered in this section impacts only floating rate instruments
currently using LIBOR.
For the area of the LIBOR replacement SAP has created the following composite SAP notes:
The functionality is delivered via following notes, there are four composite notes:
2939657: Composite SAP Note: EU Benchmark Regulation, Risk-Free Rates (RFRs) - shared
basis for CML and TRM
2932789: Composite SAP Note: EU Benchmark Regulation, Risk-Free Rates (RFRs), TRM
2880124; Composite SAP Note for Loans Management: EU Benchmark Regulation, Risk-Free
Rates (RFRs), CML
2971185: Composite SAP Note for Interest Rate Swaps, TRM
At the time this course was written, Money Market transactions (Product Categories 550 and
580), bonds (Product Category 040), and swaps (Product Category 620) are supported with
the new functionality outlined here.
Note: Installment bonds in Product Category 040 are excluded as well as Product Category
042 and handling of capitalized interest.
For those wanting more background information, please see the below articles.
FSB - Financial Stability Board - "Overnight Risk-Free Rates: A User's Guide (June 4,
2019)"
Alternative Reference Rates Committee (ARRC) - "A User's Guide to SOFR (April 22,
2019)"
European Central Bank - "Overview of the euro short-term rate (€STR)"
Figure 384: Benchmark Reform Impact
The first step is to assess the impact of the change and determine a plan of action for this
one-time conversion from LIBOR to the new Risk-Free Rates (RFRs).
SAP customers should define a strategy to move to the new reference interest rates, which
may look something like the list below.
1. Review and install needed OSS notes. Please see the composite notes listed on the last
slide. As applying OSS notes is a Basis task, it is important to get this started.
2. Determine scope of impact, e.g. the list outstanding trades impacted
3. Negotiate with counterparties, if necessary.
4. Determine any processes that will need to change when LIBOR is replaced, e.g. the import
of market data.
5. After the OSS notes have been applied, execute the configuration changes for the new
functionality.

Lesson: Replacing LIBOR
6. Create new reference interest rates and yield curves.
7. Test the new functionality in a development and quality system.
8. Do a practice run-through of modifying existing contracts (adding a new interest

condition) or closing out existing contracts and creating new ones in a quality system.
9. Modify existing contracts or close out outstanding trades and create new trades in the
production system.
Figure 385: Parallel Interest Conditions
The SAP functionality to cover the new requirements related to the replacement of LIBOR are
covered. This is meant to be an overview of the functionality.
The first requirement that must be met is Parallel Interest Conditions in trades, which is
shown here in a Money Market trade.
The requirement Parallel Interest Conditions in trades is met by allowing multiple Condition
Groups to be assigned to one trade. It is the multiple Condition Groups assigned to the trade
that enables the functionality of the parallel interest calculation.
By viewing the Overview of Conditions screen, the user is able to see the multiple interest
conditions assigned to the trade.
Note: The user interface stays the same, for the most part, but it is the underlying calculations
have changed with the new requirement.
Figure 386: New Interest Calculation Methods

If the Parallel Interest Conditions are used, two additional new Interest Calculation Methods
are supported, which contain additional features. These new Interest Calculation Methods are
visible in the interest condition, as shown here.
With the rollout of this functionality, two new Interest Rate Calculation Methods are delivered
for both Money Market, Interest Rate Swap, and Securities trades.
5 - Compound Interest Calculation
6 - Average Compound Interest Calculation
All */act Interest Calculation Methods are supported for the new functionality, e.g. act/360,
act/365, etc. Other Interest Calculation Methods are not supported with the new functionality
at this point in time.
Figure 387: Parallel Interest Condition - Interest Rate Adjustment
The interest rate adjustment condition reflects a new field, shown here, the Lockout Period.
With the lookback (in arrears), the observation period for the interest rate calculation starts
and ends X days prior to the interest period. Therefore, the interest payments can be
calculated prior to the end of the interest period.
Note: The lookback is not new functionality added with the parallel interest conditions but is
now given a name. the lookback is the market data rate shift applied for the interest rate
adjustment.
With the lockout period (in arrears), which is new functionality, the RFR is no longer updated,
i.e. it is set, for X days prior to the end of an interest rate period (lockout period). During this
period, the RFR on the day prior to the start of the lockout period is applied for the remaining
days of the interest period.

Figure 388: Parallel Interest Condition: Lookback Example
With the lookback (in arrears, meaning a negative lookback number of days), the observation
period for the interest rate calculation starts and ends X days prior to the interest period.
Therefore, the interest payments can be calculated prior to the end of the interest period.
In this case, the lookback is set to 2- in the interest rate adjustment settings of the trades,
which indicates to shift back two days when determining the rate to use for the interest rate
adjustment.
In addition to the interest rate adjustment settings of the trade, the slide shows the trade's
cash flows, and the reference interest rates are shown.
The observation period for the interest rate calculation starts and ends X days prior to the
interest period. Therefore, the interest payments can be calculated prior to the end of the
interest period.
Figure 389: Compound Interest Calculation Formula
The slide shows the compound interest calculation formula used by SAP.
The number of days in the interest period is taken into account.

Figure 390: Compound Interest Calculation Example
Here we see the details of the example trade for the compound interest calculation.
This is a floating rate trade with a ESTR floating rate with no spread. It pays interest every
three months.
On the right, the Overview of Conditions screen is displayed showing interest condition
assigned to the trade.
Here we see the interest condition details. The Interest Calculation Type is set to Compound
Interest Calculation.
Daily interest rate adjustments with a calendar rule set to take the previous working day.
In this example, there is no lookback or lockout period. There is also no shifting on the due
date of the interest payment with the first interest payment to be made on January 14th,
2020.

Here we see the resulting cash flows. Notice the change in the base amount, which is the
amount used in the calculation of the interest. The base amount is decreasing because the
interest rate is always negative.
Also notice that the Days field shows the number of days used in the calculation of the
interest. Where there is a '3' in the Days column, this is Friday and the two weekend days. The
interest amount shown reflects the amount for three calendar days.
Figure 393: Average Compound Interest Calculation Formula
The slide shows the average compound interest calculation formula used in SAP.
The number is rounded. The formula shows the flow factor and base factor.

Figure 394: Average Compound Interest Calculation Example
Here we see the details of the example trade for average compound interest calculation. At
the trade structure level, the trade is the same as in the compound interest calculation
example.
This is a floating rate trade with a ESTR floating rate with no spread. It pays interest every
three months.
On the right, the Overview of Conditions screen is displayed showing interest condition
assigned to the trade.
Looking at the interest condition details, we see the Interest Calculation Type is set to
Average Compound Interest Calculation. We also see that two different types of rounding that
can be done.
When the Average Compound Interest Calculation Interest Calculation Type is selected, two
additional boxes of information are displayed for rounding purposes.
Notice there are two places for rounding:
The Average Interest Rate can be rounded. In this case, the Average Interest Rate is being
rounded to 5 decimal places.
The factor can be rounded. In this case, the factor is being rounded to 20 decimal places.

The above rounding fields would be set based on the trade agreements.
On the right, the interest rate adjustment condition is displayed. There is no lookback or
lockout period set.
On the Cash Flow tab of the trade, there are a number of new fields.
In this slide, the user is shown the effect of rounding rules on the trade's cash flows. Notice
the Average Interest Rate is rounded at five decimal places. (Check the Average interest rate
rounding setting on the last slide, if in doubt.)
Each Average Interest Rate is calculated as the average rate for the interest rates for the
current period. The Average Interest Rate is calculated is always calculated as the average
from the first day of the period to the current date.
This slide show how the interest cash flow is calculated (in green).
The interest cash flow is calculated as the Average Interest Rate for the date (which is the
average interest rate for the period up until that date) times the pro rata of the days (sum of
the days up until that date) of the period up until that date. The rounding is in the Average
Interest Rate.

Figure 398: Interest Rate Spread Handling
There are different ways to control the spread on the floating interest rate with the new
functionality. The formulas used on SAP are displayed here.
With Compounded Interest Calculation (5), the spread is compounded with the daily
reference interest rate.
With Average Compound Interest Calculation (6), the spread is compounded with the daily
reference interest rate.
Figure 399: Interest Rate Spread Handling - Spread Logic 1
Spread Logic 1 - Spread is compounded with daily RFR.

This uses the formula Average Compound Interest Calculation (6) shown on the last slide and
is the classic example of entering a spread into the trade.
This slide shows an example for Average Compound Interest calculation. The entry in the
Percentage Rate field in the Data for Percentage Calculation box will be included the spread
compounding

This slide shows the Cash Flows tab in the trade. The spread is added to the reference interest
rate and the average interest rate is calculated for the period, as explained previously.
Spread Logic 2 - Spread as Parallel Interest Condition

Notice there is no spread entered on the Interest Structure area of the trade, instead multiple
interest conditions are entered, as shown on the right with the Overview of Conditions screen
of the trade.
This method of handling the spread uses the parallel interest conditions.

The interest amount is calculated and is displayed as one additional flow in the trade.
The calculation of the spread is completely independent from the calculation of the flows
within the compounding period.
Spread Logic 3 - Spread within Interest Condition

This option is only available for the Average Compound Interest calculation.
Notice there is no spread entered on the Interest Structure area of the trade, instead the
spread is entered in the interest condition (next slide).
As the slide shows there is just one interest condition in the trade.
The spread:
is not compounded
is added to the annualized rounded average interest rate
Cap/Floor is applied on this result
The result is shown in field Average Interest Rate.

This slide shows the interest condition where the spread is entered (.750).
In this example, an entry in the Spread field in the Average Interest Rate box will add the
spread after compounding.
This spread is not compounded.
Notice the Upper and Lower limit amounts. If the lower limit is set to zero, there are no
negative spreads.
Here we see the resulting cash flows.
LESSON SUMMARY

Unit 3
Lesson 13
Performing Analysis in the Transaction
Manager
LESSON OBJECTIVES
Overview on Important Analysis Tasks and Reports Provided: Journal, Payment

Schedules, Position Lists, Alert Monitor
Figure 406: Performing Analysis in the Transaction Manager Overview
The supplied standard reports represent the first level. This includes the following
transactions:
Position List (Transaction TPM12),
Position Flow List (Transaction TPM13),
Posting Journal (Transaction TPM20),
Securities Account Class Cash Flow (Transaction TPM40).
Extractors and SAP NetWeaver BW, SAP BusinessObjects BI, Dashboards are options to
extract data for reporting. Often this is used to enable a company wide reporting in terms of
an overarching reporting on all products/ processes/ departments. This is not discussed

Lesson: Performing Analysis in the Transaction Manager
further in this course as other trainings exist (such as on SAP NetWeaver BW, SAP
BusinessObjects BI, Dashboards).
Figure 407: Performing Analysis in the Transaction Manager from a Job Role Perspective
This example origins from the Foreign Currency Risk Management and Accounting Process
Diagrams: Best Practices examples. The message: TRM provides rich reporting functions for
all TRM Job Tasks!
It documents the availability of custom tailored reports for the different job roles:
Treasury Risk Manager: Display Positions, provide the Financial Status: Book value/
Nominal Value
Treasury Specialist - Back Office: Display Treasury Alerts - Settlement, Release, Payment,
Correspondence, Payments, Threshold Calculation and Reporting
Treasury Accountant: Display Treasury Posting Journal, Display Treasury Position Values,
Display Treasury Position Flows, Treasury Position Analysis, Treasury Position Analysis
(accounting view), Treasury Position Analysis (OTC Transactions), Display Payment
Schedule, Display Treasury Alerts - Posting
Treasury Specialist - Middle Office: Analyze NPV, Calculate Market Risk Key Figures,
Sensitivity Key Figures, (Report belongs to Market Risk Analyzer), Review Limit Utilization
Report (Report belongs to Credit Risk Analyzer)
Threshold Reporting: See lesson on EMIR/ Dodd-Frank Act, Virtusa.

Non-financial counterparties (NFCs) of derivative financial instruments are not generally
required to use a central clearing partner to process these financial transactions. However,
NFCs are required to perform clearing only in cases when they have not concluded these
financial transactions for risk mitigation and when the rolling average position of these
transactions for a period of 30 days exceeds the specified clearing threshold values.
Clearing Threshold Reporting (CTR) for Treasury and Risk Management supports NFCs in
monitoring their derivative financial transactions that were not concluded for risk mitigation.
The CTR determines the rolling average position for a key date and calculates utilization from

this position. If you define a warning level, the system issues a warning message once
utilization reaches the warning level.
Figure 408: Performing Analysis in the Transaction Manager General Reporting Features: Standard Features
Examples from:
Posting Journal ( TPM20)
Position Flow List - Subledger Cash Flow ( TPM13).
LESSON SUMMARY

Unit 3
Lesson 14
Executing Leading Edge SAP Fiori Reporting
Apps
LESSON OBJECTIVES
Leading Edge SAP Fiori Tile Reports
Figure 409: Leading Edge SAP Fiori Reporting Apps
SAP Treasury and Risk Management is delivered with many standard reports. In this lesson,
the following leading edge reporting apps will be reviewed. These apps highlight the different
sorts of reports that are available with Fiori.
Foreign Exchange Overview (Fiori ID F2331)
Interest Rate Overview (Fiori app ID F3098)
Debt and Investment Analysis (Fiori app ID F3450)
Debt and Investment Maturity Profile (Fiori app ID F3130)
Treasury Position Analysis (F3167)
Treasury Position History (F3966)

Interest Rate Overview App

Interest Rate Overview
Figure 410: Interest Rate Overview
SAP has been developing a new type of Fiori app called an Overview Page (OVP). Overview
pages are a special type of analytical Fiori application which provide an intuitive layout or
floorplan to the user displaying the most relevant and important activities according to user's
role within an organization. Each type of data is represented in the form of card on the OVP
floorplan, and can have different types of visualization (like texts, charts, lists, tables) in an
intuitive way.
The Overview Page or cards allow users to consume the information from multiple
applications quickly without the need to switch between different screens and then react to
the information by taking appropriate actions. User can also directly bookmark the overview
page to have direct access and avoid the need to first open SAP Fiori Launchpad to open
overview page app.
The Treasury and Risk Manager can use the Interest Rate Overview app to report on their
interest-bearing debt and investment trades. From this app, users can see / do the following:
Overview of interest-bearing debt and investment instruments
Overview of floating rate vs fixed rate debt and investment instruments
Overview interest rate market data
Drill Down capabilities to details of each financial transaction
View an overview page
After executing the app, the user can specify default values for the app using some or all of
the following parameters:
Key Date
Display Currency
Exchange Rate Type
Yield Curve Type

Lesson: Executing Leading Edge SAP Fiori Reporting Apps
Number of Years
Counterparty
The following product categories are available through this app:

020 Investment Certificate
040 Bond
042 Bond with installment repayment
510 Fixed-term Deposits
520 Deposits at Notice
530 Commercial Paper
540 Cash Flow Transaction
550 Interest Rate Instrument
580 Current Account Style Instrument
620 Interest Rate Swap
Figure 411: Interest Rate Overview - Key Cards
Here we show some of the different cards and the type of information they display.
Debt and Investment Maturity Profile for next five years based on repayment flows
- Different Views
Debt
Investment
Debt and Investment
Fix versus Floating Ratio

- The ratio before Hedging with Interest Rate Swaps and after Hedging
Floating rate instruments by different reference interest rates

Historical Reference Interest Rates for major currencies where a company has most of its
business. This is a display of the yield curves of major currencies.
From the Interest Rate Overview app, users can navigate to the Debt and Investment Analysis
app (covered shortly) to check the details of outstanding debts and investments. Navigation
to the Debt and Investment Analysis app is available from the following cards:
Total Amount of Debts by Key Date
Total Amount of Investments by Key Date
Debt/Investment by Interest Category
Debt/Investment by Reference Interest Rate
The following are the separate cards available with the Interest Rate Overview app:
Debt/Investment Maturity Profile
Total Amount of Debts by Key Date (Top 5 Product Types)
Total Amount of Investments by Key Date (Top 5 Product Types)
Debt and Investment by Interest Category (Including IR Swap)
Debt and Investment by Reference Interest Rate (Including IR Swap)
Current Interest Rate
Historic Interest Rate
Yield Curves
Macaulay Duration
Modified Duration
Basis Point Value
Foreign Exchange Overview App
Figure 412: Foreign Exchange Overview App
Though not a debt and investment reporting app, another Treasury and Risk Management
Overview Page app is the Foreign Exchange Overview app (Fiori ID F2331).

The different cards available with this app are the following:
Financial Status in Display Currency
Credit Line Overview in Display Currency
Cash Position in Display Currency
Liquidity Forecast in Display Currency
FX Forwards
FX Options
Non-Deliverable Forwards
Foreign Exchange Rate
Managing Cards
Figure 413: Managing Cards
A user can have multiple overview pages assigned. So do not try to bring everything
applicable to the user on same overview page, rather only related tasks should be arranged in
floorplan for overview page. Overview pages ease the work of the end user - giving various
connected relevant types of information on the same screen with a very intuitive interface.
The ability to set the cards displayed is found in the Me Area, shown here.
Users can rearrange the overview page by dragging and dropping the cards to another
position and thus reflecting a sequence most convenient for you.

By choosing the user icon in the upper left hand corner, the user is taken to the Settings and
Default Values. Once a user has specified the preferred default values, it is no longer
necessary to enter any values in the filter bar.
It is possible to customize the overview page using the Manage Cards function. You'll find this
function in the Me Area by choosing the user icon in the upper left hand corner. There,
select Manage Cards.
The Manage Cards function allows you to hide and show the cards you want to see.
Rearrange the overview page by dragging and dropping the cards to another position and
thus reflecting a sequence most convenient for you.
Debt and Investment Analysis App
Figure 416: Debt and Investment Analysis
The Debt and Investment Analysis app is not an Overview Page app, like the two previous
reports, but has a very nice intuitive layout.
With this app, users get a quick visual overview of the outstanding debts and investments in
the company and subsidiaries. The app displays the trade nominal amounts in display
currency by default. Users can customize their analysis with several filtering options in chart
or table views. For example, users can display book values in position currency and net
present values (NPV) in valuation currency. This app allows corporate treasury to monitor
their debt and investment closely and precisely.

This app is integrated as a navigation target for several cards of the Interest Rate Overview
app to provide detailed information for the relevant positions.
Users can use this app to filter default values for the app using the many parameters. Below
are a few options:
Key Date
Display Currency
Exchange Rate Type
Debt/Investment
With this filter, you can determine whether debts or investments, or both of them are to be
displayed.
Interest Category
With this filter, you can determine whether fixed or variable interest, or both are to be
displayed.
Display the nominal amount in display currency by company code, transaction currency,
product type, and counterparty, in the visual filter view.
Adapt your filters, for example, Issuer for securities and Rating Agency for credit rating.
Switch to the compact filter view from the visual filter view in case you need to change your
filter options.
Use the chart view to have a visual overview of the debt and investment details in your
company. It is possible to display the data in various chart types, such as line chart, bar chart,
and so on.
The following product types are available through this app:
02A Investment Certificate
02B Invest. Cert. Accrued Dividend
51A Fixed-term Deposits
52A Deposits at Notice
53A Commercial Paper
54A Cash Flow Transaction
55A Interest Rate Instrument
58A Current Account Style Instrument

Debt and Investment Maturity Profile App
Figure 417: Debt and Investment Maturity Profile
The Debt and Investment Maturity Profile app shows the nominal amounts and their time left
to maturity of debt and investment trades.
With this app, users can get a quick visual overview of the outstanding debts and investments
in your company and subsidiaries. The maturity profile view illustrates the nominal amounts
and their time to maturity. The report gives a summary of breakup of the value of the debts
and investments with different specific maturities. You can also customize your analysis with
several filtering options. This allows corporate treasury departments to monitor their debt
and investment maturity profiles closely and precisely.
The app displays data by various charts and graphs, a few of which are discussed below.
Filter Bar (Top rectangular portion of the screen):
Users can use the filter options to determine which trades are to displayed in the report. It is
possible to group outstanding debt and investment trades by maturity date by defining the
number of years to be displayed in the profile. Users can set the filters to display only debt
contracts or only investment contracts.
It is possible to filter outstanding debts and investments by company code, counterparty,
product types, and nominal currency. Users can switch between the visual filter
view and compact filter view
For example, if you set 3 as the number of years to be displayed, and the Key Date is Dec. 23,
2017, you then get outstanding transactions by a 3-year consecutive calendar years of 2017,
2018 and 2019 and also an aggregated year greater than 2019 in which the transaction
maturity are aggregated.
Chart Views:
There are various chart types, such as line chart, bar chart, and so on. Users can use the chart
view to have a visual overview of the profile.

It is possible to view the data by various dimensions shown here. This allows user to be able to
analyze the data many ways.
The table view can be used view to the trades and the trade detail pulled into the report. The
table view displays a list of trades in a table form, with line item details such as the transaction
number and nominal amount in display currency, etc. The user is able to navigate to the
trades to check the details of the transactions.
From this app, it is possible to navigate to collective processing for financial transactions for
further actions like roll over, display, change, etc.

Treasury Position Analysis
Figure 420: Treasury Position Analysis
The Treasury Position Analysis app displays the position values for selected treasury
positions by a user-defined key date.
With this new type or report, users are able to drag and drop fields from the DIMENSIONS
area to either the COLUMNS or ROWS areas. In this way, users are able to dynamically
change the output of the report similar to how would be done with a pivot table in Excel.
The app provides five tiles to display the position values:
Treasury Position Analysis
Display position values for all treasury positions
Treasury Position Analysis - Accounting View
Display position values for all treasury positions, from accounting point of view.
Treasury Position Analysis - OTC Transactions
Display position values for treasury positions of product group OTC Transactions.
Treasury Position Analysis - Securities
Display position values for treasury positions of product group Securities.
Treasury Position Analysis - Listed Derivatives
Display position values for treasury positions of product group Listed Derivatives.

Treasury Position History
Figure 421: Treasury Position History
The Treasury Position History app is a native Fiori app used to analyze positions for a
selection period to verify how the most important accounting key figures have changed during
the selected reporting period. The output can be by dimensions such as company codes,
currencies, and asset groups to provide a more insight and also allow flexible and intuitive
reconciliation between the subledger and the general ledger.
For example, with this app, users can analyze the changes of important Treasury position
values such as the book value or the amortized acquisition value over one or multiple periods
at a glance. Users can compare the position values at the different dates on a high
aggregation level or break down the position values into dimensions such as company codes,
currencies, valuation classes, and account assignment references. The breakdown on a more
detailed level provides users more insight about the reconciliation between the Treasury
subledger and the general ledger.
The report has a number of options for selecting the periods displayed. For example, the
report can show the data from the last twelve periods, or year to date information. In addition,
it is possible to display current date values or the data for the last four quarters, etc.
This slide shows that users can view the report filters either as fields (Compact Filter icon) or
by using visual filters (Visual Filter icon).
Figure 422: Treasury Position History

The report shows the data in different views such as in a graphical display, table view, or
graphical display and a table view.
The chart view provides users with different chart types, such as the Bar Chart or Column
Chart. Users can use predefined views or change the displayed measures and dimensions on-
to-fly. For a further analysis, users can navigate to the Display Treasury Position Values app.
Key features of the report are:
Shows list with the most important key figures and dimensions at a glance
There are a number of different options for setting the period for the report, such as Year
to Date.
The data can be display in various chart types (see above) based on the customer's needs.
The data of the bar charts can be display in a table view as well.
The app 'Treasury Position Values' opens in a separate window providing details of the
selected position.
Key figures can be grouped by various time patterns to reflect out-of-the-box YTD /
flexible key date specific layouts
The data is easily downloaded.
LESSON SUMMARY

Unit 3
Lesson 15
Gaining Efficiency with the Trade Finance
Process
LESSON OBJECTIVES
The Trade Finance Business Background
Figure 423: Trade Finance: Definition
The trade finance definition equates to the definition of requirements for a trade finance
solution!

The Trade Finance Solution Overview
Figure 424: SAP Trade Finance Solution: SAP Trade Finance Powered by SAP Treasury and Risk Management
(SAP TRM)
The SAP Trade Finance solution is a complete end-to-end (E2E) solution to integrate the
trade finance process into treasury to oversee high volume transactions and mitigate the risk
related to it. Trade Finance is an integrated part of TRM.
Figure 425: Trade Finance: A Simple Way for Trade Finance is the Letter of Credit
The process steps are explained in detail on the subsequent pages.

Lesson: Gaining Efficiency with the Trade Finance Process
Figure 426: Trade Finance Letter of Credit
A letter of credit is a document from a bank guaranteeing that a seller will receive payment
in full as long as certain delivery conditions have been met.
In the event that the buyer is unable to make payment on the purchase, the bank will cover
the outstanding amount.
(Source: Wikipedia)
Figure 427: The Trade Finance Process: As Always, The Devil is in the Detail
The Trade Finance process: … but as always the devil is in the detail: a complex process is
required to cover the Letter of Credit handling.
Trade Finance Process for Letter of Credit (LC) in an overview:

Letter of Credit Order (the exported goods are paid by a Letter of Credit) 1), 2)
Execute the order (the order is created in TRM and is executed) 1), 2)
Sending the Correspondence via SWIFT (TRM Correspondence) 3) 4)
Settle the contract (TRM: Settlement) after 1), 2)
Presentation by adding the documents (documents proofing the shipment/ arrival) after
5): 6)
Accept and Settle the presentation 7)
Financing based on Presentation 8), 9), 10), 11)
Terminate the LC
Posting.
The Trade Finance Process
Figure 428: Trade Finance: The Trade Finance Process Overview
The Trade Finance Process for Letter of Credit (LC) process is shown again using a sequential
diagram. This is used on the following pages to explain the process step by step.

Figure 429: The Trade Finance Process: Letter of Credit Order
Process step: Letter of Credit Order.

Product Type 85A from sample customizing. Transaction Type 100 = Issue.
Figure 430: The Trade Finance Process: Execute the Order
Process step: Execute the Order.

Using FTR_CREATE, Execute Order.
Result: activity status = Contract.

Figure 431: The Trade Finance Process: Sending the Correspondence via SWIFT
Process step: Sending the correspondence via SWIFT.

The picture: Correspondence Monitor.
Figure 432: The Trade Finance Process: Settle the Contract
Process step: Contract Settlement.

Check/change the contract.
Result: activity status = Settlement.

Figure 433: The Trade Finance Process: Presentation by Adding the Documents
Process step: Presentation by adding the documents.
Figure 434: The Trade Finance Process: Accept and Settle the Presentation
Process step: Accept and Settle the presentation

Invoice: accepted
Payment: accepted.

Figure 435: The Trade Finance Process: Financing Based on Presentation
Process step: Financing based on presentation (financing is optional)

When the importer gets the presentation request from export, asking for payment, the
importer may want to pay the money later than the payment date defined in the contract.
The importer can ask for a loan from the bank based on the presentation. The bank can then
lend the money to the importer, it becomes a loan contract.
Depending on the LC conditions, when the exporter does a presentation and asks the
importer to pay, according to the contract, the export may have to wait a certain time, for
example, 3 months, until the importer pays to the exporter. Then the exporter can ask for a
loan from the bank after the exporter does the presentation. The bank can lend the money to
the exporter, it becomes a loan contract.

Figure 436: The Trade Finance Process: Terminate the Letter of Credit
Process step: Terminate the Letter of Credit.
Figure 437: The Trade Finance Process: Posting
Process step: Posting.

Posting to GL using Post Flows ( TBB1).
Availability:
Letter of Credit
Business Function: FIN_TRM_TRADE_FIN
Released with:

- EHP8 SP01
- S/4HANA On Premise 1511
Bank Guarantee
Business Function: FIN_TRM_TRADE_FIN
Released with:
EHP8 SP02
S/4HANA On Premise 1610
LESSON SUMMARY

Unit 3
Learning Assessment
1. The Debt and Investment Management process covers the following:

X A Investment or borrowing of funds
X B Management of real estate
X C Management of facilities
X D Purchase and sales of securities
X E Management of other companies treasures such as aircraft or ships
2. You intend to create an Interest Rate Instrument. Which basic information is required on
the Entry screen?
X A Company Code
X B Accounting System
X C Product Type and Transaction Type
X D Business Partner
X E Portfolio
3. Which information is stored in the Position Indicator?

X A The Conditions of the Contract
X B The Contracts Business Partner
X C The Position Management Procedure
X D The Status of the Contract
X E The Account Assignment Reference

4. The process step Deal Settlement allows to define the deal review as mandatory. During
Deal Settlement changes are allowed. Therefore a 4 or 6 eyes control deal release process
needs to be defined separately.
X True
X False
5. The app Process Treasury Transaction (FTR_Edit) enables Back Office employees to:
X A Create a contract
X B Edit a contract
X C Display a contract
X D Reverse a contract
X E Delete a contract
6. Which statement is correct about the TRM Correspondence function?

X A All Correspondence needs to be handled manually.
X B The Correspondence Object saves a snapshot of the contracts data at the moment
the correspondence is created.
X C The Correspondence Activity triggers correspondence.
X D The Correspondence Class describes the purpose of the message.
X E The Communication Profile bundles correspondence control information such as

Correspondence Class, Communication channel and others.
7. Usually the step Posting (post to General Ledger) is executed before Payment (transfer
funds between Banks/ Brokers). But exceptions are possible: Pay without posting allows
to execute a Payment first.
X True
X False

8. Which of the following are benefits of the SAP Multi-Bank Connectivity?

X A Faster on-boarding of financial institutions and corporations
X B Embedded SWIFT connectivity
X C Secured connectivity
X D No additional cost for maintaining hardware and software
X E Cost reductions compared to maintaining disparate e-banking systems.
9. Fair value based valuation is the valuation in which acquisition amount determines the
value.
X True
X False
10. Mirror Transactions is a function which automatically creates the complementary

contract and therefore both saves work and assures quality.
X True
X False
11. Arrange the steps to perform the reversal in the correct order.
0 Enter the app Edit Financial Transactions (FTR_EDIT).
0 Search or insert the Transaction to be reversed and select the function (button)
Reversal.
0 Repeat Reversal until the status required is accomplished (check using the History
function).
0 Perform corrections or amendments and hand over to settlement, perform settlement.
0 Perform Post Flows and Fix, Post, Reverse Business Transactions (realtime or day end
process).

12. Comparing Money Market Contract Management with Securities Management: what are
the major differences?
X A For Securities Management, Security Accounts and Security Class Data are
required additionally.
X B For Securities Management, Market data is required which provides the Market
value of the Securities.
X C For Securities Management, the Transaction Manager needs to deal with numbers.
This is not the case in Money Market where usually single contracts are managed.
X D The granularity of Security Positions can not be adjusted to the companies

requirements.
13. The Schedule Treasury Accountant Jobs tile can be used to schedule periodic activities.
X True
X False
14. Which of the following are reporting tools that can be used to report on Treasury and Risk
Management data?
X A SAP standard reports
X B Logical databases
X C Dashboard reporting
X D NetWeaver BW

15. Match each SAP Fiori reporting app with the corresponding usage.
Match the item in the first column to the corresponding item in the second column.
Debt and Investment Analysis Analyzes positions for a selec-

app tion period to verify how the
most important accounting
Debt and Investment Maturity
key figures have changed dur-
Profile app
ing the selected reporting peri-
Treasury Position Analysis app od.
Treasury Position History app Displays the position values
for selected treasury positions
by a user-defined key date.
Displays the nominal amounts
and their time left to maturity
of debt and investment trades.
Provides a quick visual over-
view of the outstanding debts
and investments in the compa-
ny and subsidiaries.
16. Trade Finance in SAP S/4HANA Treasury and Risk Management. What functions does it
provide?
X A Integration of the most important global trade payment methods, the Letter of
Credit, and the Bank Guarantee, in Treasury as product categories.
X B Master data management for Trade Finance.
X C Management of related cash flow positions, Management of related credit line and
margin.
X D Automated and integrated within Liquidity Management.
X E Management of the related Counterparty Risk.

Unit 3
1. The Debt and Investment Management process covers the following:

X A Investment or borrowing of funds
X B Management of real estate
X C Management of facilities
X D Purchase and sales of securities
X E Management of other companies treasures such as aircraft or ships
This is correct. The Debt and Investment Management process covers, Investment or
borrowing of funds, Management of facilities and the Purchase and sales of securities.
2. You intend to create an Interest Rate Instrument. Which basic information is required on
the Entry screen?
X A Company Code
X B Accounting System
X C Product Type and Transaction Type
X D Business Partner
X E Portfolio
This is correct. To create an Interest Rate Instrument the Company Code is required.
Further Product Type and Transaction Type which describe the product and the Business
Partner Number which links to the House Bank.

3. Which information is stored in the Position Indicator?

X A The Conditions of the Contract
X B The Contracts Business Partner
X C The Position Management Procedure
X D The Status of the Contract
X E The Account Assignment Reference
This is correct. A main purpose of the Position Indicator is to support accounting

functions. Therefore the Position Management Procedure and the Account Assignment
Reference can be found here.
4. The process step Deal Settlement allows to define the deal review as mandatory. During
Deal Settlement changes are allowed. Therefore a 4 or 6 eyes control deal release process
needs to be defined separately.
X True
X False
5. The app Process Treasury Transaction (FTR_Edit) enables Back Office employees to:
X A Create a contract
X B Edit a contract
X C Display a contract
X D Reverse a contract
X E Delete a contract
This is correct. The app (transaction) Process Treasury Transaction (FTR_Edit) enables -
among many other functions - to: display, edit and reverse contracts.

6. Which statement is correct about the TRM Correspondence function?

X A All Correspondence needs to be handled manually.
X B The Correspondence Object saves a snapshot of the contracts data at the moment
the correspondence is created.
X C The Correspondence Activity triggers correspondence.
X D The Correspondence Class describes the purpose of the message.
X E The Communication Profile bundles correspondence control information such as

Correspondence Class, Communication channel and others.
This is correct.
7. Usually the step Posting (post to General Ledger) is executed before Payment (transfer
funds between Banks/ Brokers). But exceptions are possible: Pay without posting allows
to execute a Payment first.
X True
X False
This is correct. Pay without posting allows to execute a Payment first. This is used for very
urgent cases or for payments in foreign exchange.
8. Which of the following are benefits of the SAP Multi-Bank Connectivity?

X A Faster on-boarding of financial institutions and corporations
X B Embedded SWIFT connectivity
X C Secured connectivity
X D No additional cost for maintaining hardware and software
X E Cost reductions compared to maintaining disparate e-banking systems.
That is correct. All the listed options are benefits of the SAP Multi-Bank Connectivity.

9. Fair value based valuation is the valuation in which acquisition amount determines the
value.
X True
X False
That is correct. Cost based valuation is the valuation in which acquisition amount
determines the value. Therefore, the value is stable (discounts are to be amortized).
10. Mirror Transactions is a function which automatically creates the complementary

contract and therefore both saves work and assures quality.
X True
X False
That is correct. Mirror Transactions is a function which automatically creates the

complementary contract and therefore both saves work and assures quality as the data
such as amount, dates and interest rate are the same.
11. Arrange the steps to perform the reversal in the correct order.
1 Enter the app Edit Financial Transactions (FTR_EDIT).
2 Search or insert the Transaction to be reversed and select the function (button)
Reversal.
3 Repeat Reversal until the status required is accomplished (check using the History
function).
4 Perform corrections or amendments and hand over to settlement, perform settlement.
5 Perform Post Flows and Fix, Post, Reverse Business Transactions (realtime or day end
process).
That is correct. You have arranged the steps correctly.

12. Comparing Money Market Contract Management with Securities Management: what are
the major differences?
X A For Securities Management, Security Accounts and Security Class Data are
required additionally.
X B For Securities Management, Market data is required which provides the Market
value of the Securities.
X C For Securities Management, the Transaction Manager needs to deal with numbers.
This is not the case in Money Market where usually single contracts are managed.
X D The granularity of Security Positions can not be adjusted to the companies

requirements.
This is correct.
13. The Schedule Treasury Accountant Jobs tile can be used to schedule periodic activities.
X True
X False
That is correct. The Schedule Treasury Accountant Jobs tile can be used to schedule
periodic activities.
14. Which of the following are reporting tools that can be used to report on Treasury and Risk
Management data?
X A SAP standard reports
X B Logical databases
X C Dashboard reporting
X D NetWeaver BW
That is correct. All the listed options are reporting tools that can be used to report on
Treasury and Risk Management data.

15. Match each SAP Fiori reporting app with the corresponding usage.
Debt and Investment Analysis Provides a quick visual over-

app view of the outstanding debts
and investments in the compa-
Debt and Investment Maturity
ny and subsidiaries.
Profile app
Displays the nominal amounts
Treasury Position Analysis app
and their time left to maturity
Treasury Position History app of debt and investment trades.
Displays the position values
for selected treasury positions
by a user-defined key date.
Analyzes positions for a selec-
tion period to verify how the
most important accounting
key figures have changed dur-
ing the selected reporting peri-
od.
That is correct. You have matched all the pairs correctly.
16. Trade Finance in SAP S/4HANA Treasury and Risk Management. What functions does it
provide?
X A Integration of the most important global trade payment methods, the Letter of
Credit, and the Bank Guarantee, in Treasury as product categories.
X B Master data management for Trade Finance.
X C Management of related cash flow positions, Management of related credit line and
margin.
X D Automated and integrated within Liquidity Management.
X E Management of the related Counterparty Risk.
This is correct. The SAP Trade Finance solution is a complete E2E solution to integrate the
trade finance process into treasury to oversee high volume transactions and mitigate the
risk related to it.

UNIT 4 The FX Risk
Management Process
Lesson 1
Handling FX Deals 340
Lesson 2
Using the Exposure Management 360
Lesson 3
Explaining Hedge Management and Hedge Accounting 369
Lesson 4
Understanding Trading Platform Integration 432
Lesson 5
Handling Further Derivatives 444
Lesson 6
Coping with EMIR Regulations 457
UNIT OBJECTIVES
Handle FX deals
Use the Exposure Management
Explain hedge management and hedge accounting
Understand the difference between period-based Hedging Areas and reference-based

Hedging Areas
Describe differences in the definition of the Hedging Area when using reference-based
Hedging Areas
Describe the functionality available with target quotas
Understand the different phases of the hedge management process and the steps
included in each of those phases

Understand hedge management terms and concepts
Understand Trading Platform Integration
Understand Automated Request Creation
Activate the Automated Request Creation functionality
Provide an overview of the derivative financial instruments supported by SAP Treasury

and Risk Management
Explain the various instruments for hedging against interest rate risks
Perform the process handling of derivatives in SAP Treasury and Risk Management
Describe the EMIR regulations
Outline the Virtusa cloud solution

Unit 4
Lesson 1
Handling FX Deals
LESSON OBJECTIVES
Handle FX deals
Foreign Exchange
The FX Risk Management Process
Figure 438: The FX Risk Management Process
The FX Risk Management process provides the management of any number of different
currencies and the risk arising from the fluctuation of the exchange rates.
The Risk Management process includes the following:
Processing of FX Spot, FX Forward, FX Swap, Cross Currency Swap, FX Options
Comprehensive FX Reporting
FX Hedge Management and optionally FX Hedge Accounting
In this lesson on Handling FX deals we focus on the FX related products and explain FX
Spot, FX Forward, FX Swap, and FX Options.
In the following lessons, Exposure Management and FX Hedging and Hedge Accounting
are explained.
In the subsequent lesson we concentrate on interest rate derivatives, such as interest rate
swaps and cross currency swap transactions.
After the explanation of the derivatives a lesson on the EMIR regulations follows and how
those regulations can be supported in SAP.
Of course, the Market Risk Analyzer and Credit Risk Analyzer are used in the FX Risk
Management process as well!
Products

Lesson: Handling FX Deals
Figure 439: The FX Risk Management Process: Products
The following product categories can be distinguished in FX:
With FX spot contracts, foreign currencies are exchanged now or in the very near future
often to pay for goods and services.
With FX forward contracts, foreign currencies are sold or purchased on a future date to
assure a certain exchange rate. This mitigates risk from the constantly changing Exchange
rates.
FX swap contracts where currencies are swapped and are swapped back after a certain
period of time.
FX Options are concluded to make sure to have the right (but not the obligation) to buy or
sell a currency at a certain rate on a date in the future.
In this lesson, we concentrate on the following trade types:
FX Spot
FX Forward (both deliverable and non-deliverable)
FX Swap
OTC FX Option
This also is a preparation for the following lessons on Exposure Management and Hedge
Management.
FX Deals Major Steps
Figure 440: The FX Risk Management Process: FX Deals Major Steps

Unit 4: The FX Risk Management Process
All the submodules within Transaction Manager use the same Back-Office and Accounting
framework, such as trade confirmation, counter-confirmation, making accounting entries
directly to the SAP General Ledger, etc.
The major process steps are executed in the Transaction Manager. FX contracts are relevant
to counterparty risk in Credit Risk Analyzer and the valuation of the FX trades at period-end is
done in Market Risk Analyzer.
The process starts with deal capture, deal settlement, continues with payment and posting,
valuation, and finally the exchange of cash flows on maturity of the contract. Reporting is
available at any point in time.
As we used the Debt and Investment Management process to explain these process steps
very detailed-step by-step in our training, we do not repeat this information when we explain
the FX Risk Management Process. Instead, we concentrate on explaining the different
products and their handling.
FX Deals - Organization
Figure 441: The FX Risk Management Process: FX Deals - Organization
The trade processing in Transaction Manager is based on the more typical Treasury
organizational structure where the Front-Office executes trades, Back-Office supports tasks
such as trade confirmations and payments, and Accounting supports postings to the SAP
general ledger such as accruals and valuations.
The standard basic structure of the trading and transaction management processes forms
the basis for integrating and processing activities within the SAP system and provides the
framework for adapting the way transactions are represented in the system to meet specific
company requirements.
You can use the standard SAP authorizations to incorporate segregation of duty controls into
your processes.
SAP Fiori allows business users to custom tailor their Fiori launchpads with minimal effort.
The Fiori launchpads then provide the functions required by the specific user without
displaying functions which are not.

Foreign Exchange Contracts Functions
Figure 442: Foreign Exchange Contracts Functions - Fiori Tiles
Creating FX trades is very similar to creating other types of trades on SAP. The structure of
the trade is consistent across all the Transaction Manager submodules.
Processing of FX Contracts:
Create FX Spot and Forward
A separate Function for the Creation of FX Swaps
And one for the Creation of FX Options
Collective Processing Functons
And a Deal Position Monitor.
Functions:
FTR_DEALPOS - Position Monitor
TX.1 - Forex Fast Entry - Spot
TX01 - Create FX Spot/ Forward
TX10 - Create Forex Swap
TI4A - Forex Fast Entry
TI4B - Currency Option Entry - Spread
Internal Forex Trading
TX31 - Internal Forex Trading
TX30 - Internal Rate Overview
Collective Processing
TX06 - Spot/Forward Transactions

TI91 - OTC Options
TXA5 - Order (bids)
TI94 - Expiration/Barrier Check
Utilities
TXAK - Option Price Calculator
TM22 - Date Check
Foreign Exchange Contracts: Forward Transaction Entry Screen
Figure 443: Foreign Exchange Contracts: Forward Transaction Entry Screen (1/3)
Here we see an FX forward contract to buy USD and sell EUR.

On the entry screen, you enter additional transaction data for contract conclusion date,
currencies, payment amounts, exchange rate, value date, and so on.
You can branch from here to the general transaction management entry screens with tabs to
help you navigate between the screens:
Administration: Information about portfolio assignment, general valuation class for

position posting.
Other Flows: The flows specified can be supplemented by other flows, such as charges,
commissions, etc.
Payment Details: Enter payment details that are relevant for this transaction. If the
payment details are maintained as standing instructions for a business partner, they
default into the trade automatically.
You can use Memos to store additional information for each activity such as a textual
description relevant to the trade.
The contract date (not shown) is the date a contract is concluded.

Other available functions include fast processing, collective processing, rollover, premature
settlement, reversal, transaction history, and deadline monitoring are available for the FX
trade types as they are available for the other submodules of Transaction Manager.
Considering the fact that by default only one amount field is open for input (the Traded
Amount).

Rounding rules and Tolerance influence how the Opposite Amount is calculated and whether
it can be adjusted or not.
Default:
Round to normal ‚business practices'
Opposite amount not editable
Hint:
If you want to adjust this please use the two IMG views.
Define Rounding Rules
Assign Rounding Rules and Tolerance to Currencies.
Rounding Rules:
Rounding rules are needed for currencies with 'special' requirements like e.g. CHF ('5
centimes rule') and JPY ('always round down').
The rounding rules can be defines in configuration with these steps:
Define a rounding rule and specify its details
Assign it to all or a single company code and/or currency
Tolerance:
As it was seen on the last screen already a tolerance can be granted together with a rounding
rule or just 'stand-alone'.
The settings are possible in a generic way, e.g.:
for all company codes and currencies
for all company codes but only one currency
for a combination of one single company code and one currency
Example:
Rounding rules for CHF and JPY for all company codes (here w/o tolerance)
USD with a 'default' tolerance of 0.000000001 % for all company codes
USD with 0.1 % tolerance for company code 0001 only.
See training on configuration for a detailed description.
Figure 444: Foreign Exchange Contracts: Forward Transaction Entry Screen (2/3): Rates

Rate:
Spot trades have no swap rate. The spot rate is populated in the Rate and Spot fields.
For forward trades, the rate field contains the forward rate, which is made up of the spot
rate and the swap rate. (field Spot Rate + Swap rate = forward Rate)
Spot Rate: current exchange rate for the currency pair when the trade was executed
Rate of forex transaction: the rate for spot transactions is the current exchange rate. For
forward exchange transactions, this field contains the forward exchange rate, which is
made up of the spot rate and the swap rate.
Spot Rate: the spot rate is the current exchange rate for a currency pair when the trade
was executed. You can enter the rate manually, or make certain settings to let the system
fill the field automatically, for example with a proposal for comparison with the transaction
rate.
Swap Rate: the swap rate is a markup or markdown on the spot rate, and is calculated on
the basis of the interest rate difference between the respective currencies for investments
and borrowings with the same term. The swap is an economic tool for offsetting different
interest yields for the individual currencies. Another term used for the swap rate is
forward points.
Liquidity Effect for Rollover: the liquidity effect occurs with rollovers on the old rate basis, if
the spot rate has changed. The part of the rollover that offsets the cash flows of the
original transaction must be concluded on the changed rate basis. Through this, it is
necessary to borrow or invest the amount difference for the term of the rollover on the
market. This part of the resulting forward rate can be entered separately from the swap in
this field when rollover takes place. Analogous to this, the field is used for premature
processing.
Figure 445: Foreign Exchange Contracts: Forward Transaction Entry Screen (3/3) Settlement
For foreign exchange transactions, the following settlement types are available:
Physical Delivery (the buy and sell amounts are posted into FI at the maturity of the trade)
Cash Settlement (only a settlement amount is posted into FI at maturity of the trade)
Dates:

The value date is the date the trade amounts move at the bank.
The contract date is the date a contract is concluded.
Additional Information about customizing: the value date Input in forex transaction entry can
be varied:
In the Spot days field (see Define Leading Currency), you can define the number of days
between the conclusion of the contract and the value date of the forex transaction.
For each currency pair, the number of days for a currency pair to settle can be entered in
customizing, and then will default automatically into the trade. Most currency pairs settle
in two business days, but this can vary depending on the currency pair being traded. The
value date can then be overwritten if necessary.
If the Date string indicator is set (see Define User Data in customizing), the date strings
you enter (for example, ++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: The contract is concluded on 08.03.YYYY. The Date string indicator has not been
set. If you enter +2 for the currency pair EUR/USD, the system calculates the date as
10.03.YYYY. If the indicator is set, the system calculates the date as 12.03.YYYY.
Forward Transaction Cash Settlement Example
Figure 446: Foreign Exchange Contracts: Forward Transaction Cash Settlement Example
The Cash Settlement function enables you to enter a cash settlement for the foreign currency
transaction. Cash settlement is done for non-deliverable forward contracts, which are forward
contracts where one or both of the currencies is restricted.
To get the cash settlement fields (displayed above), press the Cash Settlement button. The
screen will then change from physical settlement to cash settlement.
If you want to use the Cash Settlement function, you have to set the corresponding indicator
when making the Customizing settings for the product type.
Rollover/Premature Settlement

Figure 447: Foreign Exchange Contracts: Rollover/Premature Settlement
In case a FX Forward needs to be extended or terminated, usually it is supported in the

following way:
Extending maturity: a new contract is concluded which offsets the original contract and a
new contract is executed with the new end date.
Termination: a new contract that offsets the original contract is created.
This is the procedure which is also used in the system: with the premature settlement and
rollover functions, the system generates two single transactions that are linked by a swap
unit.
One transaction serves to offset the original forward exchange transaction (with identical,
reversed conditions so as to avoid exchange rate gains/losses), the other transaction (as a
new transaction) enables the desired adjustment of the term while retaining the same
amounts.
The relationship between the swap and the original forward transaction is documented
through the assignment of the single transactions to a common finance project with an
identical project number. This project number is stored in the administrative data.
With this change in transaction data, you can use premature settlement or back-office
processing and a rollover to split a forward exchange transaction into separate transactions.
Using the liquidity effect, revenue, and expenditure from rollovers can be generated on the old
rate basis and included in the transaction extension as a markup. In this case also, the pairing
of the swap components is done by means of the finance project.
If the New base indicator is checked for 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 for the
rolled over or prematurely settled original transaction is used as the forward rate for the
offsetting transaction. You cannot change the rate for this rolled over/prematurely settled
transaction based on the old rate.

FX Spot and FX Forward

FX Swap Contracts
Figure 448: FX Swap Contracts
Foreign exchange swap transactions are an important foreign exchange trade type. FX swaps
allow a party to borrow in one currency and simultaneously lend in another at the spot rate,
with the repayment being fixed at the forward rate as of the start of the contract.
When you create a foreign exchange swap in the SAP system, a spot transaction and a
forward transaction are created simultaneously.
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 the combined entry of a foreign exchange spot
transaction and a forward exchange transaction. SAP will create two separate transactions
when an FX swap contract is entered. The two transactions are linked automatically by the
system using the SWP (Forex Swap) Reference Category.
Whenever a part of the swap is to be changed, the system displays a warning message to
draw attention to the relationship with the second swap component.
Figure 449: FX Swap Contracts

The forward rate is automatically determined by way of a markup or markdown. The rates can
be adjusted manually.
Like the payment details, the conditions for the authorized business partners correspond to
those of the spot and forward transactions.
Internal Foreign Exchange Trading is a process for entering foreign exchange transactions
locally from the perspective of the company code entering the transactions.
This is very similar to the intercompany loan functionality covered in Unit 3.
A subsidiary company can use the transaction closing function to request an automatically
generated exchange rate for a foreign exchange transaction (spot exchange, forward
exchange, foreign exchange swap) from the head office. You can accept this exchange rate
and close the transaction.
When the transaction is concluded, a transaction is automatically created from a head

office perspective in the company code of the head office. You can also create this
transaction in the company code of the subsidiary as a mirror transaction.
As well as entering internal foreign exchange transactions, you can also use the report
Exchange Rate Overview for Internal Foreign Exchange Transactions. This gives you an
overview of the current exchange rates for each currency. You can also use this report to
check that Customizing and the market data are complete.
Keep in mind, if implementing internal foreign exchange trading, typically a new product
type would be created to represent internal FX trades. This is so they could easily be
distinguished from external FX trades.
FX Option Contracts
Figure 450: FX Option Contracts
A call option, often simply labeled a "call", is a financial contract between two parties, the
buyer and the seller of this type of option.
Below is information related to call options:
The buyer of the call option has the right, but not the obligation to buy an agreed quantity
of a particular commodity or financial instrument (the underlying) from the seller of the
option at a certain time (the expiration date) for a certain price (the strike price).
Buying an option allows to mitigate risks. Therefore options represent a type of insurance.
The seller (or "writer") is obligated to sell the commodity or financial instrument should the
buyer so decide. The buyer pays a fee (called a premium) for this right.
The buyer of a call option expects the price of the underlying instrument to rise in the
future; the seller either expects that it will not, or is willing to give up some of the upside

(profit) from a price rise in return for the premium (paid immediately) and retaining the
opportunity to make a gain up to the strike price (see below for examples).
In contrast to listed or exchange traded instruments, the OTC (over-the-counter) options

are traded directly between business partners. The terms of the trades are agreed upon
between the counterparties to the trades.
A European call option allows the holder to exercise the option (that is, to buy) only on the
option expiration date. An American call option allows exercise at any time during the life of
the option.
Call options can be purchased on many financial instruments, but in this lesson we
concentrate on call options on foreign exchange or an FX option.
Example
Figure 451: FX Option Contracts: Example
Example:
A company requires 1m USD in 6 months and wants to make sure it can purchase the
amount at todays exchange rate.
Therefore a purchase option, 1m USD at e.g. 1,15 USD/ EUR is purchased by the house
bank (1m USD = 869.565,22 EUR).
When the USD are required the following cases can be distinguished:
- The FX rate is below 1,15 USD/ EUR, e.g. 1,10: 1m USD = 909.090,91 EUR. Therefore it
makes sense to exercise the option and buy the amount for 869.565,22 EUR.
- The FX rate is above 1,15 USD/ EUR e.g. 1,20: 1m USD = 833.333,33 EUR it does not
make sense to execute the option but let it expire.
Underlying

Figure 452: FX Option Contracts: Underlying
When you create a currency option, you record the intention to buy or sell a currency option.
On the initial screen, you enter the transaction type (buy/sell) and the business partner for
the currency option product type. On the subsequent screen, in addition to the transaction
data for the underlying spot exchange transaction, you enter the term and the exercise and
purchase premium for the option. You can branch from here to the general transaction
management entry screens. 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.
When you define the product types in customizing, you specify the related underlying
transaction. A spot exchange transaction is entered as the underlying transaction for FX
options, for example. When an option is physically exercised, the underlying transaction (an
FX spot contract) is generated automatically by the system. The spot contract is created with
the characteristics of the option contract. Within spot contract created, the FX option
contract number is automatically put in the Reference Transaction field on the Administration
tab.
The FX spot contract created when the option contract is exercised, from this point forward
follows the processing steps of an FX spot contract.
Structure Tab
Figure 453: FX Option Contracts: Structure Tab

The Exercise Type is either European or American.

The Settlement field of the FX option may be:
Physical exercise, in which case an FX spot transaction will be created in the exercise step.
Cash settlement
Not yet specified (to be specified at a later point in time)
The premium, which is the cost of the option for option purchasers, can be entered in
percentage points or actual amount of the premium.
You can branch from here to the general transaction management entry screens. The tabs
help you navigate between the screens (Structure, Administration, Other Flows, Payment
Details, Cash Flow, Memos, Status).
Status Tab
Figure 454: FX Option Contracts: Status Tab
The processing category is specified in the configuration of the transaction type. The
processing category controls the different processing steps for the trade, e.g. if the
settlement step is required or not.
On the contract date, the only cash flow consists of the premium.
Both European and American option forms can be mapped in the SAP system.
Settlement can be either physical exercise or cash settlement.
When the option is exercised and a cash settlement is made, the settlement amount is
based on the difference between the strike price and the market price, but the settlement
amount can be adjusted manually.
- In the case of physical exercise, the spot transaction is generated automatically from
the main details of the option contract.
- As is the case when an option is exercised, it may be necessary- depending on the
trade's Processing Category - for this expiration to be settled by the back-office
processing area again.
- If at the maturity of the option contract, the trade is out-of-the-money, the option is
worthless. It should be expired (as opposed to being exercised).

If the FX option is in-the-money, it can be exercised. This can be done either from the Edit
Financial Transaction (FTR_EDIT) app or from a Collective Processing app. Press the Exercise
button.
If the FX option is out-of-the-money, it should be expired. This can be done either from the
Edit Financial Transaction (FTR_EDIT) app or from a Collective Processing app. Press the
Expiration button.
Life Cycle
Figure 455: FX Option Contracts: Life Cycle
flow tab,
The update types are connected to the flow types. Usually one for inflow, one for outflow of
funds. They are used in accounting. They are a primary element for GL account derivation.
The Position Management management is responsible for the handling of positions as a

whole.
This becomes more evident when discussing securities. E.g. if a security, e.g. IBM bond, is
purchased twice from the same account, there are two trades in Transaction Management
but typically one position consisting of the two trades in Position Management.
This figure shows the life cycle chart of an FX option that is exercised. At the trade inception,
only the premium paid for the option contract is posted. For period-end closing procedure,
the fair value for the trade is calculated and posted to the SAP general ledger. Once exercised,
an FX spot contract is created which has the cash flows of a purchase and sale of foreign
currency.
Barrier Options

Figure 456: FX Option Contracts: Barrier Options
Currency Barrier Options
The options are activated either for exercise or expiration by means of the knock-in/
knock-out activities.
You can use the Exercise/Expiration function to check the instrikes and outstrikes of
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.
Barrier options are mapped as product types with a specific option category.
The transactions are processed using special processing categories that include activities
such as knock-in/knock-out.
As with options, the underlying transaction is assigned.
The barrier must also be specified.
Currency barrier options are different from regular OTC options in that they have a defined
upper and lower limit (instrike or outstrike). If the market exceeds or falls below these
limits the option either becomes effective or expires, depending on the option type. You
specify this barrier in the financial transaction data.
It is also possible to enter double barrier options. These are either activated or expire if the
price exceeds or falls below two barriers.
Calls:
Down&Out: The option expires at or below the outstrike
Up&Out: The option expires at or above the outstrike
Down&In: The option is activated at or below the instrike
Up&In: The option is activated at or above the instrike
Puts:
Down&Out: The option expires at or below the outstrike
Up&Out: The option expires at or above the outstrike
Down&In: The option is activated at or below the instrike
Up&In: The option is activated at or above the instrike

Compound Option
A compound option or split-fee option is an option on an option.
The exercise payoff of a compound option involves the value of another option.
A compound option then has two expiration dates and two strike prices.
Usually, compounded options are used for currency or fixed income markets where
insecurity exists regarding the option's risk protection. Another common business
application is that compound options are used for, to hedge bids for business projects that
may or may not be accepted.
Foreign Exchange Contracts Valuation Process for FX
Figure 457: Foreign Exchange Contracts Valuation Process for FX: Available Valuation Steps
We do not explain the accounting functions again, because they have been explained in the
Debt and Investment unit.
The Position Management Procedures, which drive the trade valuations, for FX Transactions
are mentioned here, because they are different than from Money Market transactions.
The following valuation steps are often used in the definition of the position management
procedure:
Price Valuation for Forward Exchange Transactions: Special valuation procedure only for
FX transactions.
Swap Valuation: Only valuation of the swap component. The system checks the swap rate
change between the starting date and valuation date. If the market swap rate has changed,
a positive or negative posting flow is generated.
Security Valuation Procedure: Valuation includes market risk factors in the area of FX,
interest and swap.
Application Example: you can perform the following foreign currency valuations:
Key date valuation: The position is valued on a key date and the valuation rates/prices
required are supplied by a real-time datafeed. The key date valuation is carried out with the
Run Valuation (transaction TPM1).

Realized gain/loss: When positions mature (reach the maturity date), the realized gains or
losses are determined. This is calculated by taking the difference between the forward rate
based on the conclusion of the contract and the posted rate on the value date of the trade.
Realized gains/losses are posted with the derived business transactions (TPM18).
Swap valuation and the Price Valuation for Forward Exchange Transactions can be carried
out without saving an NPV.
Foreign Exchange Reporting

Deal Position Monitor
Figure 458: Foreign Exchange Reporting: Deal Position Monitor
Function: Position Monitor (FTR_DEALPOS)

The Position Monitor enables you to:
Summarize information from Cash and Liquidity Management and Transaction Manager in
one report.
Gives you a clear view of the individual currencies of the foreign exchange position of your
company.
You can use the Position Monitor function in foreign exchange trading to get a quick, up-to-
date overview of the current foreign currency risk from all transactions that you have
created in the Transaction Manager. Foreign currency bank accounts can be included too.
With the Position Monitor, you can combine the cash Flows from Cash and Liquidity
Management and the financial transactions (funds and foreign exchange transactions,
securities, and derivatives) from Transaction Manager. This gives you a complete view of
the foreign exchange position in all relevant currencies in your company. You can select
the data that should be taken from Cash and Liquidity Management and choose which
transactions should be displayed in combination with this data.
Divide the report into time segments (maturity bands) of your choice. In addition, the net
present value is calculated for payment flows on the basis of the latest market data.
Collective Processing

Figure 459: Foreign Exchange Reporting: Collective Processing
There are Collective Processing reports in Foreign Exchange, as there are in all sub-modules
of Transaction Manager.
From the Collective Processing reports, users are able to create a trade, change a trade,
reverse a trade, view the history of a trades, etc. This is why they are called „collective
processing" reports.
Collective Processing functions:
TX06 - Spot/Forward Transactions
TI91 - OTC Options
TXA5 - Order (bids)
TI94 - Expiration/Barrier Check
By Role
Figure 460: Foreign Exchange Reporting: By Role
In this slide, the reporting available for the different job roles are displayed.

LESSON SUMMARY
Handle FX deals

Unit 4
Lesson 2
Using the Exposure Management
LESSON OBJECTIVES
The Exposure Management
Figure 461: Exposure Management
The determination of forecasts is a way for a business to estimate their future business and
cash flows. This process is typically done at the legal entity level and then aggregated by the
Treasury department. At most companies, the determination of forecasts is typically a
quarterly activity but it could be done at any time, and there is no restriction from a system
perspective.
The Exposure Management module delivers the possibility to capture, group, match, and
store the raw exposures as well as to aggregate the exposure positions. The aggregated
exposure positions can then be hedged based on the corporate hedge management policy.
In this unit, we will introduce Exposure Management, which helps the Treasurer to fulfil the
tasks listed above by modelling Exposures in the system. We will focus on Foreign Exchange
(FX) exposures only. A company's FX exposure is the extent to which its Financial Reporting is
affected by exchange rate movements.
Risk is the probability of a loss resulting from a financial transaction.

Lesson: Using the Exposure Management
Integration View of Components
Figure 462: Integration view of components
Looking at the view hedge management components above, in this objective, we are
discussing the Exposure Management component.
Many corporations are exposed to foreign currency risks. Typically organizations purchase
from vendors from different countries, sell to customers in different countries or have
subsidiaries abroad all being based in different currencies.
Foreign exchange exposures are typically caused by the regular operating business. They are
arising in form of planning data, firm commitments, and balance sheet positions. Not
managing them continuously endangers the profit the corporation could make.
The process many companies follow is the middle office collects exposure data based on
forecasted cash flows in risk currencies from various sources. They consolidate the exposure
data to enter it into the SAP system as Raw Exposures. The exposure data should be
aggregated in granularity which differentiates:
Company code
Risk currency
The period when the exposure is due
Once the exposures are known and loaded into SAP, the hedging of the exposures can start,
based on a company's hedge policy. The hedging of the exposures is done using the Hedge
Management Cockpit, which will be covered in the next lesson. The exposures displayed in the
Hedge Management Cockpit are the exposures we are discussing in this lesson.
Note:
This lesson refers to Exposure Management 2.0, which is the newer Exposure
Management module.

Overview
Figure 463: Exposure Management Overview
Raw Exposure:
Exposures are captured as raw exposures. The structure distinguishes three levels:
Raw Exposure Header
Raw Exposure Items
Sub Raw Exposure Items
All the three are versioned. Versions reflect the change history of the raw exposure and its
Sub Raw Exposures.
The Sub Raw Exposures are required to single out the most granular types of risk.
Creation or a change in a version of a Sub Raw Exposure Item can lead to one exposure flow in
one Exposure Position or two Exposure Positions (in the case of a transfer between two
Exposure Positions due to a change in a differentiation criteria).
Exposure Positions:
Creation or a change of a Sub Raw Exposure Item can lead to one exposure flow in one
Exposure Position or two Exposure Positions (in the case of a transfer between two Exposure
Positions due to a change in a differentiation criteria.
One Exposure Position is created per:
Currency
Due date / due period
Defined differentiation criteria
Defined aggregation scheme
Versions reflect the change history of the raw exposure and the Sub-Raw Exposures. A
change in a version of a SubRawExposure Item can lead to one exposure flow in one Exposure
Position or two Exposure Positions (in the case of a transfer between two Exposure Positions
due to a change in a differentiation criteria).
The Exposure Management 2.0 main functions are the following:

Raw Exposures:
Raw Exposures (FTREX1)
Overview of Raw Exposures (FTREX2)
Exposure Positions:
Overview of Exposure Positions (FTREX12)
Display Exposure Position Flows (FTREX13)
Mass Transfer of Exposure Positions to E-Hedge Accounting (FTREX15)
Entering Raw Exposures
Figure 464: Exposure Management: Entering Raw Exposures
Function: Raw Exposures (FTREX1).

The following BAPIs can be used to create an automated interface into Exposure
Management:
BAPI_TEX_EXPOSURE_CREATE
BAPI_TEX_EXPOSURE_CHANGE

A similar screen is used for the capturing of the Exposures!

The exposure categories are the following:
01 Forecasted Transaction
02 Firm Commitment Transaction
03 Asset/Liability Transaction
As we are dealing with FX Risk, there is one Sub Raw Exposure for one Exposure line item.
Overview of Raw Exposures
Figure 467: Overview of Raw Exposures
Overview of Raw Exposures (FTREX2) can be used as a cockpit for Raw Exposure review, edit,
and analysis.
The Overview of Exposure Positions (FTREX12) can be understood as the link to hedge
management. It can be used to check and analyze the hedged part of the exposures.

Process Steps
Figure 468: Exposure Management
Exposure Management helps users identify the risks in payment flows and offers you
integration with hedge management.
The process steps in Exposure Management are the following:
1. The raw exposures are created in SAP.
2. The raw exposures that will be hedged are released.
3. After the raw exposures are released, they move to Exposure Position Management. Once
in Hedge Management, the exposures can be linked to a hedging instrument to form a
hedging relationship.
Advantages
Figure 469: Exposure Management Advantages
Not managing risks continuously endangers the profit the corporation could make. Exposure
Management is involved in the process of capturing planning data and firm commitments,
which then feed into Hedge Management.
The advantages and functions of the interaction between Exposure Management and Hedge
Management are as follows:

Net Position Report from forecasted transactions and firm commitments and existing
hedges at currency and attribute level.
Automatic consideration of natural hedges through management of exposures.
The need for additional hedging or swapping/ discontinuing transactions along the defined
time patterns is visible.
Review Balance Sheet FX Risk App
Figure 470: Review Balance Sheet FX Risk App
The Review Balance Sheet FX Risk app was one of the first Fiori Apps in the area of Treasury
and Risk Management, at which time, the app closed a gap from a functional perspective.
Review Balance Sheet FX Risk' app is accessible from Launch Pad along with other Fiori Apps
The app is available for users assigned to the Treasury Risk Manager
(SAP_BR_TREASURY_RISK_MANAGER) role.
Absolute net exposures per company code (can be used as sorting criteria to easily
identify the company codes with the highest exposure)
Amounts are converted into the reporting currency using a certain exchange rate type
allowing a comparison of the exposures across company codes.
Amounts in transaction currencies being equal to the local currency of the company code
are excluded from the data selection.
Additional fields like the country or the local currency of the company code are available as
filter criteria as well as in the result list.
By default the current date is used as key date for data selection. Optionally a key date can
be entered in the filter criteria.
Save-as-Tile functionality available to create launch pad tile associated with a certain filter
condition and a certain layout of the result table.
By clicking on a company code the detail screen is shown.

Here we see the company code detail screen of the Review Balance Sheet FX Risk app.
Absolute net exposures is broken along two dimensions:

- The transaction currencies (columns)
- The Key Figure Groups as a two level hierarchical structures (rows)
Intermediate totals per transaction currency on the level of Key Figure Groups as well as
on the exposure and hedge level.
Total lines per transaction currency in Transaction Currency as well as the reporting
currency.
Hedge Quota per transaction currency.
There is drilldown reporting from the Review Balance Sheet FX Risk app, a sample of which is
shown above. Users not only see the total numbers, but they are able to drilldown to see the
what makes up the total numbers.
The setup for the Review Balance Sheet FX Risk tile done using the Define Key Figures tile.
Using the Define Key Figures tile, users define different key figure groups in the Maintain Key
Figure Groups folder. Then in the Maintain Key Figures folder, how the different key figures
should be populated in the Review Balance Sheet FX Risk tile is specified. Hint: Use the
Maintain Selections option to specify the ranges for the different objects.

The business users can have access to both the Define Key Figures and Review Balance Sheet
FX Risk apps. There is no customizing required for this report. This app is an example of how
SAP is moving more functionality from configuration to the business user with S/4HANA.
Note:
The Define Key Figures app is also available using the FXM_KF_DEF transaction
code.
LESSON SUMMARY

Unit 4
Lesson 3
Explaining Hedge Management and Hedge
Accounting
LESSON OBJECTIVES

Hedging Areas
Hedging Areas
Review of Hedge Accounting
Figure 473: Review Hedge Accounting
In this section, we will briefly review some of the terms and characteristics related to hedge
accounting. We will leave it to the reader to know by which accounting rules their company
needs to follow.
The following Hedge Categories exist according to IAS / IFRS and US GAAP, and are
supported by SAP's Hedge Management solution.
Fair Value Hedge

A fair value hedge is a position taken by a company to protect the fair value of a specific
asset, liability or unrecognized company commitment from risks that can affect their profit
and loss accounts. The underlying asset is the asset being protected. Examples of a fair
value hedge would be a fixed interest rate financial instrument or a fixed interest rate bond.
Fair value hedges are accounted for as follows:
The gain or loss on the hedging instrument is recognized in profit or loss.
The hedging gain or loss on the hedged item shall adjust the carrying amount of the
hedged item (if applicable) and be recognized in profit or loss.
Exception: If the hedging instrument hedges an equity instrument for which an entity has
elected to present changes in fair value in other comprehensive income: both are posted to
other comprehensive income (OCI).
When a hedged item is an recognized firm commitment (or a component thereof), the
cumulative change in the fair value of the hedged item subsequent to its designation is
recognized as an asset or a liability with a corresponding gain or loss recognized in profit or
loss.
Cash Flow Hedge

A cash flow hedge is a hedge of the exposure to variability in the cash flows of a specific
asset or liability, or of a forecasted transaction, that is attributable to a particular risk. Cash
flow hedges can help to mitigate the risks that are associated with sudden changes in cash
flows of assets or liabilities, rate than the asset or liability itself.
Cash flow hedges are accounted for as follows:
The separate component of equity associated with the hedged item (cash flow hedge
reserve) is adjusted to the lower of the following (in absolute amounts):
- The cumulative gain or loss on the hedging instrument from inception of the hedge; and
- The cumulative change in fair value (present value) of the hedged item (i.e. the present
value of the cumulative change in the hedged expected future cash flows) from
inception of the hedge.
The portion of the gain or loss on the hedging instrument that is determined to be an
effective hedge (i.e. the portion that is offset by the change in the cash flow hedge reserve
calculated in accordance with (a)) shall be recognized in other comprehensive income
(OCI).
Any remaining gain or loss on the hedging instrument (or any gain or loss required to
balance the change in the cash flow hedge reserve … is hedge ineffectiveness that shall be
recognized in profit or loss.
Net Investment Hedge

Protection of an investment in a foreign business / company.
Net investment hedges are accounted for as follows:

A Net Investment Hedge is a specific type of foreign currency cash flow hedge that is used to
eliminate or reduce the foreign currency exposure that arises from an entity's Net Investment
in a Foreign Operation (NIFO). Update consolidation each period of the NIFO into the parent
financial statements a foreign currency gain or loss is recognized in shareholders' equity.

Lesson: Explaining Hedge Management and Hedge Accounting
When a derivative hedging instrument is used, the effective portion of the change in the fair
value of the instrument is recognized in equity. The ineffective portion is recognized
immediately in the P&L.
A Hedging Relationship relates to exactly one Hedge Category.
A hedging relationship qualifies for hedge accounting only if all of the following criteria are
met:
It consists only of eligible hedging instruments and eligible hedged items
Formal designation and documentation of the hedging relationship and
The entity's risk management objective and strategy
It meets the hedge effectiveness requirements
SAP Hedge Accounting Solutions
Figure 474: SAP Hedge Accounting Solutions
SAP has two Hedge Accounting solutions:
1. Hedge Accounting for Exposures (or E-Hedge Accounting/E-HA, for short) is the Hedge
Accounting solution when there is interest rate risk and the hedged item is not in Treasury
and Risk Management Position Management. The transaction codes to this solution start
with THM*, e.g. THMEX - Hedge Plan.
2. Hedge Accounting for Positions (or P-Hedge Accounting/P-HA, for short) is the solution in
which Treasury positions can be hedged in accordance with specific Hedge Accounting
rules. There is integration with Treasury and Risk Management Position Management for
when debt held in the Securities module is hedged, for example. This solution integrates
with Exposure Management 2.0 and works with the Hedge Management Cockpit. This
solution supports prospective effectiveness testing with linear regression and Market Data
Sets (MDS) to allow for effectiveness testing with multiple scenarios.
When functionality was being developed for the IFRS9 changes, SAP decided to make all the
new functionality available for the Hedge Accounting for Positions (or P-Hedge Accounting)
solution. Moving forward, we will discuss only the Hedge Accounting for Positions (or P-Hedge
Accounting) solution.
SAP's Hedge Management Solution:
Is fully integrated into Treasury subledger, the SAP general ledger, and adhers to its basic
principles of business transactions

Supports the most common use cases
Includes process automation including automatic designation
Is capable of managing high volumes of hedging transactions
Offers a fully integrated snapshots of exposures of future transactions for management of

an audit trail or for accounting reasons
The way to IFRS 9 Hedge Accounting for FX Risks in SAP Treasury:
Prerequisites:
- EhP 8 or S/4 HANA OP or S/4 HANA Finance
- New yield curve framework activated
- CVA/DVA in use
- Exposure Management 2.0 and Net Open Exposure Report
Hedge Management and Hedge Accounting Types for FX Exposures

Forecasted Transactions and Firm Commitments versus Balance Sheet Exposures
Figure 475: Hedge Management: Forecasted Transactions and Firm Commitments versus Balance Sheet
Exposures
In this lesson, information on hedging of balance sheet exposures is presented first. This is
the part of the solution which has been presented already. Hedging of FX Forecasted
Transactions and Firm Commitments are then explained in detail afterwards.
Exposure Management has been discussed in the previous unit, therefore only a brief recap is
provided during this unit.
Please be aware that the structure of Fiori tiles might look different in the training system!

Review Balance Sheet FX Risk App
Figure 476: Balance sheet Exposures: Review Balance Sheet FX Risk App
Treasury Risk Managers need to get an overview of the balance sheet FX exposures and the
existing hedges by company code and transactional currency. They need to be able to check
the quality of the data and in some cases need to make manual adjustments reflecting data
which is not in the system.
The Report shows:
The absolute net exposures by company code (sorted by absolute net exposure).
As additional information, each company code's local currency is displayed.
The columns show Absolute Net exposure, Absolute Hedges, Absolute Exposures
(Absolute Net exposure = Absolute Exposures - Absolute Hedges).
Figure 477: Balance sheet Exposures: Review Balance Sheet FX Risk App
When viewing the data for one company code, the following is displayed:
Net exposure is broken down along the selected transaction currencies (columns) and the
key figure structure (rows) which represents the exposures and the hedging instruments

3 Total lines: Net exposure in transaction currency, net exposure in group currency (for
comparison reasons) and hedge ratio
In the header area, the absolute net exposure is shown in group currency (same value as
on overview screen). The amounts in local currency (in this example EUR) are
automatically filtered out as they do not represent FX risk for the one company code.
Forecasted FX Exposures and Firm Commitments
Figure 478: Hedge Management: Forecasted FX Exposures and Firm Commitments
Treasury Risk Managers also would like to see a net position report of the FX exposures
arising from forecasted transactions and firm commitments and the existing hedges for my
specific differentiation attributes like portfolio, projects, cost center or company core etc.
From this view, the Treasury Risk Manager may decide to place additional hedging
transactions in the market.
This leads us nicely to SAP's Hedge Management solution, which we will cover in the next
lesson.
The Hedging Area and the Hedge Management Cockpit
Figure 479: The Hedging Area and the Hedge Management Cockpit
A high-level view of SAP's Hedge Management solution is shown here. The Hedge
Management Cockpit gives a clear view on a company's hedge management situation. It
reflects exposures, hedging instruments, and hedge requests all in one view.

This slide shows the overall FX trading process that can be realized by using SAP and the
different components included in the process flow. The blue arrows show the interfaces
supported in the standard solution where data is passed between the different components.
The Hedge Management and Hedge Accounting process helps companies decrease volatility
to the P&L from foreign currency operating transactions.
The functionality automates labor-intensive processes, such as calculating net open exposure
amount, creating hedging relationship for hedge item and hedge instrument, determining the
key figures calculation (NPV, Forward, CCBS, CVA/DVA), performing the valuation of FX
transaction, checking classification, dealing with the de-designation, and generating posting
journal reports.
Based on the hedging policy in place, the net open exposures are reduced by trading financial
instruments such as an FX forward or FX option transaction. For expected inflows of a risk
currency, the resulting exposure are closed by a FX forward that sells the inflow currency and
buys the local currency of the company code. For expected outflows, a FX forward
transaction is traded that buys the outflow currency and sells the local currency.
Exposures are captured in Exposure Management 2.0 and are reflected in the Hedge
Management Cockpit.
The Trading Platform Integration is a cloud application that connects external front-office FX
trading platforms, such as 360T, with your SAP Treasury and Risk Management component
in your SAP S/4HANA Cloud or SAP S/4HANA on-premise system acting as the back-end
system. Trades are executed in the front-office FX trading platforms and flow to SAP where
they are automatically created in the Transaction Manager module.
In Transaction Manager, the end-to-end life-cycle of trades is supported.
IFRS9 and U.S. GAAP hedge accounting are supported in Hedge Accounting.
Trade valuations, as well as scenario testing is done in Market Risk Analyzer.
Hedge Management Cockpit
Figure 480: Hedge Management Cockpit
The Hedge Management Cockpit is the key application used for viewing a company's current
situation with respect to foreign exchange exposures. It is the driving application for Treasury
departments to view current positions with respect to hedge management and to quickly and
easily enter into new hedging instruments.

Treasury departments are responsible for executing their company's hedging policy for
hedging the risk of forecasted cashflows in foreign currencies in future periods. The forecast
itself is represented as exposures in the Hedge Management Cockpit.
The Hedge Management Cockpit incorporates the following data into one view:
Exposures (from Exposure Management 2.0)
Hedges (One Exposure from Operations Hub)
Hedging relationships
The Hedge Management Cockpit does the following:
Shall support all roles in the FX Risk Management Process with fast and reliable
information
Combines data from Exposures, Hedges and (planned) Hedging Relationships in a

configurable way
Works on data by Hedging Area
Allows multiple Layout Definitions with reuse for different Hedging Areas
Supports different levels of aggregations
Supports drill-down from highest level of aggregation down to individual exposures or

hedges
Hedging Area
Figure 481: Hedging Area
From the Hedge Management Cockpit, the user is able to get to the Hedging Area by pressing
the Hedging Area in the upper right corner of the Hedge Management Cockpit. (Please see
the last slide.)
The Hedging Area is a type of master data that represents a section of the hedging policy of
the company. It defines which risk you want to monitor and on what level of granularity.
Whether exposures are shown on a net or gross basis in the Hedge Management Cockpit is
derived from the exposure aggregation level of the Hedging Area.
The Hedging Area is the central steering entity that contains all relevant settings for this
process.
The creation of a Hedging Area is a necessary requirement to start the process of Hedge
Management and Hedge Accounting.

A company can have multiple Hedging Areas for Hedge Accounting depending on its hedging
policy.
Figure 482: Hedging Area
The screen above shows when the Hedging Area is defined, the type of Hedging Area is
specified.
There are two types of Hedging Areas:
1. Period-based
2. Reference-based
With period-based Hedging Areas, the hedging instrument hedges an exposure on a period
basis.
For reference-based Hedging Areas, the hedging item (exposure) is specified directly in the
hedging instrument.
Manage Layout
Figure 483: Manage Layout
Aspects of what is displayed in the Hedge Management Cockpit are a result of the layout
used, the definitions of the hedging area, and the underlying snapshot.
To view the definition of the layout currently being displayed, select the Manage Layouts
button.
The Key Figures displayed in the Hedge Management Cockpit are driven by the Key
Figures specified in the layout definition.
The layout definition is independent from Hedging Area.

Layouts are either private (only available for one user) or public.
Display mode determines the design of the result table:

- Row: Key figures in Rows, Periods in columns
- Column: Key figures in Columns, Periods in columns
Key Figures
Figure 484: Key Figures
Below is a summary of some of the key figures that can be displayed in the Hedge
Management Cockpit. The list is continuously growing with each new software release. As
mentioned in the last slide, the Key Figures displayed in the Hedge Management Cockpit are
driven by the Key Figures specified in the layout definition.
Incoming Exposure
Outgoing Exposure
Net Exposure
Designated Hedges
Freestanding Hedges
Net Open Exposures
Hedge Quota [%]
Target Quota [%]
Hedged Rate: Nominal weighted average rate of financial transaction rates included
Hedge Quota: Net Hedges / Net Exposure in [%]
Open Amt Hedge Req: Reflects the released hedge requests
Amount to Hedge: Hedge amount required to meet hedging requirements

Snapshots
Figure 485: Snapshots
The data displayed in the Hedge Management Cockpit is based on Snapshot data (for
exposures). A key date is used to determine a valid Snapshot ID and to select the Hedging
Instruments.
The snapshot needs to be marked as 'Day Reference' for Hedge Accounting Processing.
A snapshot is used for audit purposes to record the exposures at the time the hedge is
entered into. Snapshots are taken using the Take Snapshot app (transaction code
TOESNAPO).
Snapshots are a mandatory step to record the exposures at the time the hedge is entered
into. This ensures that an auditor can always check the data that served as the basis for a
hedging decision. You take a snapshot before executing a hedging contract by using the Take
Snapshot app. The snapshot history can be reviewed at any time after the snapshot is taken
using the Manage Snapshots app.
The Hedging Process Overview
Figure 486: Hedge Management and Hedge Accounting: Integrated View of Components
A hedging relationship is a combination of a hedged item (e.g. exposure) and a hedging

instrument (e.g. derivative financial transaction) to obtain hedge accounting and therefore
avoid the earnings volatility that would arise from accounting for the hedging instrument at
fair value.

The phases of a hedging relationship can be roughly divided into the above three phases,
which are:
Inception of the hedging relationship
Ongoing life of hedging relationship
End of hedging relationship
The SAP hedge management solution supports the end-to-end hedge management process.
Contract Date of the Hedging Instrument
Figure 487: Hedge Management and Hedge Accounting: Contract Date of the Hedging Instrument
On the contract date of the trade, three steps typically happen: 1) the hedging contract is
created, 2) the designation process takes place, 3) the hedging relationship is released. Each
of these steps is now discussed in a little more detail.
Note:
The designation process and release process must happen on the same day,
which may be after the contract date of the hedging instrument. If this is the case,
the hedging instrument would them be freestanding and gain and losses would
post to the P&L before a hedging relationship is created.
Creating hedging contract
Agree on a hedging instrument.
Check a Credit Risk Limit Utilization report (Optional) to make a decision on the
counterparties that can be used.
Create FX hedging contract with a Hedging Classification assigned.

- Create deliverable FX forward transaction
- Create non-deliverable FX forward (NDF) transaction
- FX option contract
Designation is the process of creating Hedging Relationship(s), which includes the

determination of an exposure(s) for the hedging instrument.

Designation (happens on the contract day of the trade). SAP offers two choices for the timing
of designation.
1. Automatic designation as trade is created.
2. End-of-day designation with the Reprocess Financial Transaction for Automated

Designation (TPM104).
Release of designated Hedging Relationship (TPM120), which happens on the contract day of
the trade. The release of the hedging relationship is a separate step because market data is
needed for this function and the market data may not be imported until later in the day.
Hedging relationship changes from Planned Designation Hedge Relationship to Designated
Hypothetical derivative is created
Hedge documentation created
Effectiveness test executed
Hedging relationship is now ready for upcoming period-end activities
Hint: In certain hedging scenarios, the hypothetical derivative is required for performing the
effectiveness test (except for the critical term match method). During the effectiveness test,
the hypothetical derivative represents the hedged item.
Period-End Close
Figure 488: Hedge Management and Hedge Accounting: Period-End Close
At period-end, the determination of the fair market value (NPVs) including the decomposition
of the hedging instrument and the hypothetical derivative is performed and posted to the SAP
general ledger.
The key date valuation of the FX hedging instrument is executed: Postings of the Hedging
Reserve and Cost of Hedging Reserve amounts are created on Exposure Subitem level and
P/L ineffective amounts on Financial Transaction level.
The postings executed are driven by the Valuation Category selected on the Run Valuation
(TPM1) app. The supported procedures are with reset and without reset. (Reset is book and
reverse versus an incremental (difference) posting.)
The period-end close process of designated FX Transactions consists of the following steps:
1. Calculation of NPV, Forward, CCBS, CVA/DVA key figures (TPM60CVA)
2. Valuation of FX Transaction (TPM1)
3. Classification of Hedging Relationship (TPM101)

Hedging Reserve (aka OCI I)
Cost of Hedging Reserve (aka OCI II) amounts are created on Exposure Subitem level
P/L ineffective amounts on Financial Transaction level
The newly processed and posted valuation and measurement results can be reported in
Position and Flow Reporting as well as Posting Journal.
OCI = Other Comprehensive Income, which is a balance sheet account.
Maturity of Hedging Instrument
Figure 489: Hedge Management and Hedge Accounting: Maturity of Hedging Instrument
With the maturity of the FX hedging contract, the cumulated Hedging Reserve and Cost of
Hedging Reserve amounts are classified as frozen.
Calculate NPV of Hedging Instrument and hypothetical derivative with Release Designation
(TPM120).
Cash Settlement for Deliverable Forward or Fixing Rate for Non-Deliverable Forward takes
place in the cases where the hedging instrument is an FX forward contract.
The FX option is exercised or expired in the cases where the hedging instrument is an FX
option contract.
Post Derived Business Transactions for Hedging Instrument when De-designation using the
Post Derived Business Transactions (TPM18).
At the end date of the Exposure Subitem, the cumulated Hedging Reserve and Cost of
Hedging Reserve amounts are to be reclassified to a profit or loss as a reclassification
adjustment.
Next, we review the process once more, with a slightly different emphasis.
Hedging Process Overview
Figure 490: Hedge Management and Hedge Accounting: Hedging Process Overview - Part 1

The process description shown here depicts the steps to be performed in the SAP TRM
system to enable FX Hedge Management and Hedge Accounting. The process will be
displayed in four parts.
Process part 1:
Define or Adjust Hedging Area
Collect and Determine Exposure / Forecast Data
Create Raw Exposure
Take Snapshot
Review Net Open Exposure in Hedge Management Cockpit
Process part 2:
1. Agree on Hedging Instrument
2. Check Limit Utilization Report (Optional)
3. Create Foreign Exchange Contract with Hedging Classification
Create FX Forward Transaction
Create Non-Deliverable Forward (NDF) Transaction
Create FX Option Transactions
4. Designation (Creation of Hedging Relationship)

Process part 3:
Set Contract Settlement Status with Incoming Counter-confirmation, if incoming counter-
confirmation is required.
Release Hedging Relationship
Determination of Net Open Exposure after Hedging activities in Hedge Management Cockpit
Fix Derived Business Transaction
Period-End Closing (period 1 to n):
Calculate NPV of Hedging Instrument and hypothetical derivative
Run Key Date Valuation
Run Classification
With:
- Position and Flow Reporting
- Posting Journal
Figure 493: Hedge Management and Hedge Accounting: Hedging Process Overview Part 4
Process part 4:

Contract Maturity
Calculate NPV of Hedging Instrument and hypothetical derivative
Cash Settlement for Deliverable Forward or Fix Rate for Non-Deliverable Forward
Foreign Currency Risk Management and (1X9) Foreign Currency Risk Management -
Parallel Ledger
Post Derived Business Transactions for Hedging Instrument when Dedesignation
Reclassify Hedging Reserve and Cost of Hedging Reserve for Exposure Subitems
Reporting
Display Treasury Position Flows
Display Treasury Posting Journal
Next, we review the process in detail with screenshots.
Process Step: Definition of Hedging Area
Figure 494: Hedge Management and Hedge Accounting: Process Step: Definition of Hedging Area
The diagram depicts the general process used for Hedge Management and Hedge
Accounting. It summarizes the previous slides and is used to explain the process in detail on
the following pages.
Our first step we concentrate on is the definition of the Hedging Area.
Accounting.
The diagram distinguishes the dimensions organization and process and names typical tasks.
Note:
The process may vary depending on the company.
Process steps:
Hedging Policy / Strategy:

Discuss and define Hedging Policy on a regular basis
Controlling
Collect forecast and planning data
Front Office
Determine net open exposure/ Hedging Decision
Execute deal - based on own or middle office decision
Middle Office
Define Hedging Area based on Hedging Policy
Enrich, upload and release forecast and planning data
Determine net open exposure/ hedging decision
Prepare and Release Designation/ Postprocessing
Position Flows/ Position Values/ Postings
Automation
(On hedging instrument's contract date) Prepare and Release Designation
(On period-end) Determine NPV/ Execute Valuation/ Execute Classification/ Execute OCI
Reclassification/ …
Hedging Area
Figure 495: Hedge Management and Hedge Accounting: Hedge Management Cockpit
The Hedging Area has to be defined prior to using the Hedge Management Cockpit (TOENE).
The Hedging Area is the central steering entity that controls the hedge management and
hedge accounting process.
The Layout ID determines the display of the data: main options are column-wise or line-wise
display.

Figure 496: Hedge Management and Hedge Accounting: The Hedging Area
Navigation to Hedging Area: transaction TOE_HEDGING_AREA.
The Hedging Area is the system mapping of specific areas of a companies hedging policy.
It is fully versioned and certain changes are only allowed in a new version or a new Hedging
Area.
Hedging Area: Settings for the Hedge Management Cockpit.
The Risk Category has to be set to "Foreign Exchange Risk". Up to now no other risk is
supported.
The radio button has to be set to "Single Risk-Free Currency" in order to be able to use the
Hedge Management Cockpit.
The Level of Exposure Aggregation:
Controls the level of Exposure Item creation in the Snapshot (TOESNAP)
Is the basis for the

- Target Quota definition view and
- Hedging quota evaluation
Is the basis for the Designation Level: Designation is based upon persisted snapshots/
Exposure Items
The flag „Hedge Accounting" marks the Hedging Area as relevant for Hedge Accounting.
If this flag is set, two new tabs for entering specific settings for Hedge Accounting are set
to active.
If this flag is set new checks are active:

- Mandatory input fields (hedging classification,…)
- Once a hedge accounting relevant snapshot for a version is taken, changes to hedge
accounting relevant settings can only be done in a new version.
Option „Calendar related": a time reference is intended.

The number of periods and the period length define the time buckets that will be shown in
the hedge management cockpit for exposure and hedging instrument data.
Flag „Absolute Time Pattern": allows definition of fixed periods. The number of periods in
this case starts with the „Valid From" date of the Hedging Area Version.
In case of a Relative time pattern the number of periods starts with the key date of the
Hedge Management cockpit.
Hint: „Add Periods Until" gives the possibility to add periods up to a quarter or year end -
even if the number of periods does not reach that far.
Select the Trading Platform Integration indicator to indicate the Trading Platform Integration
SCP app is used to integrate with a front-office trading system, such as 360T or FXAll.
Figure 497: The Hedging Process Overview
The screen above shows when the Hedging Area is defined, the type of Hedging Area is
specified.
1. Period-based
2. Reference-based
With period-based Hedging Areas, the hedging instrument hedges an exposure on a period
basis.
hedging instrument.

Figure 498: Hedging Area: General Settings, Hedging Classification
Tab General Settings:

Enter Company Codes if there is a restriction on company code level for the reporting. No
entry in company codes means all company codes in the system are relevant for the Hedge
Management Cockpit.
Choose differentiation criteria:
Each combination of attributes opens a new analysis item for the defined reporting
periods.
Values of these attributes are used for the matching between exposure and hedging
instrument.
Hint:
All differentiation criteria is available in Exposure Management 2.0 (raw
exposure) and Transaction Manager.
The freely definable hedging classifications are used in the following way:
In the definition of your Hedging Areas (using transaction TOE_HEDGING_AREA or the app
Define Hedging Area), the hedging classifications are assigned on the General Settings tab.
You can assign n hedging classifications to a Hedging Area.
A hedging classification that is active for hedge accounting can only be assigned to one
Hedging Area that is relevant for hedge accounting.
Hedging classifications that are inactive for hedge accounting can be assigned to n
Hedging Areas.
On tab Hedge Accounting II you can assign the hedging profiles as a function of the hedging
classification.
You assign hedging classifications to your hedging instruments in the financial transaction
data (using transactions FTR_CREATE and FTR_EDIT) on the Administration tab.
If the hedging classification is active for hedge accounting, this information is relevant for the
automated designation process. Using the data from the financial transaction including the
hedging classification the system can identify the relevant Hedging Area version and the

relevant exposure item so the hedged item, hedging instrument, hedging relationship and the
planned designation flows can be created according to your settings for the Hedging Area.
Note:
The Hedging Classification is a mandatory entry for a hedging instrument if it
shall be designated automatically!
Hint: the Hedging Classification is created in customizing. Under SAP Customizing

Implementation Guide Financial Supply Chain Management Treasury and Risk
Management Transaction Manager Hedge Management Define Hedging Classifications
the hedging classifications are defined and it is indicated if they are relevant for hedge
accounting or not.
Tab Currencies:
Currencies listed in the table are taken into account for the hedge management cockpit. No
entry means no currency is selected.
Note:
Currency is an obligatory differentiation criteria for management of FX risks!
Figure 499: Hedging Area: Source and Filter Definitions
Tab Filters for Exposures:
At least one filter has to be defined to have exposure data available in the Hedge
Management cockpit: entries in the attributes of the filter specify the selection criteria for
the exposure source system.
- Choose the source E_EM2 Exposure Management 2.0 (for Hedging Areas with analysis
item definition By Time Period).
- Choose the source E_EM2REF Exposure Management 2.0 by Reference (for Hedging
Areas with analysis item definition By Reference).
Selections in previous screens for company code and currency are passed on
automatically.
Further entries in the filter limit this to specific entries.

More than one filter can be defined; data from several filters is merged according to the
definitions in the differentiation criteria.
Tab Filters for Hedges:
At least one filter has to be defined to have hedging instrument data available in the Hedge
Management cockpit.
Entries in the attributes of the filter specify the selection criteria for the source system of
hedging instruments.
Up to now only data source „H_TM" is available (Transaction Manager).
Selections in previous screens for company code, currency and hedging classification are
passed on automatically.
Futher entries in the filter limit this to specific entries.
More than one filter can be defined.
Data from several filters is merged according to the definitions in the differentiation
criteria.
Hedge Accounting I - Designation, Splitting
Figure 500: Hedging Area: Hedge Accounting I - Designation, Splitting
Designation Level:
Per company code and valuation area it is possible to define at which level it shall be
designated:
Gross (G): The gross exposure item with the greater absolute value is used for designation
Net (N): The net exposure item is used for designation.
Splitting is a yes/ no decision if further information for splitting and influencing (due date of
hypothetical derivative, OCI reclassification date, off/on balance crossover, …) the hedging
relationship is needed. This activation of splitting opens a third table with specific inputs (see
below).
Designation Activation:
Per company code and valuation area it is possible to control for which currencies hedge
accounting shall be active

Designation Splitting:
If splitting is enabled in the step Designation Level, this additional table with specific inputs is
opened.
Per company code, valuation area, risk currency and direction (in/out) splitting information is
defined.
If only one line is captured only one hedging relationship will be created.
Per feature characteristic a set of Split IDs is captured that define together 100% Ratio.
When creating hedging relationships the designated nominal amount is split according to
the Ratio.
Payment term is a key figure that is usually determined by the Controlling department when
analyzing the contracts. It is delivered possibly once a year.
DIO (Days Inventory Outstanding) is a key figure that is usually well known in a company and
is also delivered once a year by the controlling department.
A combination of these key figures influence the following situations when creating hedging
relationships:
OCI Reclassification Offset (choice of several methods).
Off-/On-Balance Crossover (flag and a fixed method).
Due Date of the hypothetical derivative (flag and a fixed method).
Hedge Accounting II - Designation Control
Figure 501: Hedging Area: Hedge Accounting II - Designation Control
On the last tab, information on how to create the hedging relationships is defined per
company code, valuation area and hedging classification (and on-behalf-of company code if
defined as differentiation criteria)
The Hedging classification has been explained before
The Designation Type controls how instruments are treated during designation
The Hedging Profile is a central customizing entity of the Hedge Accounting for Positions.
Designation Types describe how many instruments can be designated together into one
Hedging Profiles are explained on the next page.

Designation Types are defined in configuration. Under SAP Customizing Implementation

Guide Financial Supply Chain Management Treasury and Risk Management Transaction
Manager General Settings Hedge Accounting for Positions Settings for Automated
Exposure Item Hedging (FX Risk) Define Designation Types the designation types are
defined.
Hedge Accounting II - Hedging Profile
Figure 502: Hedging Area: Hedge Accounting II - Hedging Profile
The Hedging Profile is a customizing entity which contains all the parameters that control the
Hedge Accounting process, i.e., entry and management of the hedging relationship's header
data, the execution of valuation on the contract date, the hedging scenario, the type of
documentation to be generated, and the rules of the effectiveness test.
Below are some of the fields set in the definition of a hedging profile:
Scenario: The hedging scenario contains the complete Hedge Accounting logic, i.e., the
type of hedge involved (e.g., fair value hedge, cash flow hedge), product categories
supported in the hedging scenario, permitted cardinalities of hedged items for hedge
transactions, option of a rollover, and effect of Hedge Accountings on valuation for
accounting purposes.
Test Plan Category: Contains a list of points in time during the term of a hedging
relationship when effectiveness tests can be performed.
Prospective Effectiveness Method and Retrospective Effectiveness Method fields - All

settings used for effectiveness tests.
Effectiveness testing for derived business transactions
Hypothetical derivative category - For cash flow hedges, this parameter controls whether
the hypothetical derivative is to be created with a net present value of zero or with the net
present value of the hedging instrument at the time of designation.
Effectiveness testing validity period - The validity period for the effectiveness test indicates
the maximum permitted period (in days) for an effectiveness test, which applies when the
valuation for accounting purposes searches for the effectiveness tests of a hedging
relationship before applying the hedge accounting rules.

Hint:
The Hedging Scenarios are provided by SAP.
The hedging profile is defined in SAP customizing under the path Financial Supply Chain
Management Treasury and Risk Management Transaction Manager General Settings
Hedge Accounting for Positions Settings for Automated Exposure Item Hedging (FX Risk)
Define Hedging Profile.
Process Step: Creation of the FX Exposure Forecast
Figure 503: Process Step: Creation of the FX Exposure Forecast
The this step we consider the creation of the FX Exposure Forecast and determine the Net
Open Exposure.
Accounting.
The diagram distinguishes the dimensons organization and process and names typical tasks.
Note:
Process steps:
Controlling
Front Office

Middle Office
Automation
Determine Forecasts
Figure 504: Hedge Management and Hedge Accounting: Determine Forecasts
Determine forecasts:
cash flows. This process is typically done at the company code level and then aggregated by
the Treasury department. At most companies, the determination of forecasts is typically a
perspective.
Collect and determine forecast (exposure) data
Create exposures in SAP
Exposure Management 2.0 was explained in a previous lesson in detail.

From Snapshot to Hedge Management Cockpit
Figure 505: From Snapshot to Hedge Management Cockpit
Snapshot:
A snapshot is used to document the net open exposures at a certain point in time.
A snapshot can be taken for one or many Hedging Areas at the same time.
Key Date for taking the snapshot is the system date.
If - after taking a snapshot - exposure data or the hedging instrument situation change, the
data stored in the snapshot do not change. This means: data shown in transaction TOENE
and data stored in the snapshot differ.
All exposure items of a Hedging Area are stored with the snapshot.
Only one hedge accounting relevant snapshot can be taken per day.
Hedge Management Cockpit:

The Hedge Management Cockpit makes use of the Hedging Area. The Hedging Area is the
central steering entity that controls hedge management and hedge accounting process. Key
Date is the starting date of the reporting periods shown and the validity of exposures and
hedging instruments. The Exposure Display Mode at the Hedging Area controls if exposures
are shown separated into positive and negative amounts or netted.
The Hedging Area is the system mapping of specific areas of a companies hedging policy.
The Hedging Area is fully versioned and certain changes are only allowed in a new version
or a new Hedging Area.
What you see in the Hedge Management Cockpit is influenced by the chosen layout, the
definitions of the Hedging Area, and the underlying snapshot.
The SAP standard function for layouts is used.
2 nearly identical Layouts exist: Key Figures in rows versus in columns.
Drilldown paths to Exposure and Hedges are provided.
There is more information available to explain what you see.

To change an existing layout, check the definition of a layout or create a new layout, a
function is available.
The Hedge Management Cockpit distinguishes Analysis and Exposure Items:
The Exposure item summarizes exposures of the same kind.
The Analysis Item summarizes different exposures following the requirements of analysis.
Hint:
Users with proper authorizations can drilldown path to Exposure Management
(Originating Exposure Application) from the Hedge Management Cockpit.
Hint:
If exposures are shown net or gross is derived from the Exposure Aggregation
Level of the Hedging Area.
The SAP standard function for layouts is used:
The Layout definition is independent from Hedging Area.
Layouts are either private (only available for one user) or public.
The following functions are available for layouts (depending on authorization):display, edit,
delete, copy and create
Layouts delivered by SAP (starting with a number) can be used as a reference, but cannot
be changed.
Layout ID plus description

- SAP Layout starts with a number
Snapshot Exposures controls how snapshots are read:

- Snapshot ID, last snapshot or last day relevant snapshot
Selection Key Date controls with which date hedging instruments are read:
- Current date or entry of key date
Display mode determines the design of the result table:

- Row: Key figures in Rows, Periods in columns
- Column: Key figures in Columns, Periods in columns
Display Level:
- 0 Characteristic not displayed
- 1 Characteristic is used as key (column)
Private Layout:
- The defined layout is user specific and will not be shown for other users

Periods displays time buckets as defined in Hedging Area
Total displays a sum across all time buckets
Total of Year displays a sum of all time buckets in a calendar year
Display Level:
- 0 key figure not displayed
- 1 key figure is used
Process Step: Automated Designation Process
Figure 506: Process Step: Automated Designation Process
The next step we consider the preparation and release of the designation.
Accounting.
Note:
Process steps:
Controlling
Front Office
Middle Office

Automation
Designation Process (FX Risk)
Figure 507: Hedge Management and Hedge Accounting: Designation Process (FX Risk)
The designation step is relevant to all hedging contracts where the Hedge Classification is
marked as 'Hedge Accounting relevant'.
The designation takes place on the contract date of the hedging instrument.
In the designation step, the exposure is determined and a hedging relationship is created. The
status of the hedging relationship is initially 'Planned Designation'.
There are two types of designations: Automatic or End-of-Day.
1. Automatic designation as the trade is created.

Designation (TPM104).
The type of designation is driven by the Designation Type. The designation type is driven by
the Hedging Area settings. (See Hedge Accounting II tab of the Hedging Area.)
Run Reprocess Financial Transaction for Automated Designation (TPM104) for any trades
with an EOD designation. Note: This program is also used to analyze and post-process any
error situation in creating a hedging relationship for the designation.
An exposure item is determined from a relevant Snapshot. This becomes the Hedged Item. It
is the following attributes of the hedging contract that are used for the determination of the
Exposure Item from the relevant snapshot of a valid Hedging Area version:

Company Code
Valuation Area
Currency
Value Date
Hedging Classification
End-of-Day Designation
Figure 508: End-of-Day Designation
If SAP customers want the ability to take multiple snapshots per day to support multiple
exposure changes for a Hedging Area within a business day, the End-of-Day Designation
should be used.
It has to be ensured that the designation of all FX Transactions is executed on the Contract
Date of the trade.
With the End-of-Day Designation, the immediate designation of a FX Transaction with Hedge
Accounting relevant Hedging Classification is prevented to allow the creation of multiple
Hedge Accounting relevant Snapshots:
As the FX Transaction holds a Hedge Accounting relevant Hedging Classification, it is listed

in the report for Reprocessing FX Transactions for Automated Designation whose
designation failed.
The execution of the End-of-Day Designations with the Reprocess Transactions

Automated Designation report (TPM104) should be included into day end processing
steps.
The Reprocess Financial Transactions for Automated Designation app is enhanced to allow
End-of-Day Designation of FX Transactions into Hedging Relationships:
The Output Control input area has an indicator that allows the display of selected FX
Transactions for End-of-Day processing.
The Posting Control input area allows to execute the Report in Test Run.
It is the Designation Type that drives the End-of-Day Designation setting.

Designation Process (FX Risk) Flow
Figure 509: Hedge Management and Hedge Accounting: Designation Process (FX Risk) Flow
The process steps 1 to 4 are explained in detail on the subsequent pages:
1. Create FX Transaction
2. Check: Hedge Accounting relevant?
3. Designation
Automatic designation as trade is created
End-of-day designation with the Reprocess Financial Transaction for Automated

Designation (TPM104)
4. Release of Hedging Relationship
With the process, comprehensive analysis/ audit/ display functions are available.
FX Forward Transaction
Figure 510: Creation of Hedging Instrument: FX Forward Transaction

For period-based Hedging Areas, attributes of the TRL Position of the FX Forward Transaction
are used for the Determination of the Exposure Item of the relevant Exposure Snapshot of a
valid Hedging Area version:
Company Code
Valuation Area
Currency
Value Date
hedging instrument.
Hint:
Cross Currency Hedging is currently not supported, i.e. one Currency has to be
the Functional Currency.
Determination of Exposure Item: Rule Framework
Figure 511: Hedge Management and Hedge Accounting: Determination of Exposure Item: Rule Framework
In the case of period-based Hedging Areas, the rule framework for exposure item
determination is the following:
1. Check whether the Hedging Classification is marked as Hedge Accounting relevant for
given company code and valuation area at start date of TRL position. If not, then no
Exposure Item can be determined. No hedging relationship will be created.
2. Depending on start date of TRL position the Hedging Area Version is determined.
3. According to the differentiation criteria defined in the Hedging Area Version and by means
of the start and end date of TRL position the system determines the Exposure Item ID and
its values like amount, currency, snapshot-ID, due date, differentiation criteria.
4. The number of Hedging Relationships to be created is determined by number of entries of

the Designation Splitter setting of the Hedging Area: The FX Transaction is fully
designated into n Hedging Relationships.
Again, for reference-based Hedging Areas, the hedging item (exposure) is specified directly in
the hedging instrument.
The information provided belongs to number 2 of the Designation Process (FX Risk) overview.

Hedging Profile
Figure 512: Designation: Hedging Profile
Designation - Hedging Relationship:

The Hedging Relationship represents the link between Hedging Instrument and Hedged Item
which holds general information and calculation methods for Hedge Accounting processing.
The Hedging Relationship is created in Status ‚Planned Designation' for the relevant Valuation
Area.
Risk Currency: represents the Exposure Currency
Risk Profile: represents details of the Hedging Scenario and is populated automatically
based on Hedging Area definition; the Hedge Category details are derived from the Risk
Profile settings
Valid From, (Planned) Designation Date: contract start date of FX Transaction
(Planned) Dedesignation Date: value date of FX Transaction
Designation Type: characteristic relevant for Designation Release procedure
Hedging Relationship Scenario: every hedging scenario represents a special use case of a
Note:
The Hedging Relationship Scenario is an element which is defined by SAP.
In the scenario, the following parameters are determined:
The hedging relationship category and the hedged risk.

The following hedging relationship categories exist:
- 00 Cash Flow Hedge
- 01 Fair Value Hedge

- 02 Net Investment Hedge

- 10 Unit of Valuation
The hedged item category.

The available hedged item categories are the following:
- 00 Recognized Asset/Liability
- 01 Firm Commitment
- 02 Planned Forecast
- 03 Net Investment
Whether rollover is supported in the scenario
Whether effectiveness testing is supported for the scenario
The cardinality of the hedging relationship.

The following are the available values:
- Many-to-Many (N Hedged Items to M Hedging Instruments)
- Many-to-One (N Hedged Items to 1 Hedging Instrument)
- One-to-Many (1 Hedged Item to Many Hedging Instruments)
- One-to-One (1 Hedged Item to 1 Hedging Instrument)
The system determines for each scenario which product categories (PC) are allowed
(outtake):
Scenario Product Categories Product Categories

Allowed as Hedged Item Allowed as Hedging Instru-
ment
910 991 600

920 991 600
980 991 760
CCBS: Cross Currency Basis Spread.

The Designation Details provide a comprehensive overview on designation amounts of
Hedged Item and Hedging Instrument.
The Designation Amounts follow the splitter setting of the relevant Hedging Area.
The Flow Details provide an overview on the created designated and free standing
subpositions and its position transfer flows in status ‚scheduled'.
The List of Position Flows shows the transfer of the designated amount from free Standing to
Designated Subposition for Hedging Instrument (i.e. FX Transaction) and Hedged Item (i.e.
Exposure Subitem)

Exposure Subitem
Figure 513: Introduction of the Exposure Subitem
The Exposure Subitem has been introduced for Position Management purposes and is
created automatically as the due date for the reclassification of Hedging Reserve and Cost of
Hedging Reserve can be after the dedesignation date of the Hedging Relationship.
The Exposure Subitem Position Indicator is introduced for Position Management purposes
and is created automatically.
Company Code: Company Code of Hedging Area.
Accounting Code: derived from Company Code.
Product Type: determined from Hedging Area.
Valuation Area: determined from Hedging Area.
General Valuation Class: determined from customizing view ‚Assign General Valuation
Class to Product Type'.
Position Management Procedure: determined from customizing view ‚Assign Position

Management Procedure'.
Exposure Item ID: analysis item of a relevant exposure Snapshot.
Exposure Subitem ID: is created automatically as a representation of the hedged part of an

Exposure Item.

Figure 514: Designation - Hedged Item: Hedging Relationships
The Hedging Relationships can be accessed by the function Manage Hedging Relationships
(TPM100) or by the Financial Transaction (the button is located on the tab Administration).
Figure 515: Designation - Hedged Item: Exposure Subitem
The Exposure Subitem display provides important information and options to drill through to
further information.
On the right upper corner of the screen:
Drill through to Hedge Related Transactions of the Hedging Relationship.
Display of the Flows of the Hedging Relationship.

Figure 516: Designation - Hedged Item: Exposure Subitem Flows
The Hedged Item represents the portion of the underlying operational exposure after splitting
calculation. The Exposure Item data was determined automatically from the relevant version
of the Hedging Area Snapshot.
Start Date: Contract Date of FX Transaction.
End Date: derived from the relevant OCI Reclassification Offset Category of the Hedging
Area.
Category: Planned Forecast of Hedging Profile.
Product Group: newly introduced: Exposure Item.
Valuation Class: determined automatically from Customizing on Product Type level.
Exposure Item ID: ID of an Exposure item of a relevant exposure Snapshot.
Exposure Subitem ID: is created automatically as a representation of the hedged part of an

Exposure Item.
The Flow Details provide an overview on the created flows of the designated Exposure
Subitem position and its position transfer flows in status ‚Scheduled'.
Hedging Instrument
Figure 517: Designation - Hedging Instrument: Hedging Instrument Details
Designation: Hedging Instrument: Hedging Instrument Details: Buttons allow to branch out to
the Transaction and to the Positions flows.

The Hedging Instrument represents the FX Transaction which was created for hedging the
operational Exposure Item. The portion of the FX Transaction nominal amount which is to be
designated into the Hedging Relationship is determined based on the settings of the
designation splitting of the Hedging Area.
Release of Designation
Figure 518: Release of Designation - Execute Report
Release of Designation - Execute Report: transaction TPM120.

The Release of the Hedging Relationship becomes necessary as a separate step as not all
relevant information, e.g. Market Data, might be available with the creation of the Hedging
Relationship.
Process Steps of the Release of the Hedging Relationship:
Creation of hypothetical derivative
Hedge documentation created (specified in the definition of the Hedging Profile)
Prospective Effectiveness test executed (specified in the definition of the Hedging Profile)
Calculation and saving of start values of FX Transaction at Designation Date
Calculation and saving of start values of hypothetical derivative at Designation Date
Create and post a valuation of involved FX Transactions for setting start values of relevant
Position Management Components at Designation Date (if set up in Hedging Profile)
Determine and store the result of the check of the ‚Cost of Hedging Reserve Calculation
Rule', which determines the calculation and posting of the measurement result of „Cost of
Hedging Reserve" (OCI II)
Create and post a valuation of involved FX Transactions for setting start values of relevant
Position Management Components at Designation Date
Hedging relationship status changes from Planned Designation to Designated
With the Release of Designation all relevant key figures are calculated and stored on
Hedging Relationship level in the ‚Market Data Container'.
An Activity Log documents the results of the Release of the Hedging Relationship.
The release step completes the designation process.

Fixation of Planned Designation Flows

The Flow Details provide an overview on the created designated subpositions and its position
transfer flows in status ‚fixed'.
Note:
The hypothetical derivative is the representation of Hedged Item for
determination of hedging relevant information for Hedge Accounting Processing,
i.e. execution of measurement at period-end. The hypothetical derivative is used
for classification calculation.
Figure 519: Hedge Documentation
SAP provides Adobe template forms that customers can copy to create their own Hedge
Documentation form. Below are the two SAP delivered Adobe hedge documentation forms:
FX Forward: TR_F_THX_NOTE_HREL_FXRISK_FX
FX Option: TR_F_THX_NOTE_HREL_FXRISK_OP
SAP provides Hedge Documentation templates as .pdf form for FX Forward and FX Options as
Hedging Instruments to be copied and adapted to meet customer's needs.
The creation of Hedge Documentation is included as a process step with the Release of the
Hedging Relationship. The Hedge Documentation is created automatically and can be
accessed in the Hedge Accounting Workplace (TPM100).
As the creation of the Hedge Documentation is part of the automated processing it can not be
changed manually in the Hedge Accounting Workplace: The Release of the Hedging
Relationship needs to be reversed; this changes the status of the Hedge Documentation to
revoked.

Figure 520: Creation of Hypothetical Derivative
The hypothetical derivative is the representation of Hedged Item for determination of hedging
relevant information for hedge accounting processing, i.e. execution of measurement at
period-end.
Hedge Management Cockpit: Exposure, Hedges, Hedging Quota
Figure 521: Hedge Management Cockpit: Exposure, Hedges, Hedging Quota
The Hedge Management Cockpit now provides information on Exposures, Hedges, Hedging
Quota and therefore allows for analysis and adjustments, if needed.
Remember to refresh the information displayed in the Hedge Management Cockpit, press the
Start button.

Process Step: Period End Close
Figure 522: Process Step: Period End Close
The next step we consider the period-end close.

Accounting.
Note:
Process steps:
Controlling
Front Office
Middle Office
Automation

Figure 523: Hedge Management and Hedge Accounting Period End Close Process: Steps
At period end the determination of NPVs including the decomposition of the hedging
instrument and the hypothetical derivative is performed.
The key date valuation of the FX Forward Transactions is executed including the
measurement of ineffectiveness:
Postings of the Hedging Reserve and Cost of Hedging Reserve amounts are created on
Exposure Subitem level and
P/L ineffective amounts on Financial Transaction level.

CCBS: Cross Currency Basis Swap.
CVA: Credit Valuation Adjustment.
DVA: Debit Valuation Adjustment.
Figure 524: Postings at Period End Close: Sample

The postings are called sample postings as postings and account names can differ in your
company!
Postings 1: Run Valuation (TPM1), Postings for subpositions of FX Transaction (60 to 40
relation): from Asset account to Hedge Accounting clearing account.
Postings 2: Classification (TPM101), Postings for position Exposure Subitem, from Hedge
Accounting clearing account (split) to Hedging Reserve, Cost of Hedging reserve, Profit + L
account hedging/ ineffective part
Note:
The Run Valuation (TPM1) run posts to a hedge management clearing account.
The Classification step posts from the hedge management clearing account to the
OCI and P&L accounts. It is a two-step posting process.
Period End Close Processing
Figure 525: Period End Close Processing - Overview (1/2)
Calculation of key figures at Period End Close: transaction code TPM60CVA.

Data Selection:
Derive Evaluation Parameters: Evaluation Type and CVA Type are derived from Position
Management Procedure.
Select Single OTC Transactions: NPV of FX Forward Transaction is calculated.
Market Value Decomposition: Market Value Components are calculated.
Hedge Accounting Key Figures:
Componentization of Hedge Accounting relevant Key Figures: Spot, Forward, CCBS,

Others.
Key Figures are calculated as 100% of FX Transaction and hypothetical derivative.
Scaling is calculated by consumer of key figures.
Risk Free Key Figures do not contain CVA/DVA portion.

Here we see the SAP screens for Determine NPVs Including Credit and Debit Value
Adjustments (TPM60CVA).
Run Valuation: TPM1

The data selection for the execution of the Period End Close report is done on Product Group
and Product Group specific selection criteria, e.g. Financial Transaction.
As the FX Transaction is designated into a Hedging Relationship as Hedging Instrument, the
NPV is distributed to portions of:
Free Standing sub-positions and
Designated sub-positions of the Treasury Ledger Position.
The valuation result is displayed and documented in the valuation log; postings to Financial
Accounting are created for each sub-positions and are documented in a posting log.
Hint: the postings created and the amount of the NPV result depends on the procedure
selected for the execution of the key date valuation (TPM1):
With Reset

Without Reset.
Valuation Log:
The valuation of the FX Transaction is divided into two portions:

- Free Standing portion
- Designated portion
Posting Log:
The posting of the flows is created accordingly for the valuation of the FX Transaction
- Against P/L for freestanding part and
- Hedge Clearing for the designated part.
Classification: Transaction code TPM101.

With the execution of the data selection, the Designated Sub-positions of the Hedging
Relationship are selected and relevant classification amounts are calculated according to
settings of the Hedge Accounting Rule:
Hedging Reserve
P/Lineffective of Hedging Reserve
Cost of Hedging Reserve
P/Lineffective of Cost of Hedging Reserve
P/Lineffective
The Classification of FX Transactions which are designated into one or several Hedging
Relationships is executed in a separate Report for a key date which has to be the key date
of the period end close.
With the execution of the data selection, the Designated Sub-positions of the Hedging
Relationship are selected and relevant classification amounts are calculated according to
settings of the Hedge Accounting Rule.
The Classification Log displays classification results for

Hedging Reserve:
- Effective component value
Ineffective components value
Cost of Hedging Reserve:

- Effective component value
Ineffective component value
Ineffective P/L component value and the posting amounts in the Classification Summary.
Hint:
The finest granularity of the data selection is the Hedging Relationship number.
Postings to Financial Accounting are created for each sub-position and are documented in a
posting log. The Financial Accounting Document Header is populated with Hedging
Relationship, Exposure Item and Exposure Subitem.
Hints:
Classification with Reset is currently not supported!
A warning is raised in case the classification run if it does not fit to a corresponding
valuation run at the same key date.
With the execution of Classification, the designated Exposure Subitem Positions of the
Hedging Relationship are selected and relevant classification amounts are calculated
according to settings of the Hedge Accounting Rule:
Hedging Reserve (OCI I)
P/L ineffective of Hedging Reserve
Cost of Hedging Reserve (OCI II)
P/L ineffective of Cost of Hedging Reserve

P/L ineffective
Position Reporting and Posting Journal
Figure 530: Hedge Management and Hedge Accounting: Position Reporting and Posting Journal
The newly processed and posted valuation and measurement results can be reported in
Position and Flow Reporting as well as Posting Journal.
The newly introduced Product Group 'Exposure Item' is included to the existing reporting
capabilities of Position Reporting, Flow Reporting and Posting Journal.
Transaction codes:
Position Reporting: TPM12
Flow Reporting: TPM13
Posting Journal: TPM20
Balance Sheet Crossover
Figure 531: Hedge Management and Hedge Accounting:Balance Sheet Crossover
At the Balance Sheet Recognition date, you run the app Release Hedging Business
Transactions, the following activities are done by this app:
Calculation and saving of NPV of FX transaction

Calculation and saving of NPV component values for FX transaction and hypothetical
derivative
Posting of key date valuation of the designated portion of the FX transaction with actual
NPV values
Posting of classification of the selected Hedging Relationship with actual NPV component
values
Update amounts of Reclassification Update Types
Fix scheduled Reclassification Updated Types
Two options are provided for the reclassification of Balance Sheet Crossover, they are
maintained in field Balance Sheet Recognition on tab Hedge Accounting I of a Hedging Area:
1. Immediate Reclassification at Balance Sheet Recognition Date.
2. Reclassification at the End Date of the Exposure Subitem: the classification result between
Designation Date and Balance Sheet Recognition Date is frozen until end date of the
Exposure Subitem.
Contract Close
Figure 532: Hedge Management and Hedge Accounting:Contract Close
The dedesignation of the Hedging Relationship is executed at the maturity date of the FX
Transaction. The close of the FX Transaction is executed with the fixation and posting of
Derived Business Transactions via app Post Derived Business Transactions (TPM18).
A final measurement of the Hedging Relationship is executed at the maturity date of the FX
Transaction to report and post latest balances of Hedging Reserve and Cost of Hedging
Reserve amounts. As the FX Transaction is matured with the dedesignation, the balances of
Hedging Reserve and Cost of Hedging Reserve are frozen, this is reflected in the transfer of
the balances from the designated position component to the free-standing position
component of the Exposure Subitem.
The balance of the free-standing position component is the basis for the reclassification.
The Reclassification of the Hedging Reserve and Cost of Hedging Reserve position amounts is
executed at the end date of the Exposure Subitem within the Derived Business Transaction
Framework: the app Post Derived Business Transactions for the fixation and posting of
Derived Business Transactions selects the Exposure Subitem position flows to be reclassified.

Postings are created for reclassification of Hedging Reserve and Cost of Hedging Reserve
position amounts to profit or loss.
Reference-Based Hedging Areas
Figure 533: Reference Based Hedging Areas
Referenced-based Hedging Areas are relevant to both IRFS9 and US GAAP accounting.
With Reference-based Hedging Areas, the hedging instrument is directly assigned to an
underlying exposure. This is as opposed to a period-based Hedging Area where the hedging
instrument hedges an exposure on a period basis.
Analysis items, also known as exposures, of the Hedge Management Cockpit are defined by
date reference. The analysis items contain one exposure item based on a non-aggregated
exposure position.
Notice that the exposure item is displayed with a due date, an ID and a description in the
Hedge Management Cockpit. This is important because the hedging transaction is assigned
to a specific exposure. The user is able to see the information required on the display of the
When you create a Hedging Area for reference-based exposure items, the following applies in
the definition of the Hedging Area:

The risk-free currency is set to Local Currency by default and this cannot be changed.
The exposure aggregation level is not available.
The reporting time pattern is set to None by default.
Target quotas are not needed, so the target quota is set to None by default. Consequently,
on the General Settings tab, the Relevant for Target Quota column is hidden.
On the General Settings tab, the differentiation criteria Currency and Company Code are
selected and you cannot add another differentiation criterion.
Specific Hedging Classifications are assigned to the Hedging Area:
Hedge Accounting relevant for designation processing within a Hedging Relationship.
Non-Hedge Accounting relevant for Balance Sheet processing only.
Data sources are available as filters for exposures and hedging instruments. They represent
the database tables to be accessed for the selection of exposures and hedging instruments
within the Hedge Management Cockpit.
On the Filters for Exposures tab, the exposure data source must be reference based. The data
source field on the Filters for Exposures tab will be driven by the system based on the Analysis
Item Definition setting for the Hedging Area.
E_EM2 Exposure Management 2.0 for period-based hedging.
E_EM2REF Exposure Management 2.0 for reference-based hedging.
The Exposure Position Type entered on the Filter for Exposures tab MUST match the
Exposure Position Type of the exposure entered.
On the Hedge Accounting I tab, splitting is not relevant for reference-based Hedging Areas.
Also, on the Hedge Accounting I tab, the designation type is specified to drive the designation
of a FX Transaction into a Hedging Relationship. For reference-based exposures, Designation
Category One Instrument for Hedging Profiles for FX Forward Transactions is used.

Notice that the exposure item is displayed with a due date, an ID and a description in the
Hedge Management Cockpit. This is important because the hedging transaction is assigned
to a specific exposure. The user is able to see the information required on the display of the
What is displayed in the Hedge Management Cockpit is a result of the layout used. The Layout
Category should be set to Single References for reference-based hedging areas.
When using a reference-based hedging area, the Hedge Management Cockpit for reference-
based Exposure Items displays key figures for:
Net Exposure
Net Hedges Net Open Exposure
Designated Hedges
Hedge Quota [%]
Hedged Rate
SAP has delivered the Layout ID 1_REF_ALL to be used when a reference-based Hedging Area
is used in the Hedge Management Cockpit. This layout contains the key figures just
mentioned.
The hedging instruments are assigned to the analysis items by adding the hedged exposure
item ID on the FX Hedge Management tab of the financial transaction data as shown in the

screens above. With this assignment, the hedging contract is reflected in the Hedge
Management Cockpit.
Target Quota Overwrite
Figure 538: Target Quotas
The Target Quota represents what a company's hedge management policy requires from a
hedge management perspective.
For example, a company's hedge policy may be to hedge 80% of the net exposures in
currencies on a monthly basis. The Hedge Quota percentage would then be entered as 80.
The Amount to Hedge key figure in the Hedge Management Cockpit would then reflect 80% of
the net exposures per currency.
Target Quotas are defined in the Hedging Area.
1. The Target Quota Type is specified on the Main Data tab. The Target Quota Type is
defined in customizing.
2. The target quotas are set by Target Quota Type on the level of the company code and
currency groups on the Target Quotas tab.
The Hedge Management Cockpit displays the target quotas and key figures related to the
target quota. The Target Quota defines key figure determination in the Hedge Management
Cockpit. For example, the Amount to Hedge key figure is calculated from the target quota.
It is possible to overwrite the target quotas in the Hedge Management Cockpit if requirements
change for a company. All they key figures that use the target quota in the Hedge
Management Cockpit are then recalculated.
When overwriting the target quota, the user can overwrite the LowerTargetQuota,
UpperTargetQuota, and / or the Target Quota field.

Figure 539: Target Quota Overwrite
A Treasury department may at certain times need to change the Target Quote entered in the
system. It is possible to change the target quotas.
On the Hedge Management Cockpit, there is a button ‚Overwrite Target Quota', which allows
users to overwrite the Target Quota key figure(s) for a single particular set of differentiation
criteria / period or for multiple set of differentiation criteria / periods at the same time.
When pressing the ‚Overwrite Target Quota' button, the user is given the option of changing
one entry or multiple entries.
You need to overwrite the target quota by taking a snapshot to reset the last snapshot, which
reflects the old target quotas. If you do not do this the new target quotas will not be reflected
in the latest snapshot and thus will not be used.
Target Quotas can be overwritten in the Hedging Area by Target Quota Type on the level of
the differentiation criteria.
Prerequisites to manually change Target Quotas:
1. The layout used:
Refers to a Target Quota Type (See the Target Quota Type in the Layout definition)
Contains all differentiation criteria
Contains Target Quota key figure(s)
2. Snapshot:
Most recent day relevant snapshot and ‚today' as key date
You need to take a snapshot after you change the target quota
Validity of the manually changed Target Quotas:
Starting with the system date and moving forward in time.
Starting with the Snapshot used and moving forward in time.
The validity is cut off when:

- For the same set of differentiation criteria/ period the target value is edited at a later
date or snapshot.
- Target Quotas are reset when taking a new snapshot (See the Reset Target Quota on
the Take Snapshot app.)
To recalculate the key figures displayed in the Hedge Management Cockpit after the target
quotas have been changed, the user should press the Start button in the lower right corner of
the Hedge Management Cockpit. For example, the key figure Hedge Quote indicates where
hedging is currently at in the hedging process.
When One Entry is selected after choosing ‚Overwrite Target Quota', the screen displayed is
as shown above.
A popup displays the differentiation criteria / period of the selected cell and allows to change
the Target Quota key figure(s).
When Multiple Entries is selected after choosing ‚Overwrite Target Quota', the screen
displayed is as shown above.
A popup offers the differentiation criteria / periods like on a selection screen and allows to
change the Target Quota key figure(s).

When the changes are saved the system transfers the entered Target Quota key figure(s) to
all exposure items which fit to the entered conditions for the differentiation criteria / periods.
Figure 542: Refresh Hedge Management Cockpit
After performing the desired manual changes to the Target Quota, in order to take the
changes effect in the Hedge Management Cockpit, the data selection needs to be triggered
again by pressing the Start button.
Use the Take Snapshot app to reset the manual Target Quotas.
You need to overwrite the target quota by taking a snapshot to reset the last snapshot, which
reflects the old target quotas. If you do not do this the new target quotas will not be reflected
in the latest snapshot and thus will not be used.

End-to-End Hedge Management Process
Figure 544: End-to-End Hedge Management Process
This section summarizes the end-to-end Hedge Management and Hedge Accounting process
for forecast cashflows in foreign currencies. The hedging instruments could be FX forward, FX
option, or FX swap contracts.
Pre-process setup:
When the Treasury department knows its hedge policy, it can create the Hedging Area,
which is a sort of master data. For many companies, the hedge policy will not change from
year to year. The Hedging Area holds information such as the currencies hedged, the
target quota, the hedging instruments, if a front-office trading system such as 360T is
used, etc.
The Hedging Area drives what is displayed in the Hedge Management Cockpit.
The Hedge Management Cockpit gives Treasury a consolidated view of the exposures and
hedges across all relevant currencies and company codes.
Determine forecasts:
cash flows. This process is typically done at the company code level and then aggregated by
the Treasury department. At most companies, the determination of forecasts is typically a
perspective.
Collect and determine forecast (exposure) data
Create exposures in SAP
Take a Snapshot to record the exposures at the time of making a hedging decision.
Review Net Open Exposure in Hedge Management Cockpit
Day of trade:
On the contract date of the trade, three steps happen: 1) the hedging contract is created, 2)
the designation process takes place, 3) the hedging relationship is released.
Creating hedging contract

Agree on a hedging instrument
Check a Credit Risk Limit Utilization report (Optional) to make a decision on the
counterparties that can be used.
Create FX hedging contract with a Hedging Classification assigned.

- Create deliverable FX forward transaction
- Create non-deliverable FX forward (NDF) transaction
- FX option contract
Designation is the process of creating Hedging Relationship(s). The hedging relationship is

the determination of an exposure(s) for the hedging instrument. It is the Designation Type
that drives the type of designation.
1. Automatic designation as trade is created

Designation (TPM104)
Release of designated Hedging Relationship (TPM120), which happens on the contract day of
the trade. The release of the hedging relationship is a step because market data is needed for
this step and the market data may not be imported until later in the day.
Hypothetical derivative is created
Hedge documentation created
Effectiveness test executed
Hedging relationship changes from Planned Designation Hedge Relationship to Designated
The release of the hedging relationship completes the designation process.
Hedging relationship is now ready for upcoming period-end activities
Period-end processing
The Period End Close Process of designated FX Transactions is executed by:
1. Calculation of NPV, Forward, CCBS, CVA/DVA key figures (TPM60CVA)
2. Valuation of FX Transaction (TPM1)
3. Classification of Hedging Relationship (TPM101)
Maturity of Hedging Contract

De-designation of FX hedging contract
FX Forward Transaction: De-designation at Cash Settlement or Fixing Date
Cash Settlement for Deliverable Forward or Fix Rate for Non-Deliverable Forward
FX Option Transaction: De-designation at Exercise Date
Maturity processing of the hedging contract, e.g. settlement of the FX forward contract.
On the Exposure Subitem End Date, which may be the same as the maturity date of the
hedging contract but does not need to be, the Reclassification of Hedging Reserve and Cost of
Hedging Reserve of Exposure Subitem take place.

Review of Terms and Concepts
Figure 545: Review of Terms and Concepts
In this section, there is a review of terms and concepts.

The purpose of hedging is to decrease foreign currency volatility in the P&L.
The phases of a hedging relationship can be divided into the below three phases, which are:
Inception of the hedging relationship.
Ongoing life of hedging relationship.
End of hedging relationship.
The Hedging Relationship represents the link between Hedging Instrument and Hedged Item
which holds general information and calculation methods for Hedge Accounting processing.
The Exposure Subitem represents the hedged portion of an Exposure Item within a hedging
relationship.
The Hedge Management Cockpit is based on exactly one Hedging Area. The Hedge
Management Cockpit incorporates the following data into one view:
Exposures
Hedges
Hedging relationships (reflected in key figures)
Company's hedge policy
The Hedging Area is master data that is used to represents a section of hedging policy of the
company. It defines the risk you want to monitor on which level of granularity. The settings of
the Hedging Area drive the output displayed in the Hedge Management Cockpit. The Hedge
Management Cockpit provides visibility to hedged items and hedging instruments. It is the
central steering entity that contains all relevant settings for this process.
Period-based
Reference-based
The Hedging Classification determines the Hedging Area and the accounting that will be done
for the trade. The Hedging Classification is entered on the Administration tab of the hedging

instrument. All hedge classifications that are active for hedge accounting are Hedging Area. In
the Hedging Area definition, the hedging classifications are set on the General Settings tab.
A Snapshot is taken to record the exposures for a Hedging Area. After a snapshot is taken, the
exposures can be reviewed in the Hedge Management Cockpit.
Designation (either at trade entry or at EOD) is driven by the Designation Type.
Designation as trade is created.
EOD designation, Reprocess Financial Transaction for Automated Designation (TPM104).
Designation should be done on the contract date of the hedging instrument. In the
designation step, the Hedging Relationship(s) are created in Planned Designation status. The
Designation Type controls how instruments are treated during designation. The Designation
Type is set in the Hedging Area in the Designation Control section on the Hedge Accounting II
tab.
Release of designated Hedging Relationship (TPM120) must be done on the date of the
designation of the hedging instrument. It is a separate step because market data is needed for
this step and the market data may not be imported until later in the day.
Hedging relationship changes from Planned Designation Hedge Relationship to

Designated.
Hypothetical derivative is created.
Hedge documentation created.
Effectiveness test executed.
Hedging relationship is now ready for upcoming period-end activities.
The Designation Process is completed with the Release of the Hedging Relationship.
The Hypothetical Derivative is the representation of Hedged Item (the exposure being
hedged) for determination of hedging relevant information for Hedge Accounting Processing,
i.e. execution of measurement at period-end.
Exposure Item: Representation of Operational Exposure originated from the revenue forecast.
Exposure Subitem:
Representation of the hedged portion of an Exposure Item within a hedging relationship

according to Hedging Area settings.
The Exposure Subitem is introduced for Position Management purposes and is created
automatically as the due date for the reclassification of Hedging Reserve and Cost of
Hedging Reserve can be after the dedesignation date of the Hedging Relationship.
Hedging Profile is defined in customizing and drives all the parameters that control the Hedge
Accounting process, such as hedge documentation, effectiveness testing parameters,
Hedging Relationship Scenario, Hedge Accounting Rule and execution of valuation at
Contract Date.
The Hedging Profile is mapped (on tab Hedge Accounting II of Hedging Area) to the Hedging
Classification used in the hedging instrument.
The Hedging Profile drives:
Calculations of hedging instrument

Hedge documentation
Effectiveness Test
Hedging Relationship Scenario is an SAP defined element that holds information about the
Hedge Relationship Category (Cash Flow Hedge), Hedged Item Category (forecasted item),
Hedge Accounting Rule (determines rules for measurement; hedging reserve, cost of hedging
reserve), cardinality of Hedging Relationship. The Hedging Relationship Scenario is set in the
Hedging Profile.
The Hedging Relationship Scenario describes a specific use case of a Hedging Relationship.
The Hedging Relationship Scenario is a component which holds information about:
Hedging Relationship Category: Cash Flow Hedge
Hedged Item Category: Planned Forecast
Hedge Accounting Rule: determines the rules for measurement calculation
Hedging Reserve = Spot
Cost of Hedging Reserve = Forward + CCBS
Cardinality of Hedging Relationship: 1 : n

Hedge Category, e.g. Cash Flow Hedges, Fair Value Hedges, or Hedges of a Net Investment.
Hedge Category is specified in the Hedging Relationship Scenario, which is assigned to the
Hedging Profile (in customizing).
Hedge Accounting Rule of the Hedging Relationship Scenario determines how the amounts of
Hedging Reserve and Cost of Hedging Reserve are calculated. The Hedge Accounting Rule
defined by SAP.
Hedge effectiveness is defined as the extent to which changes in the fair value or cash flows of
the hedging instrument offset changes in the fair value or cash flows of the hedged item.
Designate hedge relationship: Create a hedge relationship in order to obtain hedge
accounting. The most important task of the designation is the proper documentation of the
hedge relationship. The Designation Process is completed with the Release of the Hedging
Relationship.
De-designate hedge relationship: Eliminate a hedge relationship, due to the relationship not
being effective, modifications of any of the components of the hedge relationship or any other
circumstance. Any accumulated amounts in OCI stay in OCI.
Prospective effectiveness: Future effectiveness of a hedge relationship.
The market data required for the designation business transaction is grouped together in a
market data container.
The Hedged Item represents the portion of the underlying operational exposure after splitting
calculation. The splitting calculation is based on the Designation Splitting settings on the
Hedge Accounting I tab of the Hedging Area. The Exposure Item data was determined
automatically from the relevant version of the Hedging Area Snapshot.
The Hedging Instrument represents the FX derivative trade that was created for hedging the
operational Exposure Item. The portion of the FX Transaction nominal amount which is to be
designated into the Hedging Relationship is determined based on the settings of the
designation splitting of the Hedging Area.
Free Standing: Portion of a Financial Transaction which is not designated into a Hedging
Relationship.

Hedging Reserve: Other Comprehensive Income I is calculated based on the spot component
of a derivative transaction.
Cost of Hedging Reserve: Other Comprehensive Income II is calculated based on the forward
component of a derivative transaction.
OCI: Other Comprehensive Income is a component of equity in the financial statements where
the effective portion of the gain or loss on a derivative instrument designated and qualifying,
as a cash flow hedging instrument shall be reported.
Reclassification Date is the date the accumulated OCI is transferred to the P&L.
LESSON SUMMARY

Hedging Areas
Hedging Areas

Unit 4
Lesson 4
Understanding Trading Platform Integration
LESSON OBJECTIVES
Trading Platform Integration

Architecture
Figure 546: Trading Platform Integration Overview
The FX Risk Management process uses the Trading Platform Integration SCP App as the
connection between the FX Trading Platform, such as 360T or FXAll, and SAP's Treasury and
Risk Management module. The Trading Platform Integration app is highlighted in the
screenshot above. Using the FX Trading Platform integration app, FX hedge requests can be
made directly from Hedge Management Cockpit to the 3rd party trading application, such as
360T or FXAll, and then the trades are created automatically in SAP.
The SAP Cloud Platform (SCP) apps are products developed by SAP for creating new
applications or extending existing applications in a secure cloud computing environment
managed by SAP. SCP apps are a relatively new type of app that SAP has introduced with S/
4HANA. The Trading Platform Integration is just one of these cloud platform apps. SCP apps
are not bound to any S/4HANA release. Enhancements to SCP apps are independent of the
S/4HANA releases.

Lesson: Understanding Trading Platform Integration
With the use of the Trading Platform Integration app and the functionality delivered in
Treasury and Risk Management, companies can have an FX trading process that is very
automated and requires little manual interaction.
If the Trading Platform Integration is activated in the hedging area, once FX hedge requests
are released, they are transferred to the trade request and a corresponding Trade Request ID
and a Trade Request Status is assigned to the FX hedge request.
The SAP back-end system can be an S/4HANA cloud system, or an S/4HANA on-premise
system, or an ECC system.
Trade Request from Treasury and Risk Management
Figure 547: Trade Request from Treasury and Risk Management
This slide shows the step-by-step process flow to initiate hedge requests from the Hedge
Management Cockpit.
The Trading Platform Integration SAP Cloud Platform (SCP) application enables customers to
integrate FX transactions made on trading platforms into SAP S/4HANA automatically. This
functionality covers both inbound and outbound communication with front-office training
platforms, such as 360T or FXAll, for trade requests from SAP and executed trades from the
trading platform to SAP.
The interfaces for 360T are included with the software. SAP makes generic interfaces
available to integrate other front-office trading systems. Brisken, an SAP partner, provides
interfaces for FXAll.
In this slide, the end-to-end FX trading process using the Trading Platform Integration SAP
Cloud Platform (SCP) application is outlined.
The Trading Process (Inbound) and Trade Request Process (Outbound) from Treasury and
Risk Management can be described in the following way:
1. Use the Hedge Management Cockpit to obtain an overview of your foreign exchange
exposures and the corresponding hedging instruments that you used to mitigate a risk in a
hedging area.
2. For direct communication with your traders, the Hedge Management Cockpit enables you
to create hedge requests for analysis items automatically.

3. Afterwards you can display and review all trade requests that were generated after the
release of the hedge requests in the Process Trade Requests app.
4. On the SAP Cloud Platform you handle incoming trade requests with the Manage Trade
Requests app. With the app customers have to possibility to split trade requests, block
trade them or to decline trade requests. Send the required trade requests to the external
trading platform e.g. 360T, for further processing.
5. The external trading platform receives the order. You will be able to get different quotes
and can choose your favorite offer. From the trading platform the completed trades are
send back to the Cloud Platform.
6. In the Manage Trades app the Trader can store competitive bids and the information is
forwarded to the Transaction Manager as FX contract to the SAP back-end system where
the trade is created automatically.
7. When the Hedge Management Cockpit is opened, the data reflects the trades that have
been executed.
Notice that the Trading Platform Integration app serves to process the trade requests from
the SAP back-end system before the trade requests are sent to the front-office trading
platform and map the executed trades from the front-office trading platform to the SAP back-
end elements before the trade is created on the back-end system.
Keep in mind, the process shown here is the end-to-end process flow. Some companies may
choose to implement only the inbound process (from the front-office trading system to the
SAP back-end system), which is possible.
Hedge Requests
Figure 548: Initiating Hedge Requests
There are a number of ways from the Hedge Management Cockpit where hedge requests can
be created.
The process of initiating hedge requests starts in the Hedge Management Cockpit with the
Hedge Request button. Under the Hedge Request button, there are the following options,
each of which will trigger a hedge request.
FX Swap Request
FX Hedge Request

DeDesignation Request
The Automated Request Creation button will also trigger hedge requests to be created. The
process for Automated Request Creation will be covered in the next lesson.
Figure 549: Create Hedge Requests
Displayed above is the detailed screen to submit a hedge request through the Hedge
Management Cockpit.
The following values can be adjusted at this point:
Instrument category
Hedging classification
Hedge request date
Amount
Once Treasury has validated the characteristics of the hedge request, they press the Submit
button.
Manage Trade Requests
Figure 550: Manage Trade Requests
The hedge request then moves to the Manage Trade Requests app.

The Manage Trade Requests app provides users with the functionality to import and process
trade requests that were created in the SAP back-end system. After processing in the Manage
Trade Requests app, the trade requests are sent to the front-office trading system.
You can use this app to do the following:
Import trade requests from your back-end system
Split a trade request into several new trade requests
Create a block of trade requests
Assign trade requests to a block
Decline trade requests that were imported from your back-end system
Send trade requests to external trading platforms
Reset trade requests to their error status to make them available for editing again
View trading platform details
There are also features available to share information with colleagues or to export data to
spreadsheets.
With the SAP Cloud Platform application Trading Platform Integration and the Manage Trade
Requests app it is possible to split the trade information into several smaller items.
It is also possible to group trades into a block trade to be done on the external trading
platform. Larger trades may get a better rate in the market.
For trades that are executed over the phone, it is possible to enter the trade at the Trading
Platform Integration app. In this scenario, the front-office trading platform is not used
because the trade was executed instead over the phone and directly with the counterparty or
broker. The trade would then flow to the SAP system where it would be automatically created.
Once the trade requests are sent (by pressing the 'Send' button), they go to the front-office
trading system, such as 360T or FXAll. The traders then execute the trades on the front-office
trading system, then the trades are sent back to SAP, passing through the Manage Trades
SCP app. When the trades reach SAP, they are created on an automated basis, and then
back-office processing can begin.
Manage Trades
Figure 551: Manage Trades

Trades executed on the front-office trading system, are sent through the Manage Trades app
before being sent to the SAP back-end system.
In the Manage Trades app, users can view and process trades that were automatically
imported from an external trading platform before the trade information is sent to the SAP
back-end system where a trade is created automatically.
Key features of the Manage Trades app include:
View trades that were imported from an external trading platform
Create and edit phone trades directly in the app
Edit trades to add missing information
Reprocess trades that could not be imported automatically into your back-end system
Reset trades to their error status to make them available for editing again
View trading platform details
The inbound service of the process ensures that the transactions from the trading platform
are imported into the Trading Platform Integration tool. Here a matching of the acquired data
to the original trade request is performed.
The trades are again assigned to a status. When the application receives a trade, the trade is
assigned the status In process. From there, if no errors occur, the trade is assigned the
status Successful. If an error occurs, you can use the activities provided to resolve the errors
and complete the trade.
Finally the information from the trade is forwarded from the Trading Platform Integration tool
to the SAP System. After all the information from the trade is mapped between the Trading
Platform Integration to the back-end system trading information where the trades are created
automatically and the Hedge Management Cockpit displays the updated trade information.
Activate Trading Platform Integration
Figure 552: Activate Trading Platform Integration
When defining a Hedging Area using the Define Hedging Area app, there is an Activate Trading
Platform Integration indicator shown above. This indicator should be set to activate
integration with the Treasury Management Integration for Trading Platforms application.
When you set this indicator, hedge requests with the hedge request category FX Hedge
Request are transferred to the trade request after their status has been set to Released. The

treasury management integration for trading platforms application then receives the trade
requests and processes them further before they are sent to an external trading platform.
Trading Platform Integration
Figure 553: Trading Platform Integration
The SAP Trading Platform Integration tool automates, streamlines, and simplifies trading
activities, ensuring complete end-to-end processing.
For more information, please see this video describing the Trading Platform Integration app -
https://video.sap.com/media/t/1_230y7tw2
For information on what needs to be done to get the application up and running please see the
Administrator's Guide - Integration with SAP S/4HANA Cloud that describes the steps a
system administrator must take to set up and configure the application with an SAP S/
4HANA system.
Additionally, Trading Platform Integration for SAP Treasury and Risk Management - 2F5 is an
enablement course on the Trading Platform Integration.
Automated Request Creation
Figure 554: Automated Request Creation
The ability to generate hedge requests based on the target quota with the click of a button is
possible with the Automated Request Creation button. This functionality is key to reducing
manual and error-prone manual steps in the hedging process.
For example, if a trader wants to hedge all open currency amounts for his Hedging Area based
on the company's hedge policy, the FX hedge requests can be created automatically using
the Hedge Management Cockpit app and the Automated Request Creation button described
in this section.
The hedge requests created will have the amount of the key figure Amount to Hedge for each
period.

Note:
It is required to display the key figure "Amount to Hedge" in the layout to use this
functionality.
Figure 555: Automated Requests Setup
The settings to activate Automated Request Creation are done in the Hedging Area on the FX
Hedge Request tab, where you enter the data relevant for the automated creation of FX hedge
requests. It is based on these settings that determines how the hedge requests are created by
company code and currency.
The hedge requests created will have the status set in the Target Status for Automation
field. The choices are status "Created" or "Submitted".
Select the Exclude Current Period indicator if a hedge for the current period should not be
created.
The default value date of the hedge requests created is specified in the Valuation Date
Definition field and the Additional Days field. Valuation Date Definition field specifies the
starting point per period and the Additional Days field specifies the offset to that. In
addition, there is the Working Day Shift indicator and method specified to indicate how to
shift past non-working days.
Under the Hedge Request Settings section, for each pair of company code and currency the
additional settings must be specified:
Default Instrument Category to be used for the hedge requests created.
Hedging Classification to be used for the hedge requests created.
Minimum amount of the hedge requests created. If the minimum amount is not met, the
hedge request for that period will not be created.
(Optional) The rounding rule to be applied to the hedge requests created. The amount of
the hedge requests is rounded to the rule specified.

Figure 556: Automated Request Creation
When viewing a hedging area within the Hedge Management Cockpit, you see the Automated
Request Creation button on the Hedge Management Cockpit.
It is the Amount to Hedge key figure that will drive the hedge requests created. The Amount to
Hedge key figure is driven by the Target Quota amount minus the current outstanding
hedges.
The system uses the predefined hedging requirements to generate hedge requests for all the
relevant periods in the risk currency selected.
Minimum amount
Rounding rules
Holiday Check for value dates
Figure 557: Adjusting Hedge Requests Created
After pressing the Automate Request Creation button on the Hedge Management Cockpit, a
Hedge Request List popup window will be displayed showing the hedge requests, based on
the settings specified in the Hedging Area, that will be created. Using the Select indicator (see
upper left of screen), the user is able to specify to create hedge requests to be created.
The user is able to adjust the amounts of the hedge requests created by changing the number
in the Amount column.
There is a status in the first column that indicates if a Hedge Request can be created. If the
status is not "green", a Hedge Request needs to be created manually.

After pressing the Enter key (lower right of screen), the user sees the Hedge Request ID that
holds the hedge requests created. All the hedge requests are created with one common group
ID.
You can change the following values that were predefined in the settings of your Hedging
Area:
Amount
Hedge Request Date
Instrument Category
Note:
If the status of the FX hedge request is green, it is automatically marked for
creation. You can select and deselect all FX hedge requests that are in green
status. To prevent the creation of FX hedge requests, deselect the Select indicator
for the FX hedge requests from the list.
The created hedge requests will be saved with a common group ID and can be found in Hedge
Request Overview using this ID.
As a next step, use the Process Hedge Requests app to submit and release the FX hedge
requests. For easier selection, you can filter the FX hedge request list for the corresponding
group ID.
Note:
Trade requests are generated automatically after the release of FX hedge
requests when the Activate Trading Platform Integration checkbox was selected
when you set up your Hedging Area. The Trading Platform Integration application
can then retrieve the trade requests.
Figure 558: Process Hedge Requests
Next, the hedge requests must be released (or rejected) using the Process Hedge Requests
app.
The app Process Hedge Requests is key to work on hedge requests. Within
the Process Hedge Requests app, you can search for all existing hedge requests and generate
a working list. You can search for the hedge requests by their category (FX hedge request, FX
swap request, or de-designation request) and their status.

When a hedge request has been created in the Hedge Management Cockpit app,
the hedge request gets Created status. The hedge request then needs to be validated. When
everything is fine with the hedge request, you can release the hedge request. Before releasing
the hedge request, you can make changes to it. Another option would be to reject
the hedge request. After you have submitted the hedge request, it gets Submitted status.
The rejected hedge requests get Rejected status and can be changed and submitted again
or they can be deleted.
The released hedge requests get Released status.
For de-designation requests, it is possible to withdraw the released de-

designation request. The hedge request gets the Withdrawn status afterwards.
The released FX hedge requests are now relevant for the trader, who searches for the
released FX hedge requests, and creates hedging instruments in the front-office trading
platform, e.g. 360T or FXAll, according to the information specified in the hedge request.
Figure 559: Process Flow Steps for Automated Request Creation
In this section, the process flow steps when using the Automated Request Creation are
reviewed. Before starting these steps, the settings for the Automated Request Creation
functionality must be specified on the FX Hedge Request tab of the Hedging Area. (The
settings are covered at the end of this section.)
1. Open the Hedge Management Cockpit, enter your Hedging Area, and press the start
button. The app shows the corresponding exposures and hedging instruments. It
aggregates the different amounts on the levels defined in the Hedging Area and layout
used. The result list shows all amounts of the key figures specified in the layout.
2. After validating the numbers displayed, press the Automated Request Creation button.
Note that the Amount to Hedge key figure will drive the hedge requests created. The
Amount to Hedge key figure is driven by the Target Quota amount minus the current
outstanding hedges.
3. At the Hedge Request List pop-up window, review and adjust (if necessary) any hedge
requests proposed. Press Enter to create the hedge requests proposed.
4. Go to the Process Hedge Requests app to release (or reject) the hedge requests. The
hedge requests have been given one Hedge Request Group ID. (The hedge requests can
be rejected in this step, if necessary.)

5. If the hedge requests are approved at the Process Hedge Requests app, they go to the
Manage Trade Request app in the Trading Platform Integration app.
LESSON SUMMARY

Unit 4
Lesson 5
Handling Further Derivatives
LESSON OBJECTIVES

and Risk Management
Further Derivatives Overview

The Interest Derivatives Process: Products
Figure 560: The Interest Derivatives Process: Products
The Interest Derivatives products are shown in the slide. In this lesson we concentrate on:
Forward Rate Agreement (FRA)
Interest Rate Swaps (IRS)
Cross Currency Swaps (CCS)
CAP and floor.
The following product categories can be distinguished:
The Forward Rate Agreement (FRA) allows a party to lock-in an interest rate today that will
apply to a period in the future.

Lesson: Handling Further Derivatives
Interest Rate Swaps (IRS) allows a party to exchange the interest payments of borrowing
contracts with other companies.
Cross Currency Swaps (CCS) additionally exchange the nominal amounts in different
currencies. There are multipe business reasons CCSs, from hedging to searching benefits
from comparative cost advantages.
CAP and Floor are Interest Options that can be fitted to the periods/ terms of the
transaction which is intended to hedge. A CAP limits the rise of the interest rates of
variable contracts to a certain upper limit. A Floor limits the fall of the interest rates of
variable contracts to a certain lower limit.
Hedging of Fair value or Cash Flow:
A Payer Swap (pay fixed interest, receive variable interest) secures the Fair value of the
underlying contract.
A Receiver Swap (pay variable interest, receive fixed interest) secures the Cash Flow of the
underlying contract.
Hedging of Interest or additionally FX: Cross Currency Interest rate Swap (CCS).
Derivatives Major Steps
Figure 561: Derivatives: Derivatives Major Steps
As we used the Debt and Investment Management process to explain these process steps
very detailed step by step in our training.
The further Derivatives/ Interest Rate Derivatives follow the same processes as explained for
the Debt and Investment Management process!

Organization
Figure 562: Derivatives: Organization
The trade processing in Transaction Manager is based on the more typical Treasury
organizational structure where the Front-Office executes trades, Back-Office supports tasks
such as trade confirmations and payments, and Accounting supports postings to the SAP
general ledger such as accruals and valuations.
The standard basic structure of the trading and transaction management processes forms
the basis for integrating and processing activities within the SAP system and provides the
framework for adapting the way transactions are represented in the system to meet specific
company requirements.
You can use the standard SAP authorizations to incorporate segregation of duty controls into
your processes.
SAP Fiori allows business users to custom tailor their Fiori launchpads with minimal effort.
The Fiori launchpads then provide the functions required by the specific user without
displaying functions which are not.
Forward Rate Agreement (FRA)
Figure 563: Derivatives: Forward Rate Agreement (FRA) key facts

Forward Rate Agreement (FRA) business background: The buyer of an FRA anticipates higher
interest rates for the reference period, while the seller anticipates lower interest rates.
Example (notation):
A "8 x 11" FRA has a contract period of 3 months. The term starts in 8 months. At this
point, the contract is also settled and paid out.
Example:
FRA 3x9; nominal amount EUR 10m; 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%.
Result: Settlement payment to the buyer.
Calculation: Interest rate difference x Nominal Amount x Days in hedging period 360 x
Discount factor.
In case the LIBOR rate would be lower than the FRA rate, the purchaser would have to
make a settlement payment.
Figure 564: Derivatives: Forward Rate Agreement (FRA)
Example:
A company will receive EUR 10m in 8 months and wants to invest this as 3-month money.
The company expects interest rates to fall, and therefore concludes a FRA with the house
bank on EUR 10m at time t0.
The FRA will start in 8 months (t8) for a term of 3 months (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%.
The bank is therefore obliged to pay the company a settlement of EUR 10m x 0.5% x
90/360 = EUR 12,500 (this amount still has to be discounted).
If the interest rate on the fixing day would have 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.

Figure 565: Derivatives: Creating a Forward Rate Agreement (FRA)
Create OTC Interest Rate Instrument (TO01):

The FRA is based on a fictitious money market transaction in which the capital amount is
merely used for calculation purposes.
A "8 x 11" FRA has a contract period of 3 months. The term starts in 8 months. At this point,
the contract is also settled and paid out.
The buyer of a FRA is looking for protection against rising interest rates, whereas the seller
wants to hedge against falling interest rates. Data entry in the system is based on standard
trading conventions and can be set up individually for each user.
Creation of a FRA:
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.
Figure 566: Derivatives: Creating a Forward Rate Agreement (FRA)
Create OTC Interest Rate Instrument (TO01):

Start of Lead time often is two days after the contract date.
The fixing is usually performed two days prior to the start of the hedging period. The amount
is paid on that date.

Figure 567: Derivatives: Forward Rate Agreement (FRA) Interest fixing
The Interest Fixing is transferred to the FRA using automatic or manual Interest Rate fixing
(as explained in the previous unit on Money Market/ Variable Interest).
Automatic Interest Rate Adjustment (TJ05).
Manual Interest Rate Adjustment (TI10).
Transaction used for this example: Create Manual Interest Rate (TI10).
Managing Interest Risk

Interest Rate Swaps/Cross Currency Swaps
Figure 568: Interest Rate Swaps/Cross Currency Swaps facts (1/2)
The interest payment amount is typically the netted amount of the fixed interest and variable
interest based on the terms of the trade. The variable interest amount is calculated based on
an index such as the LIBOR 3-month or LIBOR 6-month rate on the reset date. There may be a
spread included as well, such as LIBOR 3-month plus 1 basis point.
Today, the LIBOR rates might be 4.75 percent and 5.23 percent but the future values are not
known, however.

An example of a derivative financial instrument is a plain vanilla swap with variable and fixed
interest rates: 6 month LIBOR in return for 5.5%, term 20 years with semiannual interest
payments.
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 using financial mathematics 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 "interest rate adjustment" activity is necessary.
The interest rate adjustment changes a planned interest rate (that is, a rate where the
payment amount is unknown) into an actual interest rate (where the payment amount is
known). This activity occurs when the "interest rate is fixed" on the reset date.
The interest rate adjustment activity can be executed on a manual or automatic basis. The
function determines the planned 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 values for each reference interest rate, calculates the amounts and
writes the actual interest rates to the database.
The result of the interest rate adjustment function is the rate fixing of the planned interest
rate and generation of the actual interest rate.
Figure 569: Interest Rate Swaps/Cross Currency Swaps facts (2/2)
Cross-currency swaps are an over-the-counter (OTC) derivative in a form of an agreement

between two parties to exchange interest payments and nominal denominated in two
different currencies. In a cross-currency swap, interest payments and nominal in one
currency are exchanged for principal and interest payments in a different currency. Interest
payments are exchanged at fixed intervals during the life of the agreement.
Background: Swaps offer comparative cost advantages; these are achieved by two partners
on the basis of their different positions in different financial market segments.

Creating an Interest Rate Swap (Payer Swap)
Figure 570: Creating an Interest Rate Swap (Payer Swap)
Transaction: Create OTC Interest Rate Instrument (TO01).

This example: Payer swap: the fixed interest is paid.
Creating an Interest Rate Swap:
You enter transaction data for the partner, conclusion of the transaction, term and the
actual trading object (amount, currency, interest structure, and so on).
You can also branch to other entry screens to enter detailed information.
There are condition overviews available for the incoming and outgoing sides and also the
detailed information in each case. You can change the nominal amounts and also specify
the interest rate adjustment conditions.
In the Interest rate adjustment detail view, you can set the frequency with which the
variable interest is to be calculated and on what day the value of the underlying reference
interest rate is to be determined. An interest rate adjustment can be carried out at the
start of the period, at regular intervals, or at specific times.
Hint:
There is a notice function for premature settlement of a swap or a cap/floor.

Figure 571: Creating an Interest Rate Swap: Tabs/Display Functions
The Swap creation, change and display functions provide displays which are fitted to the
swaps special features:
Conditions detail display is available separately for the Outgoing and Incoming side.
Three Cash Flow displays are available: All cash flows, Outgoing side, Incoming side.
Figure 572: Creating an Interest Rate Swap, Conditions in Detail
You can choose between standard update methods (regular, unadjusted, adjusted) and
special update methods.
With these settings, the user specifies the rule to determine the interest rate adjustments. It is
possible to do such things as shift past non-working days, etc.
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 endorsed "adjusted" or
"unadjusted", the due date is determined relative to the calculation date. This is shown in the
above table with the example of "unadjusted (interest period)" and "adjusted (interest
period)".

Creating a Cross Currency Interest Rate Swap
Figure 573: Creating a Cross Currency Interest Rate Swap
One major difference between interest rate swaps and cross currency interest rate swaps is
the nominal amounts are exchanged at contract start and are transferred back at contract
end. The other difference is cross currency interest rate swaps are in multiple currencies,
whereas interest rate swaps are in one currency. Also, for interest rate swaps, the nominal
amounts are not exchanged.
Figure 574: Creating a Cross Currency Interest Rate Swap
The picture shows the start and the end of the CCS contract: the amounts are exchanged at
the start of the trade and are transferred back at maturity of the trade.

Further Derivatives
Derivatives: Caps / Floors
Figure 575: Derivatives: Caps / Floors (1/2)
Business Background
Both caps and floors are examples of a type of interest insurance. The purchaser of the cap
wants to hedge against rising interest rates. An interest rate upper limit is agreed for which
the purchaser pays an "insurance premium". The purchaser of a floor wants a minimum
interest rate and agrees an interest rate lower limit for protection against falling interest rates.
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 the
interest amount that lies over the agreed upper limit.
Caps or floors are a series of interest rate options that are exercised when a particular
interest rate level is exceeded or not attained. 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.
Caps and floors are interest options that can be fitted to the periods/ terms of the transaction
which is intended to be hedged.
Cap: Agreement between the seller (option writer) and buyer of the cap. The seller agrees, in
the case of a rise of the reference interest rate above the agreed fixed interest rate (strike), to
pay the difference in the interest rates to the holder of the cap. If the agreed interest rate is
not attained, a settlement payment is not made.
Floor: The purchaser only receives a settlement payment if the agreed interest rate lower limit
is attained.

Figure 576: Derivatives: CAP Example
Example:
A company has a variable borrowing of EUR 10m and has to pay interest at the LIBOR 6
month rate. The company expects that interest rates will stay roughly the same but that
does not rule out a rise in rates. Consequently, it purchases a cap.
Term: 07/01/YY through 06/30/YY+2.
Interest rate upper limit: 6.125 %.
Nominal amount: EUR 10 million.
Premium 0.85 % = EUR 85,000.
Creating a Cap/Floor
Figure 577: Derivatives: Creating a Cap/Floor
Create OTC Interest Rate Instrument (TO01)

You create a contract for purchasing or selling a cap or floor in the usual way. The important
points are the interest-related data such as interest rate upper limit/ lower limit, reference
interest rate, interest calculation method, frequency of interest rate adjustment, and so on.
A detail view is available for interest, interest rate adjustment, and option premium.
In the interest rate adjustment detailed view, you can set the frequency with which the
variable interest is to be calculated and on what day the value of the underlying reference
interest rate is to be determined.

The interest rate can be adjusted at the start of the period, at regular intervals, or at specific
times. When you create the cap/ floor, the system proposes a single premium by default. In
the option premium detail view you can generate several premium payments by setting a
frequency.
There is a notice function for premature settlement of a swap or a cap or a floor.
Figure 578: Derivatives: Creating a Cap/ Floor
The interest rate adjustment can be performed manually or automatically by the system,
based on the currently loaded market data.
Manual Interest Rate Adjustment (TI10).
Automatic Interest Rate Adjustment (TJ05).
LESSON SUMMARY

and Risk Management

Unit 4
Lesson 6
Coping with EMIR Regulations
LESSON OBJECTIVES
EMIR Reporting Requirements
Figure 579: EMIR Reporting Requirements
Over the last ten years, authorities in the European Union (EU) have been pursuing a G20
agenda for derivative reporting. The requirements, though, have been changing and are
currently in a state of flux.

SAP Trade Repository Reporting by Virtusa Polaris
Figure 580: EMIR Requirements: SAP Trade Repository Reporting by Virtusa Polaris
In Europe, there has been a number of changes made to the EMIR regulatory reporting
requirements for derivatives over the last ten years, and even more changes over the last few
years.
Due to the regulatory reporting requirements and the changes to the requirements, one
option for SAP customers is to use Virtusa, which is a cloud-based third-party solution called
SAP Trade Repository Reporting by Virtusa (aka: SAP TRR by Virtusa). This offering is also
known more generically as Trade Repository Reporting. This solution allows SAP customers
to meet the reporting requirements more easily in that they do not need to devote as many
internal resources to meet the requirements. This solution is scalable and will support future
changes to the reporting requirements.
SAP Trade Repository Reporting by Virtusa Polaris is an extension to the Treasury Portfolio
within S4HANA digital core.
Through years of experience in the financial industry VirtusaPolaris have built the optimal
single solution for ensuring global regulatory compliance within dedicated derivative trade
reporting.
Key facts of the solution:
Cloud based: To enable scalability and ensure the ability to dynamically adopt to future
requirement changes.
Fully automated: As required by global regulators for all derivative trade reporting. This
minimizes additional workload for business operations.
Full control of reconciliation: To ensure remaining compliant since it is both mandatory to

report the derivative data as it is mandatory to make sure the matching process to your
counterpart data is not failing.
Future-safe: Through continuous development and adjustments based on regulatory

changes or changes to the Trade Repository interfaces.

Lesson: Coping with EMIR Regulations
Figure 581: SAP Trade Repository Reporting by Virtusa Polaris:Intermediate between TRM and Trade Repository
SAP Trade Repository Reporting by Virtusa Polaris as the intermediate between SAP
Treasury and Risk Management and the Trade Repositories.
Figure 582: SAP Trade Repository Reporting by Virtusa Polaris:the Dashboard provides the overview status
The Virtusa Polaris Dashboard provides the overview status.
LESSON SUMMARY

Unit 4
Learning Assessment
1. What does the FX Risk Management process in Treasury and Risk Management provide?
X A Processing of FX Spot, FX Forward, FX Swap, Cross Currency Swap, FX Options.
X B FX Cash teller desk.
X C Comprehensive FX Reporting.
X D FX banknote authentication.
X E FX Hedge Management and optionally FX Hedge Accounting.
2. The Exposure Management delivers the possibility to capture, group, match and store the
Raw Exposures as well as the aggregated Exposure Positions. The following types of
exposures can be distinguished:
X A Forecasted Transactions
X B Foretold Transactions
X C Firm Commitments
X D Assets and Liabilities
3. Which of the following statements is correct for the Hedge Management and Hedge
Accounting?
X A A hedge is a position intended to offset potential losses or gains that may occur
from a different position.
X B A hedge is an investment position intended to gain money on the market.
X C A hedge can be constructed from many types of financial instruments, including

stocks, exchange traded funds, or swap contracts.
X D Hedge Management is possible without Hedge Accounting.
X E Hedge Accounting is possible without Hedge Management.

4. Raw exposures must be released before they can be used in a hedging relationship.
X True
X False
5. The Hedge Management Cockpit pulls which of the following into one view?
X A Exposures
X B Hedging Instruments
X C Hedge Policy
6. Which of the following best describes reference-based Hedging Areas?

X A Release of the hedging relationships is not required
X B The exposure being hedged is specified in the hedging instrument
X C The exposure being hedged is determined by a rule framework
7. Which of the following is driven by the Hedging Profile?

X A End-of-day designation
X B Creation of hedging relationship
X C Effectiveness testing
X D Hedge documentation created
8. Which of the following may happen with the release of a hedging relationship?
X A Creation of hedge request
X C Hypothetical derivative is created
X D Hedge documentation create

9. Which of the following are steps in the period-end close for hedging instruments?
X A Determination of the fair market value (NPVs) including the decomposition of the
hedging instrument
X B Post the valuation to the SAP general ledger
X C Execute the classification run
X D Post interest accruals
10. Which of the following describes the Trading Platform Integration app?
X A Integrates an SAP back-end system with a front-office trading system
X B Is an SAP Cloud Application
X C Works with ECC and S/4 HANA SAP implementations
11. The settings for the Automated Hedge Creation are made where?
X A On the FX Hedge Request tab of the Hedging Area
X B In the Trading Platform Integration app
X C In the front-office trading system
12. Which of the following describe cross currency interest rate swaps?
X A Payment of nominal
X B Periodic interest payments
X C The trade is in multiple currencies

13. When using the Automate Hedge Creation functionality, hedge requests are created for
which key figure?
X A Amount to Hedge
X B Net Hedges
X C Max. Amount to Hedge
X D Net Open Exposures
14. Which of the following are the features of SAP Trade Repository Reporting by Virtusa
Polaris?
X A Cloud based
X B Fully automated
X C Full control of reconciliation
X D Future-safe

Unit 4
1. What does the FX Risk Management process in Treasury and Risk Management provide?
X A Processing of FX Spot, FX Forward, FX Swap, Cross Currency Swap, FX Options.
X B FX Cash teller desk.
X C Comprehensive FX Reporting.
X D FX banknote authentication.
X E FX Hedge Management and optionally FX Hedge Accounting.
This is correct. The FX Risk Management process provides the Management of a

multitude of different Currencies and the Risk arising from the fluctuation of their
Exchange Rates.
2. The Exposure Management delivers the possibility to capture, group, match and store the
Raw Exposures as well as the aggregated Exposure Positions. The following types of
exposures can be distinguished:
X A Forecasted Transactions
X B Foretold Transactions
X C Firm Commitments
X D Assets and Liabilities
This is correct. The Exposure Management delivers the possibility to capture, group,
match and store the Raw Exposures as well as the aggregated Exposure Positions.

3. Which of the following statements is correct for the Hedge Management and Hedge
Accounting?
X A A hedge is a position intended to offset potential losses or gains that may occur
from a different position.
X B A hedge is an investment position intended to gain money on the market.
X C A hedge can be constructed from many types of financial instruments, including

stocks, exchange traded funds, or swap contracts.
X D Hedge Management is possible without Hedge Accounting.
X E Hedge Accounting is possible without Hedge Management.
This is correct. A hedge is an investment position intended to offset potential losses or

gains that may occur by a companion investment.
4. Raw exposures must be released before they can be used in a hedging relationship.
X True
X False
5. The Hedge Management Cockpit pulls which of the following into one view?
X A Exposures
X B Hedging Instruments
X C Hedge Policy
6. Which of the following best describes reference-based Hedging Areas?

X A Release of the hedging relationships is not required
X B The exposure being hedged is specified in the hedging instrument
X C The exposure being hedged is determined by a rule framework

7. Which of the following is driven by the Hedging Profile?

X A End-of-day designation
X C Effectiveness testing
X D Hedge documentation created
8. Which of the following may happen with the release of a hedging relationship?
X A Creation of hedge request
X C Hypothetical derivative is created
X D Hedge documentation create
9. Which of the following are steps in the period-end close for hedging instruments?
X A Determination of the fair market value (NPVs) including the decomposition of the
hedging instrument
X B Post the valuation to the SAP general ledger
X C Execute the classification run
X D Post interest accruals
10. Which of the following describes the Trading Platform Integration app?
X A Integrates an SAP back-end system with a front-office trading system
X B Is an SAP Cloud Application
X C Works with ECC and S/4 HANA SAP implementations
That's correct.

11. The settings for the Automated Hedge Creation are made where?
X A On the FX Hedge Request tab of the Hedging Area
X B In the Trading Platform Integration app
X C In the front-office trading system
That's correct.
12. Which of the following describe cross currency interest rate swaps?
X A Payment of nominal
X B Periodic interest payments
X C The trade is in multiple currencies
13. When using the Automate Hedge Creation functionality, hedge requests are created for
which key figure?
X A Amount to Hedge
X B Net Hedges
X C Max. Amount to Hedge
X D Net Open Exposures
14. Which of the following are the features of SAP Trade Repository Reporting by Virtusa
Polaris?
X A Cloud based
X B Fully automated
X C Full control of reconciliation
X D Future-safe
That is correct. All the listed options are the features of SAP Trade Repository Reporting
by Virtusa Polaris?

UNIT 5 Market Data
Management
Lesson 1
Employing Market Data 469
Lesson 2
Loading and Calculating Market Data 500
UNIT OBJECTIVES
Understand the structure of the Market Data Management system
Distinguish different types of market data
Load and calculate market data

Unit 5
Lesson 1
Employing Market Data
LESSON OBJECTIVES
Market Data Management Overview
Figure 583: Market Data: Overview
As a prerequisite to evaluate transactions in the system, in transaction manager and in risk

analysis, the relevant market data tables need to be served with the market data in the SAP
system.
This can be performed in the following ways:
Manually
Excel interface
File interface
Datafeed
FTP access (Internet)
Datafeed server

Unit 5: Market Data Management
Price parameters/market data constitute basic data in treasury and risk management.
When you enter a transaction, they provide comparative values, similar to a market value
check. In accounting, you can use market data to determine values in line with the market
(fair value/ NPV), and in risk analysis you need market data to evaluate the market risk key
figures.
The market data that is required in the system is derived from the traded financial products:
depending on the products managed in TRM and analysis required from the analyzers the
need for market data arises.
This overview depicts the areas and types of market data:

Interest:
Interest rates
Yield curves
Prices of exchange traded contracts:
Security Rates (all exchange traded including exchange traded derivatives including
futures, commodities are not yet covered by S/4HANA)
Indices
Foreign Exchange:
Currency rates
Forex swap rates
Statistical values:
Volatilities

Lesson: Employing Market Data
Correlations
Risk information:
Credit spreads
Credit spread curves/new yield curve framework
Detailed information is provided on the following pages.
Hint:
According to the standard system setup, the net present values are calculated by
the market risk analyzer and stored in a table to allow consumption by TRM
accounting. Although a function exists for entering the net present values
manually. Enter net present values: JBNPV.
Exchange Rates and Swap Rates
Figure 585: Market Data: Exchange Rates Overview
Function: Enter Exchange Rates: TMDFX for manual FX rates lookup, change and capture.

Figure 586: Market Data: Exchange Rates Storage
Function: Enter Exchange Rates: TMDFX for manual FX rates lookup, change and capture.
Exchange rate type is:
the key under which you define exchange rates in the system
subject to configuration
To define different exchange rates you must specify exchange rate types.
Example:
You can use the exchange rate type to define a bank buying and selling rate and an average
rate for the translation of foreign currency amounts.
You can then use the average rate for foreign currency translation, and the buying and
selling rates for the valuation of foreign currency amounts owned by your company.

Figure 587: Market Data: Exchange Rates: Quotation
Quotation:
Indirect Quoted Exchange Rate:
This field contains an exchange rate according to the indirect quotation method. The
exchange rate gives the amount of the "from" currency that you get for a unit (1, 10, 100,
and so on) of the "to" currency.
In this example you would get 1.23 USD for 1 EUR.
Direct Quoted Exchange Rate:
This field contains an exchange rate according to the direct quotation method. The
exchange rate gives the price in the "to" currency that you have to pay for a unit (1, 10, 100,
and so on) of "from" currency.
In this example you would pay 1.08 CHF for 1 EUR.

Figure 588: Market Data: FX Swap Rates Overview
Function: Enter Forex Swap Rates TMDFXFP

.
Forex swap rates (the difference between the exchange rate and the forward rate) are
required to perform specific valuation procedures: determining the fair value/NPV for forward
transactions.
Since market data providers frequently do not offer forex swap rates, you have the option (as
of Enhancement Package 3) of using the SAP system to determine these rates on the basis of
existing yield curves:
Function RMMDGSBP - Forex Swap Basis Points Generator can be used for generating the
foreign exchange swap records.
Security Rates
Figure 589: Market Data: Security Rates Overview
Security Rates: this function enables you to edit security prices manually: enter security
prices: FW17.

You can see the following entries for each price in the list:
Price date - Price type.
Market value (absolute) - The market value will depend on the price type. A market value of
zero is not defined.
Currency Key - This field does not appear for percentage-quoted securities.
Price notation.
Source - The source tells you whether the price has been entered manually or
automatically using data feed (for example, "manually").
Figure 590: Market Data: Security Rates: Securities Prices Display and Change
Enter security prices ( FW17): this function enables to edit security prices manually.

Figure 591: Market Data: Security Rates: Securities Prices Display and Change
Enter Security Prices: FW17: this function enables you to edit security prices manually.
You can see the following entries for each price in the list:
Price date
Price type
Market value (absolute) - The market value depending on the price type. A market value of
zero is not defined
Currency key (this field does not appear for percentage-quoted securities)
Price notation
Source: the source provides information whether the price has been entered manually or
automatically using data feed (for example, manually )
Price notation:
The price notation provides information about the market conditions (supply and demand)
which prevailed when the price was set.
You define the price notations in customizing for securities by choosing Maintain Price
Notations .

Figure 592: Market Data: Securities: Indices, Links, Beta Factors
Functions:
Enter index values: TMDIDX
Enter price index values: TMDPRICEIDX
Assign class to securities index: TMDAS_CLASS2IDX
Enter beta factors: TMDBETA
Beta Factors can be captured using the function: Enter Beta Factors: TMDBETA.

Interest Rates, Yield Curves, Credit Spreads, New Yield Curve Framework
Interest Rates/Yield Curves Business Use
Figure 593: Market Data: Interest Rates/Yield Curves Business Use
Example: Euribor
Figure 594: Market Data: Example: Euribor
Picture from: http://de.euribor-rates.eu/ , from 2017/09/03.

Example: Euribor:

Euribor is short for Euro Interbank Offered Rate. The Euribor rates are based on the
average interest rates at which a large panel of European banks borrow funds from one
another. There are different maturities, ranging from one week to one year.
The Euribor rates are considered to be the most important reference rates in the European
money market. The interest rates do provide the basis for the price and interest rates of all
kinds of financial products like interest rate swaps, interest rate futures, saving accounts
and mortgages. This is why many professionals as well as individuals monitor the
development of the Euribor rates intensively.
In total, there are 8 different Euribor rates (until November 1st 2013 there were 15 Euribor
rates). Next to that there is also a 1-day European interbank interest rate called Eonia.
Source and more information see: http://de.euribor-rates.eu/
Example: Euro Area Yield Curves from European Central Bank
Figure 595: Market Data: Example: Euro Area Yield Curves from European Central Bank
Picture from: https://www.ecb.europa.eu/stats/financial_markets_and_interest_rates/

euro_area_yield_curves/html/index.en.html
Euro area yield curves: The euro area yield curve shows separately AAA-rated euro area
central government bonds and all euro area central government bonds (including AAA-rated).
It is updated every target business day at noon (12:00 CET). No data or other information are
provided regarding any day on which the relevant trading venue from which the euro area
yield curve data are sourced is not open for business.
A yield curve is a representation of the relationship between market remuneration rates and
the remaining time to maturity of debt securities. A yield curve can also be described as the
term structure of interest rates. The ECB publishes several yield curves, as shown in this
section.

Interest: What Is Required?
Figure 596: Market Data: Interest: What Is Required?
Picture from: http://de.euribor-rates.eu/ , from 2017/09/03.
1. Interest Rates: this is to be started with: the interest for a certain maturity is stored in the
system every day (for example. Euribor 1 week interest, Euribor 3 month interest, Euribor
6 month interest, and so on)
2. Yield curves: the single interest curves are combined to a yield curve: the Euribor yield
curve with 1 week to 12 months interest information
3. Including information on the counterparty’s credit risk (depending on analysis/ reporting

intention)
4. Credit spreads
5. New yield curve framework

Reference Interest Rates
Figure 597: Market Data: Reference Interest Rates
Functions:
Enter Reference Interest Rates: JBIRM
Enter and Evaluate Yield Curves: JBYCN
To store market interest rates in the system, you first have to define reference interest rates.
You can define reference interest rates in the system that correspond to the parameters
above. You can define as many reference interest rates in as many currencies as you require.
The reference interest rates are defined by currency, interest calculation method (such as
360E/360, Act/360), quotation type (such as bid or ask), and term.
The definition of the forward calculation of the curve type is particularly important for risk
analysis.
When you assign an interest rate to a yield curve, you define what interest rate structure is
used to calculate forward interest rates in case that interest rate is used as the reference
interest rate in products such as floating rate bonds, swaps, or caps. Then you can decouple
the calculation of the forward interest rates from the curve that is used as a basis to calculate
the zero bond discounting factors.
Reference interest rates form the grid points of the yield curves for the various currencies. To
this end, the reference interest rates are assigned to yield curve types.
You can define par yield curves from securities with all-year coupon payment (securities
having this coupon yield are quoted at par). Zero bond yields are derived with financial
mathematics from the par yield curves (method: bootstrapping).
Zero bond discount factors are calculated from the zero bond yield curves and are used to
discount the payment Flows.
You need the relevant yield curves to determine the net present values.
You can adjust the reference interest values at the grid points daily.

The SAP system uses the grid points to calculate all the necessary values, depending on the
interpolation category of the yield curve, using linear or cubic spline interpolation.
With cubic spline interpolation, the values you want do not necessarily have to lie on a
straight line, since this procedure also supports (non-linear) curves.
Linear interpolation uses two known values to determine a value on a straight line between
the two known values.
The annual grid values are interpolated for par rate yield category curves up to the last
reference interest rate (grid point) defined in the yield curve for a maximum of 30 years. If the
term of a calculated interest rate is outside the grid points on a yield curve, the interest rate at
the upper or lower end is used instead.
Yield curves that are similar on a business level can be grouped into yield curve types. You can
set the interest rate calculation method for each currency. You can define the valuation rule
for transactions independent of the currency, since the system takes the required yield curve
in connection with the currency of a single transaction when you specify the yield curve type.
A yield curve type can indicate a market segment (swap market, government bond market) or
the determination of the opportunity interest (in the sense of one of the central fund
manager's internal markets).
Yield curve types are described by attribute yield type, read and interpolation procedure, and
any number of currencies. For each yield curve, you therefore have a grid point structure that
forms the basis for the yield curve.
A yield curve is constructed from the reference interest rates or grid points that have the
following characteristics in common:
The reference interest rates are assigned to the same yield curve type.
The reference interest rates are defined for the same currency.
The expanded yield curve or interest table is constructed on the basis of this information
and contains the following values:
The interest rates of the grid points
The interpolated interest rates of the annual grid values (for par rate yield type only)
Zero coupon rates and zero coupon discounting factors of the grid points and the annual grid
values for the par rate yield category.
The interest calculation methods of the yield curves and the reference interest rates may be
different. When the actual interest rates in the extended interest table are saved, they are
converted into the interest calculation methods of the yield curves.
For enabled continuous compounding zero interpolation, zero rates with continuous interest
calculation and the Act/365 interest calculation method are determined from the zero bond
discounting factors regardless of the yield category.

Reference Interest Rates
Figure 598: Market Data: Reference Interest Rates
Functions:
To store market interest rates in the system, you first have to define reference interest rates.
You can define reference interest rates in the system that correspond to the parameters
above. You can define as many reference interest rates in as many currencies as you require.
The reference interest rates are defined by currency, interest calculation method (such as
360E/360, Act/360), quotation type (such as bid or ask), and term.
The definition of the forward calculation of the curve type is particularly important for risk
analysis.

Yields of Coupon Bonds Versus Zero Bond Yields
Figure 599: Market Data: Yields of Coupon Bonds Versus Zero Bond Yields
Hint:
Coupon bonds usually pay out the interest on a yearly base. Zero bonds do not,
the interest is capitalized. Therefore the yield of the zero bond is above the yield
of the coupon bond.
When you assign an interest rate to a yield curve, you define what interest rate structure is
used to calculate the forward interest rates in case that the interest rate is used as the
reference interest rate in products such as floating rate bonds, swaps, or caps.
Then you can decouple the calculation of the forward interest rates from the curve that is
used as a basis to calculate the zero bond discounting factors.
Reference interest rates form the grid points of the yield curves for the various currencies. To
this end, the reference interest rates are assigned to yield curve types.
You can define par yield curves from securities with all-year coupon payment (securities
having this coupon yield are quoted at par). Zero bond yields are derived with financial
mathematics from the par yield curves (method: bootstrapping).
Zero bond discount factors are calculated from the zero bond yield curves and are used to
discount the payment flows.
What is 'At Par'?
At par, commonly used with bonds but is also used with preferred stock or other debt
obligations, indicates that the security is trading at its face value or par value. The par value is
a static value, unlike market value, which can fluctuate on a daily basis. The par value is
determined upon issuance of the security.
!--break--"At par" can define whether a security, such as a bond, was issued at its face value
or if the issuing company received less or more than the face value for the security.
A bond that trades at par has a yield equal to its coupon. Investors expect a return equal to
the coupon for the risk of lending to the bond issuer. Bonds are quoted at 100 when trading at
par. Due to changing interest rates, financial instruments almost never trade exactly at par. A
bond is not likely to trade at par when interest rates are above or below its coupon rate.

Source: http://www.investopedia.com/terms/a/at-par.asp#ixzz4rdayoHjb
Yield Curves
Figure 600: Market Data: Yield Curves Introduction
Yield curves are build using reference interest rates or corresponding derivatives as grid
points.
The main features of a yield curve framework needed for fair value calculations are:
discount factors in order to determine net present values (NPVs) of future cash flows
forward-projecting interest rates for non adjusted reference interest rates
Functions:

Figure 601: Market Data: Yield Curves Overview
Yield curves that are similar on a business level can be grouped into yield curve types. You can
set the interest rate calculation method for each currency. You can define the valuation rule
for transactions independent of the currency, since the system takes the required yield curve
in connection with the currency of a single transaction when you specify the yield curve type.
A yield curve type can indicate a market segment (swap market, government bond market) or
the determination of the opportunity interest (in the sense of one of the central fund
manager's internal markets).
Also see: https://en.wikipedia.org/wiki/Yield_curve
Select a yield curve type, currency, and entry date or entry period.
Yield curve overview:
This overview shows the already maintained status of yield curves depending on the read
procedure. In our example, no current interest rates are maintained. They are all prescribed
by the read procedure.
%SC: This field displays the percentage of maintained reference interest rates in the yield
curve on the validity date. It does so in accordance to the read procedure for the assigned
reference rates.
Example: If an interest rate is found for every assigned reference interest rate on the yield
curve's validity date (which might also include reading past dates, depending on the read
procedure), then the match will be 100%. If, however, no interest rates have been
maintained for the yield curves validity date and the read procedure is 'Direct Read', then
the percentage would be 0.
%SD: This field shows the percentage of maintained reference interest rates on the validity
date.
Example: If the yield curve has been assigned ten reference interest rates and five of those
are maintained on the validity date, that would be 50%. This calculation does not take any
kind of read procedure into account. It counts only the interest rates maintained for that
day.

Figure 602: Market Data: Yield Curves Definition
Yield curve types are described by attribute yield type, read and interpolation procedure, and
any number of currencies. For each yield curve, you therefore have a grid point structure that
forms the basis for the yield curve.
A yield curve is constructed from the reference interest rates or grid points that have the
following characteristics in common:
The reference interest rates are assigned to the same yield curve type.
The reference interest rates are defined for the same currency.
The expanded yield curve or interest table is constructed on the basis of this information
and contains the following values:
- The interest rates of the grid points
- The interpolated interest rates of the annual grid values (for par rate yield type only)
Zero coupon rates and zero coupon discounting factors of the grid points and the annual grid
values for the par rate yield category.
The interest calculation methods of the yield curves and the reference interest rates may be
different. When the actual interest rates in the extended interest table are saved, they are
converted into the interest calculation methods of the yield curves.
For enabled continuous compounding zero interpolation, zero rates with continuous interest
calculation and the Act/365 interest calculation method are determined from the zero bond
discounting factors regardless of the yield category.

Figure 603: Market Data: Yield Curves Details
From the entered date, the times of the grid points are calculated from the customizing
settings. From the reference interest rates: the rate according to YC settings is shown. Out of
this the zero coupon rate - continuous compounding - is calculated. This is then used to
calculate the Zero Bond Discount Factor (ZBDF).
The ZBDF can be used to multiply with a cash flow which occurs on the Interest rate date to
determine the Net Present value (NPV).
From the entered date, the times of the grid points are calculated from the customizing
settings. After maintaining the grid point values, you can use the graphic icon to generate a
yield curve.
Double-click the graphic icon to graphically display the selected yield curve. This helps you
make statements on the current interest history (for example, inverse yield curve, normal
yield curve) and use it for making investment decisions. In the Calculation Bases area, you can
now see that the last maintained reference interest rates are from 11/02/2010. Analogous to
the Customizing requirements, interest method Act/360 and a possible surcharge/discount
is assigned to the individual interest rates.
You can enter new reference rates by pressing F5.

Figure 604: Market Data: Yield Curves: Calculation Bases
In the Calculation Base area you can see which values were used to generate the selected
yield curve for each currency and key date.
The calculation bases can be looked up. This facilitates investigations and auditing.
Figure 605: Market Data: Yield Curves: Interpolation
Functions:
The SAP system uses the grid points to calculate all the necessary values, depending on the
interpolation category of the yield curve, using linear or cubic spline interpolation.
With cubic spline interpolation, the values you want do not necessarily have to lie on a
straight line, since this procedure also supports (non-linear) curves.

Linear interpolation uses two known values to determine a value on a straight line between
the two known values.
The annual grid values are interpolated for par rate yield category curves up to the last
reference interest rate (grid point) defined in the yield curve for a maximum of 30 years. If the
term of a calculated interest rate is outside the grid points on a yield curve, the interest rate at
the upper or lower end is used instead.
Figure 606: Market Data: The (new) Yield Curve Framework Overview
Mainly for the handling of basis spreads (tenor basis spreads and cross-currency basis
spreads) a new yield curve framework was implemented.
Automated market data import for (tenor and cross-currency) basis spreads
Construction of (tenor and cross-currency) basis spread curves
Flexible framework to derive basis spread curves and add them to forward or discounting
yield curves during valuation runs
Following functions already existed but are also supported by this yield curve framework:
Automated market data import for reference interest rates
Credit spread (as parallel shift of yield curve) -> see next page
Different yield curves for forward calculation and discounting/ evaluation
Different yield curves for different interest rate references
Note:
Before being able to use the new features that come with the yield curve
framework, you have to activate it in the IMG (see subsequent training on
configuration).

Credit Spreads
Figure 607: Market Data: Credit Spreads (earlier functions)
Before the new yield curve framework has been introduced, functions to capture credit
spreads already were available. These credit spreads then were used for a parallel shift of the
yield curve they were applied to.
Functions:
Enter credit spreads for OTC transactions: FTR_CSPRD
Enter credit spreads for securities: FW_CSPRD
Enter credit spreads for loans: FNV_CSPRD
Functions full overview:

Basis Spreads:
Enter basis spreads: RMBSM
Credit Spreads:
Enter credit spreads for OTC transactions: FTR_CSPRD
Enter credit spreads for securities: FW_CSPRD
Enter credit spreads for loans: FNV_CSPRD
Credit Spread Curves:
Create reference entities for business partners: RMREBP
Maintain reference entities: RMRE
Enter credit spreads: RMCSM
In finance, a credit spread is the yield spread, or difference in yield between different
securities, due to different credit quality. The credit spread reflects the additional net yield an

investor can earn from a security with more credit risk relative to one with less credit risk. The
credit spread of a particular security is often quoted in relation to the yield on a credit risk-free
benchmark security or reference rate.
Credit spreads can be entered for:
OTC Transactions (money market, foreign exchange, options)
Securities, for example, bonds
Loans (transactions from Loans Management)
Figure 608: Market Data: The Composite Curve Definition
The aim of the Composite Curve: the Calculation of discount factors or forward rates is done
with use of the composite curve. The curves are more precise than credit spreads.

Figure 609: Market Data: Motivation for Credit Spread Curves
According to IFRS, an appropriate consideration of such risk in NPV and mark-to-market

calculations is necessary.
Figure 610: Market Data: New Functionality: Credit Spread Curves
Credit Spreads are provided and used per:
Business Partner
Security ID
Company Code

Figure 611: Market Data: Credit Spread Curves Master Data: The Reference Entity
A new entity, the Reference Entity has been introduced. It can represent any of these entities:
your own company,
another company/ business partner,
a security (e.g. a bond),
an industry,
a rating.
Credit Spread Curves:
Reference entities are maintained with the function Maintain Reference Entities: (RMRE). It
offers display and edit function. New entries can be inserted.

Reference Entities can be generated automatically for business partners with Create
Reference Entities for Business Partners: RMREBP.
Figure 614: Market Data: Credit Spread Management
Available Credit Spread Curves functions:

Figure 615: Trade Finance: The Trade Finance Process
Hint:
Basis point:
A basis point (often denoted as bp, often pronounced as "bip" or "beep" is one
hundredth of a percent. Figures are commonly quoted in basis points in finance,
especially in fixed income markets.
1 basis point = 1 permyriad = one-hundredth percent.
Source: https://en.wikipedia.org/wiki/Basis_point
Volatilities/ Correlations
Figure 616: Market Data: Volatilities and Correlations Overview
Functions overview:
Correlations:

CORR_MAINTAIN- Enter Correlations
Figure 617: Market Data: Volatilities
In finance, volatility most frequently refers to the standard deviation of the continuously
compounded returns of a financial instrument within a specific time horizon.
It is used to quantify the risk of the financial instrument over the specified time period.
Volatility is normally expressed in annualized terms, and it may either be an absolute
number ($5) or a fraction of the mean (5%).
Volatility as described here refers to the actual current volatility of a market data
instrument for a specified period (for example 30 days or 90 days). It is the volatility of a
market data instrument based on historical prices over the specified period with the last
observation the most recent price.
The volatility type is used to classify volatilities. For each volatility type, volatilities for user-
defined underlying transactions such as exchange rates, reference interest rates, security
classes or share index volatilities can be stored in the system.
Further descriptive parameters are linked to the volatility type.
Moneyness:
In finance, moneyness is the relative position of the current price (or future price) of an
underlying asset (such as, a stock) with respect to the strike price of a derivative, most
commonly a call option or a put option. Moneyness is firstly a three-fold classification: if the
derivative was to make money if it was to expire today, it is said to be in the money, while if it
would not make money it is said to be out of the money. If the current price and strike price
are equal, it is said to be at the money. There are two slightly different definitions, according
to whether one uses the current price (spot) or future price (forward), specified as "at the
money spot" or "at the money forward", and so on.
Source: https://en.wikipedia.org/wiki/Moneyness

Hint:
From ERP 6.0 EhP 7: Flexible Moneyness Definition
In the central volatility database, implicit volatility market data can be stored
dependent on the moneyness (which is contained in the volatility profile) to
account for so-called volatility smiles. The moneyness is a function of the strike
price of an option and the price of its underlying.
So far, the exact mathematical definition of the moneyness has been hard-coded
in the system. However, there are different definitions in use in the market.
Figure 618: Market Data: Correlations
In statistics, correlation and dependence are any of a broad class of statistical

relationships between two or more market data variables.
A correlation of +1 depicts the case of a perfect positive (increasing) linear relationship.
A correlation of -1 depicts the case of a perfect decreasing (negative) linear relationship

(anticorrelation).
And some value between -1 and +1 in all other cases, indicating the degree of linear
dependence between the variables.
As it approaches zero, there is less of a relationship (closer to uncorrelated).
The closer the coefficient is to either -1 or 1, the stronger the correlation between the
variables.
The correlation type is an entity used for classifying correlations. Further descriptive
parameters are linked to the correlation type.
Function:
Correlations:
CORR_MAINTAIN- Enter Correlations

Factor Types
Figure 619: Factor Types
Factor type values are needed for investment certificates, which often represent money
market funds, with factor-based dividend conditions.
You enter factor type values for securities which have factor based dividend conditions, for
example, money market funds. The factor types are communicated for the specific financial
instruments and are needed to calculate the amounts of dividends. In detail, the published
factor for money market funds determines for a period (normally one day) the accrued
dividend or daily dividend of a money market fund. The accrued dividend (which is not paid) /
daily dividend for a period (normally one day) is calculated by units * dividend factor.
Factor types are also used for mortgage backed security investments.
When entering factor type values a security ID, factor type, effective from date, and factor
value are entered.
LESSON SUMMARY

Unit 5
Lesson 2
Loading and Calculating Market Data
LESSON OBJECTIVES
Market Data Data Load
As the Market Data supply is different and depending on size of company and treasury
function and depending on countries it is subject to company individual configuration.

Lesson: Loading and Calculating Market Data
Figure 621: TRM offers a generic interface to connect to external Master- and Market Data Providers
Manual entry, file upload, datafeed
Build yield curves from reference interest rates
Use yield curves for discounting and forward calculation (can be different ones)
Moneyness as function of spot and strike can be customized (note 1696226)
Figure 622: Market Data: Connection Options
Options:
Purchase of market data from market data provider(s), connection and formatting
inhouse, storage
Purchase of market Data in SAP TRM formatting from intermediary market data traders

Figure 623: Market Data: Connection Functions
Data Providers are an important configuration entity. They allow to structure the data supply
and the data load.
Figure 624: Market Data: Connection Functions
File upload is a pragmatic way of market data supply.

Lesson: Loading and Calculating Market Data
SAP Market Rates Management SCP App
Figure 625: SAP Market Rates Management SCP App / Datafeed
The REFINITIV data option for SAP Market Rates Management provides market rates on a
daily basis or for a specified date range that you can use in SAP S/4HANA systems.
Single Market Data Service is powered by SCP App to be used to feed all SAP Systems.
This is an out-of-the-box S/4 HANA pull service to import market data into SAP.
Another different option is the SAP Market Rates Management Bring Your Own Rates data
option, which allows you to upload and download your own market rates licensed from third
party data providers. It includes upload and download APIs that enable you to upload and
download market data in a format compatible with an SAP S/4HANA system. You can
distribute the downloaded rates in all connected systems in your landscape.
The Market Rates, Bring Your Own Rates provides you with support for 12 market data types.
They are as follows:
Exchange Rates
Securities
Interest Rates
Credit Spreads
Basis Spreads
Forex swap rates
General volatilities (volatilities with moneyness)
Exchange rates volatilities
Security price volatilities
Interest rate volatilities
Index volatilities
REFINITIV is the new brand name of ThomsonReuters.

These services use the Treasury and Risk Management datafeed functionality to incorporate
current and historic market data into your SAP systems by means of the different SAP Market
Rates Management services.
Please see OSS note 2431370 / Usage of the Market Rates Management Service for the use
of this service.
LESSON SUMMARY

Unit 5
Learning Assessment
1. Which of the following are typical Treasury and Risk Management Market data
X A FX rates
X B Security rates
X C Bootstrapping rates
X D Interest Rates
2. What are Interest Rates and Yield Curves used for?

X A The determination of Net Present Values requires interest information as the

market interest is used for discounting the future cash flows.
X B Prediction of future interest rates.
X C Limitation of interest payments.
X D The market interest rates can be used for fixing of variable interest contracts.
X E Check functions are provided which compare interest from deal capture with
actual market interest rates and issue warnings in case of derivations.
3. A new Yield Curve Framework has been introduced. Which of the following information is
correct?
X A Mainly for the handling of basis spreads (tenor basis spreads and cross-currency
basis spreads) a new yield curve framework was implemented.
X B A Composite Curve is the composition of one yield curve and zero to many basis
spread curves for discounting and forward calculation.
X C The information from the new Yield Curve framework is set in the Market Risk
Analyzer and for the new IFRS 9 compliant FX Hedge Accounting.
X D Volatilities and Correlations are part of the new Yield Curve framework.

4. Which of the following are ways to import market data into SAP?
X A File interface
X B Manually
X C Market data wizard
X D SAP Market Rates Management SCP app
5. The Treasury and Risk Management datafeed functionality is used when market data is
imported into SAP by the different SAP Market Rates Management services.
X True
X False

Unit 5
1. Which of the following are typical Treasury and Risk Management Market data
X A FX rates
X B Security rates
X C Bootstrapping rates
X D Interest Rates
This is correct. Typical Treasury and Risk Management Market data are FX rates, Security
rates and Interest rates. Bootstrapping is the method to derive Zero bond yields from the
par yield curves.
2. What are Interest Rates and Yield Curves used for?

X A The determination of Net Present Values requires interest information as the

market interest is used for discounting the future cash flows.
X B Prediction of future interest rates.
X C Limitation of interest payments.
X D The market interest rates can be used for fixing of variable interest contracts.
X E Check functions are provided which compare interest from deal capture with
actual market interest rates and issue warnings in case of derivations.
This is correct. Interest Rates and Yield Curves are e.g. used for the determination of Net
Present Values, and for the fixing of variable interest contracts.

3. A new Yield Curve Framework has been introduced. Which of the following information is
correct?
X A Mainly for the handling of basis spreads (tenor basis spreads and cross-currency
basis spreads) a new yield curve framework was implemented.
X B A Composite Curve is the composition of one yield curve and zero to many basis
spread curves for discounting and forward calculation.
X C The information from the new Yield Curve framework is set in the Market Risk
Analyzer and for the new IFRS 9 compliant FX Hedge Accounting.
X D Volatilities and Correlations are part of the new Yield Curve framework.
This is correct. Volatilities and Correlations are not part of the new Yield Curve framework.
They can be calculated by the use of the Statistics Generator.
4. Which of the following are ways to import market data into SAP?
X A File interface
X B Manually
X C Market data wizard
X D SAP Market Rates Management SCP app
That is correct. File interface, Manually, and SAP Market Rates Management SCP app are
the ways to import market data into SAP.
5. The Treasury and Risk Management datafeed functionality is used when market data is
imported into SAP by the different SAP Market Rates Management services.
X True
X False
This is correct. The Treasury and Risk Management datafeed functionality is used when
market data is imported into SAP by the different SAP Market Rates Management
services.

UNIT 6 Risk Analysis and
Optimization with the
Market Risk Analyzer
Lesson 1
Understanding Risk Management 511
Lesson 2
Performing NPV and Sensitivity Analysis 524
Lesson 3
Using Value at Risk Valuations 554
Lesson 4
Considering Credit Risk 582
UNIT OBJECTIVES
Understand risk management
Explain the risk controlling process
Provide an explanation of the analysis structure and basic settings for the Market Risk
Analyzer
Understand the relevance of the evaluation type
Perform NPV/sensitivity analysis
Perform an ALM analysis
Calculate sensitivity key figures
Perform a grid analysis
Define and use market data scenarios and shifts
Use Value at Risk valuations
Structure risk factors and define risk hierarchies
Explain Value at Risk evaluations options
Differentiate between the Monte Carlo simulation, the variance/covariance approach, and
the historical simulation

Unit 6: Risk Analysis and Optimization with the Market Risk Analyzer
Explain how back testing works
List the main features of the yield curve framework
Outline what basis spreads and credit spreads are and how they are integrated into the
yield curve framework
Explain how fair value can be calculated including basis spreads and/or credit spreads
Outline the use of credit and debit value adjustments

Unit 6
Lesson 1
Understanding Risk Management
LESSON OBJECTIVES
Analyzer
The Concept of Risk Management
Figure 626: The Treasury Risk Manager's Task: Risk and Performance Management
Risk is the probability of a loss resulting from a financial transaction.

The risk to a financial transaction is described as a market risk if it arises purely from changes
to market parameters (interest rates, exchange rates, currency exchange rates, volatilities).

Risk Definitions and Processes
Figure 627: The Treasury Risk Manager's Tasks: Focus on Risk
The graph above distinguishes the different categories of risk a company needs to deal with.
All of the risk categories are relevant for the treasurer (just to pick out very important
aspects):
Strategic Risk:
Personal and Management: it is extremely important to have the best possible resources
available to work for the treasury department.
Corporate Governance and Corporate Policy: it is extremely important for the treasury to
take care that policies such as the hedging policy and trader competencies framework
(Limits) are in place.
Finance Risk -> Liquidity Risk: one of the main tasks of the treasurer to make sure that the
companies funds supply works well.
Operative Risk: it is an important task of the Treasurer to make sure efficient and secure
processes exist. This includes setting and control of Limits.
Finance Risk -> Risk of Success: the risk to a financial transaction is described as a market
risk if it arises purely from changes to market parameters (interest rates, exchange rates,
currency exchange rates, volatilities). Using credit spreads/ new yield curve framework it is
possible to include credit risk into the analysis.
Information Risk: the transaction manager together with the analyzers and the modern S/
4HANA base make fast and reliable information processing and reporting possible.
In the following units we will concentrate on the market risk (credit risk) and will receive
information how the market risk analyzer can support the treasurer in terms of useful
calculations and key figures.

Lesson: Understanding Risk Management
Also, we will focus on credit risk and operational risk and will receive information how the
credit risk analyzer can support the treasurer in terms of setting and monitoring limitations.
Figure 628: Credit Risk Analyzer Counterparty/Issuer Risk versus Settlement Risk
Credit Risk: Counterparty / Issuer Risk: the risk that a counterparty (the bank we provided
with our funds, such as for a fixed term deposit) or issuer (such as the issuer of a bond)
partially or fully miss to fulfil their obligations (such as interest payments and/ or repayment).
Figure 629: Credit Risk Analyzer Counterparty/Issuer Risk versus Settlement Risk
Settlement Risk: a contract is working out well for our company, such as an OTC FX option or
a forward. But on the day of settlement, which is the day the counterparty is obliged to pay us
the outstanding amount, it does not (for example, in case of bankruptcy).

Figure 630: The Treasurer's Tasks — The Risk Controlling Process
The picture above shows the typical Risk Controlling process established in most companies.
It helps to manage risk and to make sure the well-being of the company dealing with financial
instruments.
In risk identification, the first question is which risks exist and which are to be analyzed in
risk management. When identifying risks, it is useful to understand that risks have a cause
and an effect (such as value and revenue changes) on a particular object.
After you have identified the risks, the next step is to decide which of the identified risks to
analyze and which key risk figures to calculate.
The aim of risk management is to limit the taking of excessive risks and to distribute the
total number of risks entered into across the individual risk sources.

Analyzers Overview and Interplay
Figure 631: The Analyzers Overview
This overview architecture depicts the Transaction Manager we have been talking about
before and the four Analyzers which are available to support the Treasurer with fulfilling his
further tasks.
While the Transaction Manager aims for the efficient management of the companies
positions, the Analyzers help to fulfil further tasks of the Treasurer:
Risk Analysis
Management and Limitation
Results analysis
Reporting
The Results Database belongs to the Analyzers. It is used to retain results and therefore make
them available for reporting. It allows you to decouple calculation from reporting.
In our training we concentrate on Market Risk Analyzer and Credit Risk Analyzer as these
Analyzers are used by most of the companies.
Information exchange:
The Analyzers are connected to Transaction Manager. They receive information on the
positions.
Market Risk Analyzer and Credit Risk Analyzer also provide information to the Transaction
Manager.
Market Risk Analyzer: Net Present Values are provided for Valuation purposes.
Credit Risk Analyzer provides the Online Limit check.

Figure 632: Financial Object Integration Layer — The Analyzers can be supplied by different systems
On the one hand we have data from the operative world - on the other hand the Analyzers.
In between, we have a layer with analysis characteristics for structuring and selection,
freely defineable derivation rules.
The abstraction allows homogeneous view also on "external" data.
You can still drill down from calculation results back to operative objects.
We will talk about technical details (financial objects, generic transactions) later.
Figure 633: Financial Object Integration Layer Analysis Structure, Financial Object
The Analysis Structure is the technical basis for all evaluations in the Market Risk, Credit Risk,
and Portfolio Analyzer components.

It acts as a basket for all characteristics that are utilized for reporting and analysis purposes
and for structuring drill-down hierarchies.
Analysis structures are defined across all clients.
You can only activate one analysis structure for each client, however, it is possible to
define several analysis structures and assign multiple characteristics to them but each
client has exactly one analysis structure enabled.
Characteristics are assigned to the analysis structures that represent the underlying data
structure. The derivation of characteristics can be used to determine values of characteristics
automatically.
The analysis structure is used to create portfolio hierarchies that enable you to drill down the
analyzed results of an investment structure by characteristic values in reporting.
Each transaction/position in the data pool of the Transaction Manager has a Financial Object
assigned to it. The Financial Object contains the corresponding transaction values for all
characteristics of the analysis structure. You can say: the Transaction Manager positions are
mirrored to the Analyzers with the option to use different characteristics and to add/derive
characteristics/values flexibly. In the configuration it can be defined by Company Code and
Product Type if Financial Objects are created respectively and updated by the system.
Therefore it is possible to exclude specific Company Codes and Product Types.
Steps, Activation Risk Management
1. Concept creation: Define, create and maintain characteristics
2. Create and maintain Analysis Structure
3. Define Characteristic Values
4. Derive Characteristics
After finishing the definition of analysis structure with its characteristics, you can activate the
risk integration. Financial Object Integration can be activated separately for the Risk
Management Part and Default Risk Limit Part and only for the Company Codes and Product
Types they are required for.
The characteristics of the Risk Management Part and the Default Risk Limit Part are already
derived when creating or changing a Financial Transaction in separate tabs (Analysis
Parameter, Default Risk Limit).
After defining the relevant characteristics, they can be assigned to an analysis structure. You
also can use currencies as characteristics. This means you can reference the TCURR table
directly.

Figure 634: Financial Object Integration Layer — Financial Object as Central Entity for Integration and Decoupling
The Financial Object is a central entity providing a harmonized view: Automatic

integration/creation, most obvious in FTR_CREAT
Different data structures in operative world versus common characteristics in analytical

world
SAP delivers sample characteristics
Automatic derivation of characteristics when creating or changing a Transaction/Position
There are various tools for the management of the Financial Object data pool.
Also derivation log analysis is available

Market Risk Analyzer Overview
Figure 635: Market Risk Analyzer/Credit Risk Analyzer Additional Tabs in Transaction Manager
After activation of risk management and credit risk limit Management financial object
integration, two additional tabs are shown in transaction manager:
Analysis Parameters: General risk management part of the financial object
Default Risk Limit: Limit management part of the financial object
Enter a new contract in the transaction manager and you can see if financial object integration
for the relevant company code and product type is active.

Figure 636: Market Risk Analyzer: A Powerful Analysis for Market Risks in the Financial Positions
The Market Risk Analyzer contains the following features:
It supports the analysis of different risks according to their causal risk factors, such as
exchange rates, interest rates or commodity risk.
It is designed to serve the need of different industries
It covers the following functional areas:

- Market data management
- Net present value calculation
- Online reports
- Results database

Figure 637: Market Risk Analyzer — Support of Different Key Figures and Reporting
Calculates fair values, interest rate sensitivity, VaR
Aggregates results in as structured way
Uses other than the current market data as calculation basis
Before we go into detail, system demo to show some of these process steps and features
(NPV calculation, and so on.)
Figure 638: Market Risk Analyzer Summary Calculation Methods and Reporting Offering
The central task of the market risk analyzer is to analyze market risks and determine the net
present values of the financial transactions you manage.

This overview depicts the reporting in the market risk analyzer.

A range of reports are available online. Calculation is performed quickly on the following:
NPV Analysis
Sensitivity Analysis
Grid Analysis
VaR Individual Analysis
ALM Single Value Analysis
The results database allows you to predefine calculations, which can be executed beforehand,
such as for using batch processing. Reporting is then possible using the analyzer information
system.
It is possible to define scenarios (such as worst case, best case, expected scenario) and to
perform market data shifts (such as interest rates + 1%). Also, transactions can be simulated
to check their impact on risk key figures.
Figure 639: Market Risk Analyzer — How can the Net Present Value be calculated?
Mark-to-market means valuating a position at the price that can currently be attained on the
market. "What price will I achieve if I close the position?" For long positions, this means
determining the achievable disposition price. For short positions it means determining the
redemption value.
LESSON SUMMARY

Analyzer

Unit 6
Lesson 2
Performing NPV and Sensitivity Analysis
LESSON OBJECTIVES
The Concept of Net Present Value Calculations
Figure 640: Market Risk Analyzer: The Risk Manager's Questions Part 1
You need a lot of knowledge and experience to execute risk management in Treasury.
Therefore our training will not be able to cover the full treasury knowledge and business
background.
But what we do is we start with the business questions and areas of analysis and from there,
we explain the solution. We explain the calculations and tools provided from the market risk
analyzer. Both the business background and, of course, the handling in the system.

Lesson: Performing NPV and Sensitivity Analysis
Figure 641: Market Risk Analyzer: Mark-to-Market Analysis: NPV Analysis
The question “What is the market value of my companies portfolio?" can be answered by the
report NPV analysis ( JBRX).
We go a bit more into details here to explain the context and functions of the Market Risk
Analyzer reporting.
The following important functions are explained in detail on the following pages:
Evaluation Type
Evaluation Date and Horizon
Portfolio Hierarchy
Mark-to-Market:
JBRX - NPV Analysis
AISGENKF- Key Figure Analysis
AISPL - Single Value Analysis (Profit and Loss)

Figure 642: Market Risk Analyzer Mark-to-Market Analysis: NPV Analysis
Indicator: Display Portfolio Hierarchy: if this indicator is set, the portfolio hierarchy (or the
selected subtree) is displayed next to the results list. You can use it to navigate through the
results. When the report is executed in the background, or for the print list, the indicator has
no effect.
Indicator: Suppress Repeated Field Values: if you set this indicator, the List Viewer groups
together the fields that have the same content in one column. This helps you to recognize
group changes (with characteristic values, for example).
Calculate the Greeks: defines whether the system displays the key figures for options (the
Greeks) - delta, gamma, vega, and theta - in the detail log.
Calculate the Risk Free Net Present Value: defines whether the system needs to compute the
Risk Free Net Present Value Method.
Display financial object differentiation: defines if the results of individual components of a
financial object have to be displayed in the output or not. Example: when the flag is set for an
instrument like Caps, the ALV output will contain multiple result rows, one each for a caplet.
The same applies to instruments like forwards stock transactions which can have multiple
parts because of partial rollovers.
This report: NPV Analysis ( JBRX).

Figure 643: Market Risk Analyzer Mark-to-Market Analysis: NPV Analysis
The report layout allows you to include a scenario and/ or a market data shift in the
calculation.
The buttons: Key Figures, Scenarios, and Market Data Shifts change input options. Depending
on the button multiple inputs can be performed.
Indicator: Calculate Differences for Current Market Data: when this indicator is set, the
system calculates the difference between the key figure (e.g. NPV) and the value of the key
figure for current market data for each selected scenario.
This report: NPV Analysis ( JBRX).
Figure 644: Market Risk Analyzer Mark-to-Market Analysis: NPV Analysis Results

Here you can see the result of the NPV Analysis ( JBRX).
On the left side you see the Portfolio Hierarchy . The hierarchy used is determined by the
hierarchy selected on the input screen.
On the right side you see the results: each position is shown in one line with its NPV. The
positions can be identified.
The button Detail log allows you to drill through to the detail log which provides information on
the calculation (such as Discounted Cash Flow valuation).
Figure 645: Market Risk Analyzer CF Discounting, Evaluation Date and Horizon
Evaluation date: this selection determines which active transactions are included in the
calculation and is attained using the term end date, amongst other things. Furthermore, this
date determines which market data is read (by way of the data feed or from the SAP market
data tables) for evaluation purposes or used for the forward data calculation.
If the evaluation date is before the current date (today), the market data is read from the
historical tables and considered from the historical status of the transactions.
If the evaluation date is after today's date, the latest market data found is interpreted as valid
for the evaluation date and the forward data is calculated from this date.
Horizon: date when the results are calculated (evaluation date). All cash flows from this date
onwards are included in the calculation. Example: Evaluation date today, horizon in the future:
The forward data is determined on the basis of today's market data and is used to valuate a
transaction on the horizon date. The times when the scenarios used are assumed to be valid.

The Evaluation Type
Figure 646: Market Risk Analyzer Valuation Control
There are a lot of settings influencing the calculation results: which market data to select, how
to select FOs and operative data, settings for price calculator.
They are all specified in a central entity: the Evaluation Type.
You will find the evaluation type on practically all selection screens / RDB KF definitions
Figure 647: Market Risk Analyzer Evaluation Type as Central Entity for Valuation
Evaluation Types: general settings that are required for valuating transactions. These include
the settings for market data, evaluation control, data feed and the Portfolio Analyzer (TRM
only), and also the settings specific to the valuation rule.

The market data can be taken either from internal market data tables in the SAP system or in
real-time by way of a data feed ( Data feed Control tab page).
Figure 648: Market Risk Analyzer Evaluation Type
This picture is a glimpse into the customizing. More information is provided in the subsequent
training on configuration.
Evaluation Types: general settings that are required for valuating transactions. These include
The market data can be taken either from internal market data tables in the SAP system or in
real-time by way of a data feed ( Data feed Control tab page).
Hint:
Define complete general settings for at least one evaluation type so that
evaluations can be run without any errors in risk analysis and in asset/liability
management.
If real-time data is used, this is very difficult to trace later, since the key
figures are not stored when the risk key figures are calculated.
To analyze securities, you have to specify a security price type on the

Evaluation Control tab page. The reason for this is that securities can be
valuated on the basis of yield curves (special security valuation) or using the
security price.
In our training system, one evaluation type is configured using the yield curves plain vanilla,
therefore it is "risk free", and another evaluation type using credit spread curves in addition to
include credit risk in the calculation. The prerequisite is that the credit spread curves are
maintained.

Figure 649: Market Risk Analyzer Evaluation Type
Evaluation Types: general settings that are required for valuing transactions. These include
Creating valuation-rule-specific settings for an evaluation type (Valuation Rule-Specific push
button): here you can assign valuation rules to the evaluation type. You use the combination
of evaluation type and valuation rule to assign valuation parameters to specifics transaction,
such as transactions of a specific product type. This assignment is specific to the valuation
rule, and these parameters override the general settings in the evaluation type. If you do not
make any settings for the valuation rule, then the general settings in the evaluation type apply.
Note that there are some settings that you can make in the valuation rule only.
You can choose whether repurchase agreements are valued as money market
transactions, or as a combination of a security spot transaction and a security forward
transaction.
You do so by setting the Value Repurchase Transaction as Money Market Transaction

indicator on the Evaluation Control tab page.
To value participation certificates, you need to ensure that the Calculate Accrued Interest
indicator on the Evaluation Control tab page is not set.
You can store a derivation rule for the value at risk for each valuation rule. The derivation
rule defines how a transaction is to be valued in historical simulation when the combination
procedure is used. You make the general settings for the VaR evaluation in the VaR type.

The Portfolio Hierarchy
Figure 650: Market Risk Analyzer Portfolio Hierarchy
Each financial object is attributed (tagged) via the analysis characteristics.

All such characteristics can be included to build portfolio hierarchies (PH), which allow a
flexible grouping of the portfolio subsets.
You can define and manage as many PHs as you need:
using customer-defined characteristics
with different aggregation levels
with different filters
Remember:
PHs are persistent objects and need to be updated at any change of a financial object
Big PHs cost run-time in RDB (Results Database) and other evaluations

Figure 651: Market Risk Analyzer Portfolio Hierarchy for Drill-down and Persistence Enablement
Another more detailed view on the PH:
FOs are tagged via the analysis characteristics.
The analysis characteristics Asset Class and Country form the hierarchy levels of a
portfolio hierarchy
Additionally it is possible to assign a so called filter to the hierarchy. Filters are basically
independent entities which define selection conditions on the analysis characteristics.
PHs are key for the calculation and reporting process of non-additive key figures such as VaR
and CFaR.
Whereas additive key figures like NPVs can simply get added to achieve the NPV of a higher
node, this doesn't work for VaR and CFaR key figures, as the correlation effects need to be
taken into account. For that reason already during calculation process the system needs to
know for which hierarchy nodes results need to be calculated and stored, and in a next step to
get aggregated (and stored) taking the relevant correlations into account.
That's the reason why one or more PHs need to be assigned to calculation procedure
definitions on the level of final results procedures.

Function: AFWPH
- Define PH
Characteristics available:
Company Code
Portfolio
Business Partner
Position Currency
Product Category and Type
Evaluation Control PH:
JBR4E - Delete/Deactivate
AFWPH- Define
JBRK - Display

Function: AFWPH
- Define PH
Characteristics available:
Company Code
Portfolio
Business Partner
Position Currency
Product Category and Type
Characteristics Hierarchy
This is the name of the characteristic hierarchy for a certain characteristic within a portfolio
hierarchy definition .If you enter the name of a characteristic hierarchy which exists in
reporting, the system uses that characteristic hierarchy to set up the PH. If you leave the field
blank, the values of the characteristic are added directly to the nodes of the previous
hierarchy level.
Category of Characteristic Hierarchy
The category of the characteristic hierarchy controls how values that are not part of the
specified characteristic hierarchy are handled when the PH is generated.
There are two categories:
' ': Non-selective characteristic hierarchy: the values that are not part of the characteristic
hierarchy are included in the portfolio hierarchy.
'9': Selective characteristic hierarchy: the values that are not part of the characteristic
hierarchy are not included in the portfolio hierarchy.
If no characteristic hierarchy was assigned to the characteristic when the portfolio hierarchy
was defined, then the content of this field is irrelevant.
Evaluation Control PH:

AFWPH- Define
JBRK- Display
Market Data Scenarios and Market Data Shifts
Figure 654: Market Risk Analyzer Market Data Scenarios
Often more sophisticated what-if analysis is required. Therefore scenarios can be specified
and used in various reports.
Scenarios offer the possibility to alter the market parameters on which calculations are
based
You can read historic market data into a scenario and manipulate it
You can model the yield curves with graphic aides in the process, too.
If a price parameter is not maintained in a scenario, it gets replaced by the actual market
data
Scenarios can be entered instead of the current market prices in almost all evaluations in risk
analysis.
Simulation - Scenarios Functions
TV21 - Scenario Administration
JBR0- Market Data Shifts
TV28 - Scenario Progression
S_KK4_13000184 - Define Simulated Interest Payments
S_KK4_13000330 - Define and Set Up Due Date Scenario
S_KK4_13000187 - Assign Due Date Scenario to Valuation Rule
S_AEN_10000804 - Define Liquidation Scenarios

S_AEN_10000805 - Assign Liquidation Scenarios to Valuation Rule

S_AEN_10000806 - Define Utilization Scenarios
S_AEN_10000807 - Assign Utilization Scenarios to Valuation Rule
JBRT_CFM- ALM Simulation
Figure 655: Market Risk Analyzer Market Data Scenarios: Scenario Administration
The picture shows the function TV21- Scenario Administration.
Figure 656: Market Risk Analyzer Market Data Scenarios: Scenario Administration
The picture shows the function TV21 - Scenario Administration.

A scenario can contain simulated values for:

Exchange Rates,
Forex Rates Volatilities
Yield Curves
Interest Volatilities
Basis Spreads
Credit Spreads
Security Prices
Security Volatilities
Security Indices
Index Volatilities
Commodity Prices
It is not necessary to fill all options.

When the scenario is applied, all simulated values are applied, therefore the system shows the
result of all simulated values together.
Figure 657: Market Risk Analyzer Market Data Scenarios Example
A scenario is applied to a portfolio or a part of a portfolio. The results can then be used for
further analysis.
Sensitivities give a quick idea of how sensitive positions are to market data changes, but
sometimes you want more sophisticated what-if analyses.
Scenarios offer the possibility to change the market parameters on which calculations are
based.
You can read historic market data into a scenario and manipulate it.

If a price parameter is not maintained in a scenario, it gets replaced by the actual market
data.
Figure 658: Market Risk Analyzer Market Data Shifts
Function JBR0- Market Data Shifts.
Market data shifts also offer the opportunity for sophisticated what-if analysis.
Both a single input factor, and also different input factors can be varied at a time.
The shifts are defined as a change in percent or as absolute changes.
A range of market data shifts can be developed and can then be used in the reports.
Market data shifts are used only in NPV reports and to define scenario paths in asset
liability management.
Figure 659: Trade Finance: The Trade Finance Process

The picture shows the function JBR0- Market Data Shifts.
Figure 660: Market Risk Analyzer Market Data Shifts: Definition
The picture shows the function JBR0- Market Data Shifts.

A scenario can contain simulated values for:
Exchange Rates
Forex Rates Volatilities
Yield Curves
Interest Volatilities
Basis Spreads
Credit Spreads
Security Prices
Security Volatilities
Security Indices
Index Volatilities
Commodity Prices
It is not necessary to fill all options.

When the scenario is applied, all simulated values are applied, therefore the system shows the
result of all simulated values together.

Figure 661: Market Risk Analyzer Market Data Shifts: Example 1
In this example, the valuation of a payment flow leads to a net present value of EUR 618.1
million.
With a parallel shift of +1% of the yield curve, the NPV is EUR 521.7 million in scenario 1.
There is a risk of EUR 96.4 million.
If the interest decreases by 1%, the same cash flow has an NPV of EUR 720.1 million and an
opportunity of EUR 102.0 million.

In this example several factors are shifted in parallel:
Interest EUR money market
Security rates
Exchange rates and interest US money market.
Sensitivity Analysis, Grid Analysis and ALM Analysis
Figure 664: Market Risk Analyzer: The Risk Manager's Questions Part 2
It needs a lot of knowledge and experience to do risk management in Treasury. Therefore our
training will not be able to cover the full treasury knowledge and business background.

we explain the solution. We explain the calculations and tools provided from the Market Risk
Analyzer, both the business background and, of course, the handling in the system.
Sensitivity Analysis
Figure 665: Market Risk Analyzer Sensitivity Analysis
Sensitivity Key Figures

Changes in market interest rates affect both of these revenue components of an investment
inversely: Rising interest means price losses, but rising reinvestment revenue.
For optional products, the Macaulay duration, modified duration, and convexity key figures
are not calculated because it does not make business sense.
Sensitivity Analysis:
AISS - Sensitivity Key Figures
JBRJ - Sensitivity Analysis
JBRI - Grid Analysis
Figure 666: Market Risk Analyzer Durations
From https://en.wikipedia.org/wiki/Bond_duration :
The duration of a financial asset that consists of fixed cash flows, for example a bond, is the
weighted average of the times until those fixed cash flows are received. When an asset is

considered as a function of yield, duration also measures the price sensitivity to yield, the rate
of change of price with respect to yield or the percentage change in price for a parallel shift in
yields.
The dual use of the word "duration", as both the weighted average time until repayment and
as the percentage change in price, often causes confusion.
Strictly speaking, Macaulay duration is the name given to the weighted average time until
cash flows are received, and is measured in years.
Modified duration is the name given to the price sensitivity and is the percentage change in
price for a unit change in yield.
Both measures are termed "duration" and have the same (or close to the same) numerical
value, but it is important to keep in mind the conceptual distinctions between them.
Macaulay duration is a time measure with units in years, and really makes sense only for
an instrument with fixed cash flows. For a standard bond, the Macaulay duration will be
between 0 and the maturity of the bond. It is equal to the maturity if and only if the bond is
a zero-coupon bond.
Modified duration, on the other hand, is a derivative (rate of change) of price and measures
the percentage rate of change of price with respect to yield. (Price sensitivity with respect
to yields can also be measured in absolute (dollar or euro, and so on) terms, and the
absolute sensitivity is often referred to as dollar (euro) duration, DV01, BPV, or delta ( or
) risk). The concept of modified duration can be applied to interest-rate sensitive
instruments with non-fixed cash flows, and can thus be applied to a wider range of
instruments than can Macaulay duration.
Modified duration is used more often than Macaulay duration.

For every-day use, the equality (or near-equality) of the values for Macaulay and modified
duration can be a useful aid to intuition.
For example a standard ten-year coupon bond will have Macaulay duration somewhat but
not dramatically less than 10 years and from this we can infer that the modified duration
(price sensitivity) will also be somewhat but not dramatically less than 10%.
Similarly, a two-year coupon bond will have Macaulay duration somewhat below 2 years,
and modified duration somewhat below 2%. (For example a ten-year 5% par bond has a
modified duration of 7.8% while a two-year 5% par bond has a modified duration of 1.9%.)
Fisher-Weil duration is a refinement of Macaulay's duration which takes into account the term
structure of interest rates. Fisher-Weil duration calculates the present values of the relevant
cash flows (more strictly) by using the zero coupon yield for each respective maturity.
Please see https://en.wikipedia.org/wiki/Bond_duration for formulas, further descriptions
and examples!

Figure 667: Market Risk Analyzer Convexity
From https://en.wikipedia.org/wiki/Bond_duration
Convexity:
Duration is a linear measure of how the price of a bond changes in response to interest
rate changes. As interest rates change, the price does not change linearly, but rather is a
convex function of interest rates. Convexity is a measure of the curvature of how the price
of a bond changes as the interest rate changes. Specifically, duration can be formulated as
the first derivative of the price function of the bond with respect to the interest rate in
question, and the convexity as the second derivative.
Convexity also gives an idea of the spread of future cashflows. (Just as the duration gives
the discounted mean term, so convexity can be used to calculate the discounted standard
deviation, say, of return.)
Note that convexity can be positive or negative.
A bond with positive convexity will not have any call features - i.e. the issuer must redeem
the bond at maturity - which means that as rates fall, both its duration and price will rise.
On the other hand, a bond with call features - i.e. where the issuer can redeem the bond
early - is deemed to have negative convexity as rates approach the option strike, which is
to say its duration will fall as rates fall, and hence its price will rise less quickly. This is
because the issuer can redeem the old bond at a high coupon and re-issue a new bond at a
lower rate, thus providing the issuer with valuable optionality.
Mortgage-backed securities (pass-through mortgage principal prepayments) with US-

style 15- or 30- year fixed rate mortgages as collateral are examples of callable bonds.
Please see https://en.wikipedia.org/wiki/Bond_duration for formulas, further descriptions

and examples!

Figure 668: Market Risk Analyzer Basis Point Value
From https://en.wikipedia.org/wiki/Basis_point_value :
Basis point value (BPV) denotes the change in the price of a bond given a basis point change
in the yield of the bond.
BPV tells us how much money the positions will gain or lose for a 0.01% parallel movement in
the yield curve. It is specified for interest rate risk and quantifies the interest rate risk for small
changes in interest rates.
See also: Yield elasticity of bond value:
The yield elasticity of bond value is the elasticity of the market value of a bond with respect
to its yield-the percentage change in bond value divided by its causative percent change in
the yield to maturity of the bond.
Equivalently, it is the derivative of value with respect to yield times the (interest rate/
value).
This is equal to the MacAulay bond duration times the discount rate, or
the modified bond duration times the interest rate.
If the elasticity is below -1, or above 1 if the absolute value is used, the product of the two
measures, value times yield or the interest income for the period will go down when the yield
goes up.
Source: https://en.wikipedia.org/wiki/Yield_elasticity_of_bond_value .
Figure 669: Market Risk Analyzer Sensitivity Analysis: Sensitivity Key Figures

Sensitivity Key Figures entry screen:
Display currency
Evaluation Type
Evaluation Date and
Horizon
Portfolio Hierarchy
In the reporting structure, scenarios can be applied.


The sensitivity key figures are shown here in combination with the portfolio hierarchy.
Grid Analysis
Figure 672: Market Risk Analyzer Grid Analysis
Using a valuation grid, you can combine any two risk factors:
Yield Curves
Currencies
Securities

Indices
Volatilities
You can thus determine the "meshing" of the grid yourself.
Figure 673: Market Risk Analyzer Sensitivity Analysis: Grid Analysis
Grid Analysis entry screen:
Portfolio Hierarchy/ node
Valuation area
Evaluation Type
Evaluation Currency
Evaluation Date and Horizon
Scenario

Figure 674: Market Risk Analyzer Sensitivity Analysis: Grid Analysis
Percentage increment in valuation grid

Step-by-step on the axes of the value grid (enter as percentage for relative changes)
No. points per axis in valuation grid
In the grid analysis, enter the number of markers for both the x and y axes. The net present
value of the financial transaction for each grid point will be calculated using the appropriate
scenario and the difference between it and the current net present value will be displayed.
Figure 675: Market Risk Analyzer Sensitivity Analysis: Grid Analysis - Result
The result: two dimensional result information is provided.

Search for extreme values and exceptional cases possible.

ALM Single Value Analysis (Gap Analysis)
Figure 676: Market Risk Analyzer ALM Single Value Analysis (Gap Analysis)
ALM Single Value Analysis. With ALM = Asset/ Liability Management.

In contrast to NPV and value-at-risk analyses, where NPVs and time values are used to
illustrate risks, the gap analysis uses position and maturity volumes as well as cash flows and
liquidities at key dates or periods and shows the gap items with regard to currency and
liquidity risks derived from them.
ALM Single Value Analysis
ALM reporting includes all Transaction Manager deals, contract from Loans Management,
hypothetical and simulated contracts. The report is split into the following areas:
Average Position
Key Date Position
Maturity Evaluation
Cash Flow Evaluation
Liquidity Evaluation
Currency Liquidity
Revenue Evaluation
Average Position: The average position section of the report displays the transactions
selected through the portfolio hierarchy in the maturity band. It also calculates the average
active and passive interest rates. The average position of each period and the gap items are
displayed.
Key Date Position: The key date position section of the report displays the key date positions
for the key date of each maturity band. It also calculates the gap items and the average active
and passive interest rates of the key dates.
Maturity Evaluation: The maturity evaluation section of the report displays the capital
processes by the defined maturity date. It also calculates the gap items and the active and
passive interest rates of the capital processes.

Cash Flow Evaluation: You can use the position and process view to present the interest rate
risk as calculated cash flows differentiated by currency or as various currencies grouped
together. Volume inFlow and outFlow and interest payments corresponding to the interest
commitment of the underlying items are included in the displayed cash flows. Interest rates
are not shown.
Liquidity Evaluation: The liquidity evaluation primarily deals with capital commitments,
meaning that this evaluation involves the interest and capital payments corresponding to the
capital commitment of the underlying transactions. The liquidity evaluation does not include
capital payments that do not flow in reality and that serve only as a basis for interest
calculations for certain transactions (such as nominal capital for FRAs or for swaps without
capital exchange), although these payments are displayed in the other evaluations. The
liquidity evaluation includes incoming and outgoing payments, payment gaps, and cumulative
payment gaps from liquidity flows, but does not include interest rates.
Currency Liquidity: Similar to the liquidity evaluation display, but without conversion to the
evaluation currency.
Interest Result Evaluation: The Net Interest Income Evaluation section of the report displays
the active and passive volumes in the maturity band. It also lists the interest revenue of the
active and passive sides of the maturity band and the resulting balance.
ALM Valuation Type: The settings made in the gap valuation type are used to control how
transactions are to be taken into account in gap analysis/ ALM simulation evaluations.
Using valuation rules, you can assign settings to individual transactions differently from the
settings made in the selected gap valuation type. These are known as gap analysis-specific
settings, and can be made in the evaluation type.
Example: You define how premiums and discounts are taken into account in gap analysis/
ALM simulation in the gap valuation type.
ALM Single Value Analysis. With ALM = Asset/Liability Management.

Cash Flow/Gap Analysis:

JBRTOBJ_CFM- ALM Single Value Analysis
ALM Valuation Type: the settings made in the gap valuation type are used to control how
transactions are to be taken into account in gap analysis/ ALM simulation evaluations.
Using valuation rules, you can assign settings to individual transactions differently from the
settings made in the selected gap valuation type. These are known as gap analysis-specific
settings, and can be made in the evaluation type.
Example: You define how premiums and discounts are taken into account in gap
analysis /ALM simulation in the gap valuation type.
The tabs Simulated Transactions , Market Data and Chars allow you to include simulated
transactions, scenarios and to limit the report according to the analysis characteristics.
ALM Single Value Analysis. With ALM = Asset/ Liability Management.

Cash Flow/Gap Analysis:
JBRTOBJ_CFM- ALM Single Value Analysis
LESSON SUMMARY

Unit 6
Lesson 3
Using Value at Risk Valuations
LESSON OBJECTIVES
The Value at Risk concept, methods and reporting
Figure 679: Market Risk Analyzer The Treasury Risk Manager's Questions Part 3
It needs a lot of knowledge and experience to do Risk Management in Treasury. Therefore our
training will not be able to cover the full treasury knowledge and business background.

Lesson: Using Value at Risk Valuations
we explain the solution: we explain the calculations and tools provided from the Market Risk
Analyzer. Both the business background and, of course, the handling in the system.
Value at Risk (VaR) Concept
Figure 681: Market Risk Analyzer Motivation for Value at Risk (VaR) Calculation
Source and more information see:

https://en.wikipedia.org/wiki/Value_at_risk
In financial mathematics and financial risk management, VaR is defined as:
for a given portfolio, time horizon, and probability p, the p VaR is defined as a threshold
loss value, such that the probability that the loss on the portfolio over the given time
horizon exceeds this value is p. This assumes mark-to-market pricing, and no trading in
the portfolio.
For example, if a portfolio of stocks has a one-day 5% VaR of $1 million, that means that there
is a 0.05 probability that the portfolio will fall in value by more than $1 million over a one-day
period if there is no trading. Informally, a loss of $1 million or more on this portfolio is
expected on 1 day out of 20 days (because of 5% probability). A loss which exceeds the VaR
threshold is termed a "VaR break."
History:

The financial events of the early 1990s found many firms in trouble because the same
underlying bet had been made at many places in the firm, in non-obvious ways. Since many
trading desks already computed risk management VaR, and it was the only common risk
measure that could be both defined for all businesses and aggregated without strong
assumptions, it was the natural choice for reporting firmwide risk.
J. P. Morgan CEO Dennis Weatherstone famously called for a "4:15 report" that combined
all firm risk on one page, available within 15 minutes of the market close.
Risk measurement VaR was developed for this purpose. Development was most extensive at
J. P. Morgan, which published the methodology and gave free access to estimates of the
necessary underlying parameters in 1994. This was the first time VaR had been exposed
beyond a relatively small group of quants.
Value at Risk Functions:
RMV0 - VaR Individual Analysis
RMVARS - Display Shifts During VaR Evaluation
RMCOV - Matrix Checks for Risk Analytics.
Figure 682: Market Risk Analyzer Value at Risk Concept
Object of the VaR calculation process is transactional data. Historical Market Data is used to
for the calculation process, volatilities and correlations can be fed from any sufficient external
source or - most commonly and highly recommended - calculated by the SAP Market Risk
Analyter internal Statistics Calculator (Transaction Code TVS1).
MRA supports all common VaR calculation approches:
- Historical simulation
- Monte Carlo
- Full valuation
- Delta method

- Delta/gamma method
- Variance/covariance
Also Back testing is supported to validate the calculated VaR against the Market Data
changes from the Financial Markets.
For the valuation also a user exit is available to implement any external pricing model.
During evaluation a Portfolio Hierarchy already gets applied to take correlation effects into
account.
Risk Factors and Risk Hierarchies
Figure 683: Market Risk Analyzer Identification of Risk Factors for VaR Calculation
Which Market Parameters (risk factors) do have an impact on the NPV calculation of the
portfolio?
All such so called Risk Factors need to be identified to be able to calculate the full VaR.
Also the VaR for individual RFs or a subset of RFs is of interest.
Similar to the setup of the Portfolio hierarchy (to group the financial positions) there need to
be a way to group the individual risk factors.

Figure 684: Market Risk Analyzer Grouping of Risk Factors for VaR Calculation
The SAP Market Risk Analyzer offers the Risk Hierarchy to support the logical grouping of risk
factors according to their nature/origin.
The detailed definition of the Risk Hierarchy enables the engine to perform the VaR
calculation on each level considerung all the contained Risk Factors.
By doing this, all correlations of risk factors are taken into account with the calculation.
Figure 685: Market Risk Analyzer Grouping of Risk Factors in a Risk Hierarchy
Using transaction JBRR all relevant Risk Factors that have been identified get modelled as
parts of a detailed Risk Hierarchy.

The Risk Hierarchy gets used for VaR and CFaR calculation and also is required for the
calculation of statistical key figures (volatilities and correlations).
Figure 686: Market Risk Analyzer Risk Factors: Historical Time Series
On each level of the PH hierarchy the NPV is a function of a subset of the identified set of risk
factors.
Estimations on how the NPV might change within a defined time range (holding period)
Each risk factor has a time series of historical data.
The VaR idea is to estimate the maximum loss within a certain probability based on
The fact that NPV is a function of rf_1,…..,rf_n
Information how RFs fluctuated in the past
One possible option is to use the full historical time series to estimate future NPVs.
This slide shows another possible option: namely to condense the historical time series:
Fluctuation of single RFs: Historical volatility
Correlation between 2 RFs: Historical correlation
Those key figures can be calculated by the internal Statistics Calculator.

Figure 687: Market Risk Analyzer Statistics Calculator: Calculation of Volatilities and Correlations
Historical volatilities and correlations are required for the VaR calculation process.
They can either be
Manual input or import
Or calculated in the internal Statistics Calculator (TVS1)
The Statistics Calculator processes the calculation of volatilities and correlations for all Risk
factors of a risk hierarchy, or part of the hierarchy (below a certain node)
Calculates volatilities and/or correlations
Possibility to create detailed calculation log (not recommended in case of a large risk
hierarchy). Only for test purposes of selected parts of the risk hierarchy

Figure 688: Market Risk Analyzer - VaR Risk Hierarchy
Transaction: JBRR - Risk Hierarchy

Possible Risk factors are:
Yield Curves
FX Rates
Security Rates
Indices (Shares)
Commodity Prices
Volatilities
Abstract Risk Factors

Risk Analysis
Figure 689: Market Risk Analyzer - VaR VaR - Theoretical Approaches
Risk Analysis supports the following procedures for calculating the value at risk:
Historical Simulation
The Variance-Covariance Approach
Monte Carlo simulation
Figure 690: Market Risk Analyzer - VaR Historical Simulation and Variance/Covariance Approach
Historical simulation offers different procedures for determining value-at-risk. You can use
historical simulation to arrange the gains and losses and the value-at-risk key figure is
determined according to the confidence level. For example, to take a drift into account, you
can also double the gains and losses so that the value-at-risk is calculated on the basis of an
evenly distributed spread. Another procedure for determining value-at-risk is to assume
normal distribution for the calculated gains and losses.

The variance/covariance approach is based on the method suggested by J.P. Morgan/ Risk
Metrics.
You can determine volatilities and correlations using the SAP statistics calculator and save
them or
Get them by way of a data feed.
Figure 691: Market Risk Analyzer - VaR The Monte Carlo Simulation
Like historical simulation, the Monte Carlo simulation is a method that describes the potential
changes in value of the risk factors using scenarios.
However, in contrast to historical simulation, the scenarios are not determined from
historical data, but shown using a stochastic process.
The random numbers you need for this are provided by a random number generator and
can be transformed by various methods into the normal distribution.
Figure 692: Market Risk Analyzer - VaR Historical Simulation (1)
Historical Simulation:
For all combinations of risk hierarchy nodes and portfolio hierarchy nodes, the historical
simulation determines the gains and losses in the existing portfolio for the future that are
based on the historical changes in market price.

The historic market price changes are determined in accordance with the holding period.
For the calculated changes in market price, the system simulates how net present values
would change for the portfolio.
Figure 693: Market Risk Analyzer - VaR Historical Simulation (2)
Historical Simulation:
There are different procedures for determining the value at risk:
Based on the confidence level, the system counts off the relevant values.
Before being counted in accordance with the confidence level, the time series of portfolio
gains and losses is doubled by juxtaposing each loss with a corresponding gain and each
gain with a corresponding loss. This doubling ensures that the expected value of the
change to the portfolio is zero and that the distribution on each side is even.
Instead of counting the discrete gains and losses, you can assume that they are distributed
normally. The value at risk is then determined accordingly.

Figure 694: Market Risk Analyzer - VaR: VaR Methods for Product-Dependent Evaluation
Complete (Full) Evaluation:
As part of the complete evaluation, changes in NPV are simulated by using historical
changes in the market price based on the real price functions.
The advantage of this procedure is the considerable calculation accuracy.
The disadvantage is the calculation intensity of the procedure.
Delta Evaluation:
As part of delta evaluation, NPV changes are simulated by applying historical changes in
the market price to a standardized change in NPV.
The advantage of this approximation is that this procedure is less calculation-intensive.
However, the assumption that the NPV function is linear leads to inaccuracies, especially
in the area of option transactions.
Delta/Gamma approach:
The delta/gamma approach returns more accurate calculation results than the delta
evaluation at a significantly higher calculation speed than the complete evaluation.
The gamma add-on calculation can be applied to products or single transactions.
You can define these methods for specific products by way of the valuation rule in the
combination procedure as well. To prevent the settings specific to the valuation rule from
being ignored, you have to enter the combination procedure in the VaR type in Customizing.
Hint: System performance problems may arise, depending on the size of the portfolio. You
therefore need to strike a compromise between runtime and accuracy.

Back Testing
Figure 695: Market Risk Analyzer - VaR Back Testing
Back testing is a procedure for checking internal models in line with supervisory
requirements. In back testing, the value-at-risk calculated in t1 is compared with the change in
the portfolio at time t2 when the real change in market price is considered.

Figure 696: Market Risk Analyzer - VaR Back Testing - Reporting
Back testing is available as a separate key figure in the results database. In the results
database overview, the calculated VaR values are clearly juxtaposed with the back testing
values, and the delta values for each individual day are listed. The results database provides
the option of an outlier analysis in accordance with the guidelines of the Basel committee. You
can perform this analysis for the entire portfolio and for each node of the portfolio hierarchy.
The outliers are highlighted in red in the list.
The following graphic displays are also available:
Value-at-risk and distribution of gains and losses
QQ plot
PP plot
Back testing is the ex-post check of the value-at-risk values against the actual changes in
portfolio value. Back testing checks how well the calculated value-at-risk predicted the actual
risk.
The Basel Committee for Banking Supervision requires an ex-post comparison for internal
models of capital adequacy. The sum of the exceptions (realized gains/losses > VaR) over the
last 250 days of trading (1 day as a holding period, 99% confidence level) is compared to the
specifications.
To assess internal models, Basel back testing uses a traffic light approach depending on the
number of outliers. The approach is supported as part of back testing of the results database
in the form required for the selected nodes:
Green traffic light range 0 - 4
Yellow traffic light range 5 - 8
Red traffic light range 9 and higher

Figure 697: Market Risk Analyzer - VaR Value at Risk Analysis Entry Screen
Value at Risk Functions:
RMV0- VaR Individual Analysis
RMVARS
- Display Shifts During VaR Evaluation
RMCOV- Matrix Checks for Risk Analytics
Figure 698: Market Risk Analyzer - CFaR Motivation for Cash Flow at Risk (CFaR) Calculation
Example:
A corporate group has planned for the upcoming months or quarters incoming cash flows in
various foreign currencies due to sales activities in different regions. The financial risk is the
uncertainty regarding the amount of cash flows in the corporate currency (for example EUR).
The risk measure Value at Risk was mainly designed to measure market risk for use in
financial institutions.
However, in the corporate world, the risk measure Cash Flow at Risk is more appropriate. It
conveys information on a shortfall in cash flow, associated with a certain probability, that a
firm could experience within a certain period. The uncertainty is mainly caused by fluctuations
of the market risk factors, the most prominent one being exchange rates between the risk-
free local/ corporate currency and various foreign currencies.

Figure 699: Market Risk Analyzer - CFaR Main Features
The main features of new function Cashflow at Risk :
Various methods for calculating the CFaR for single periods as well as aggregated over all
periods:
Monte Carlo simulation for generating random walks of spot rates for the risk factors
Variance/Covariance approach
Maturity band with which to flexibly define the granularity of the periods
Risk hierarchy with which to define the risk factors
Calculation of reference cash flows using the actual market data at evaluation date.
Cash Flow at Risk functions:
RMC0- CFaR Single Value Analysis
RMCARS
- Display Random Walks for CFaR Evaluations
RMCOV
- Matrix Checks for Risk Analytics
Figure 700: Market Risk Analyzer - CFaR: CFaR Scope in Market Risk Analyzer
Delivered scope:
Focused on FX risk: Only FX risk factors are supported
Financial objects are the source for the cash flows:
Operational cash flows can be captured using Exposure Management 2.0 or using generic
transactions

Financial instruments and positions containing fixed cash flows are supported (for
example FX forwards as hedging instruments).
RMCARS
RMCOV
Figure 701: Market Risk Analyzer - CFaR: CFaR Single Value Analysis (RMC0)
RMCARS
RMCOV
Function RMC0 CFaR Single Value Analysis calculates and reports the cash flows and the
Cash Flow at Risk online.
The control parameters for CFaR can be specified using the Cash Flow at Risk type or a key
figure with the category Cash Flow at Risk.

Figure 702: Market Risk Analyzer - CFaR: CFaR Single Value Analysis (RMC0)
The generated random walks and the resulting profit and loss distributions can also be
analyzed.
Note: Random walk generation and analysis can also be executed using transaction RMCARS
without any cash flow calculation.
RMCARS
RMCOV
- Matrix Checks for Risk Analytics.

The Results Database Concept, Tasks and Reporting
Figure 703: Market Risk Analyzer - CFaR Results Database Standard Reporting Result Screen
(1) Cash flows and CFaR are shown for each node of the portfolio hierarchy (aggregated
across all periods and risk factors).
(2) Cash flows and CFaR are shown for each period for the selected node of the portfolio
hierarchy (aggregated across all risk factors)
(3) CFaR is broken down by the risk factors for the selected period
Results Database: Layout Definition for the Standard Reporting:
Layout definition (AIS_LAY_DEF)
The key figures of the new categories can be used in the layout definition.
For this purpose, new areas specifically dedicated for CFaR reporting are available. Also,
formulas can be defined for the new layout areas.

Figure 704: Market Risk Analyzer - CFaR Results Database Standard Reporting Drilldown
Cash Flow at Risk Results Database: Standard Reporting, Drill down Capabilities
Random Walks Used
Cash Flows of Single Positions and Transaction
Transaction or Position
Profit and Loss Distributions
Market Data Used
You need a lot of knowledge and experience to execute risk management in Treasury.
background.

Concept and Tasks
Figure 706: Market Risk Analyzer Results Database Concept and Tasks
You use the results database to calculate, save, evaluate, and analyze key figures defined
within end-of-day processing. This enhances the previous options of saving and displaying
evaluation results. The results database is distinct from the techniques used until now to
create and save evaluation results in that the creation of results and their reporting are now
separate. This has the following advantages:
Results data generated once can be reported on in as many different ways as you require
(different combinations of key figures, different layouts), without having to recalculate this.
The evaluation results are permanently available, even through a release change, and can be
archived.
You can add to and correct the results later. This is necessary for changed transactions or in
case of evaluation errors.
Benefits:
Separation of analysis and reporting
Evaluation results permanently available
Later additions to the results possible
Flexible reporting using a variety of key figures
Numerous key dates (maximum 12)
RDB functions:
AIS_STDREP - Analyzer Information System
JBWA - Report Selection
Analyzer Information System Layout and Formulas:

S_KFM_86000129 - Define Initial Layout
AIS_FORMULA_DEF
- Define Formulas for AIS
Results Database preparatory runs
RAEP1- Determine Single Records
AFWO1 - Determination of Single Records: Overview
RAEP2- Determine Final Results
AFWO2 - Determination of Final Results: Overview
RASRPDEL
- Delete Single Records Not Archived
Evaluation Control Portfolio Hierarchy
AFWPH
- Define
JBRK - Display
Basic Architecture
Figure 707: Market Risk Analyzer Results Database Basic Architecture
In case of large hierarchies and data volume combined with the need for complex calculations
Online transactions have runtime limitations.
That's why the result database calculation framework has been introduced by SAP for the
Risk Analyzers.
The Result Database (RDB)
- RDB is integrated inside Treasury and Risk Management
- RDB decouples calculation from reporting for optimized runtime (it has similarities with a
data warehouse)

- RDB allows drill-down along portfolio structure and risk hierarchy down to operational
position
The overall calculation is basically split into two parts:
The Single Record Procedure (SRP) processes the calculation of specific key figures as pre-
results, for example, on the way to the calculation of key figures like VaR according to specific
methods and confidence intervals.
The selection for such calculations is based on financial objects, which represent all financial
transactions and positions managed in Transaction Manager as well as outside the SAP
Treasury & Risk Management module.
Final Results procedures (FRP) make use of the pre-results and use them to calculate the final
result key figures.
Figure 708: Market Risk Analyzer Results Database Available Results
The results data base can be used for calculation of benchmark, market and profitability key
figures. In the results data base, especially concerning the Market Risk Analyzer, the following
key figures are available:
NPV with shift rule
Exposure
Value at Risk
Fisher-Weil Duration
Convexity
Sensitivity per basis point (PVBP)
Macaulay Duration
Modified Duration
Clean price

Cash Flow at Risk
Architecture and Process
Figure 709: Market Risk Analyzer Architecture and Process of the Results Database
The results database allows to predefine reports (in customizing). They use Key Figures as
the lowest level elements. They are linked in to procedures where the analysis is specified
(such as Historical Simulation vs. Monte Carlo or the confidence interval). In depth
information is provided in the subsequent training on configuration.
First, you have to define the key figures to be calculated.
These are then assigned to procedures for single records and procedures for final results.
Procedure:
The key figures for single records for the selected Financial Objects are generated and
saved to the database.
The key figures for the final results are determined on the basis of existing individual
records and are saved to the database.
The key figures posted to the final results database are displayed using the Analyzer
Information System.
Results Database: Procedure for Single Records
Filter
- Set of values for characteristics
- Selection criterion in the data pool
Run mode
- Basic run

- Correction run for transactions that are changed or entered in the system after the
single records have been created.
- The reversal run allows the single records for these transactions to be re-generated.
All key figures defined in an evaluation procedure are calculated even if they refer to basic key
figures that are not defined in the procedure for single records.
Procedures for single records that already have data generated for them cannot be changed
unless the existing data has been reversed resp. been deleted.
You must use the following conventions: Key figures can only be assigned to a procedure for
single records or a procedure for final results.
Key figures purely for final results can only be assigned to procedures for final results.
Changes cannot be made to the procedures for single records if data was already created
for them in the update run or if there are associated procedures for final results.
You cannot assign the NPV basic key figure to a procedure for single records.
Symmetrical Shift in Interest key figures cannot be added to the procedure for final
results.
Key figures that are not in the associated procedure for single records cannot be used in
the procedure for final records.
Results Database: Procedure for Final Results
Basic data
- Procedure for single records
- Portfolio hierarchy
Determines final results only for key figures that were also created in a single record. The
"Key figures for intermediate mathematical steps" are exceptions.
- VaR key figures
- Mod.duration, convexity, and the price value of a basis point (PVBP)
You can recalculate final results from the single records at any time.
AIS: Analyzer Information System.

Figure 710: Market Risk Analyzer Information System Entry Screen
Reporting
Figure 711: Market Risk Analyzer Reporting in the Results Database
You can display an overview of the values saved in the results database with the Analyzer
Information System.
Use the selected layout and the portfolio hierarchy to define how the calculated key figures
are displayed.
You can use the portfolio hierarchy to display the key figure values for partial portfolios.

Be aware of that for non-additive key figures like the VaR the calculation must have been
performed with the application of the relevant portfolio hierarchy (or hierarchies). Only by
applying one or more portfolio hierarchies with the calculation of VaR key figures the
system stores values for any node of the portfolio hierarchy and allows the values to be
reported along the hierarchy in Results Database reporting.
Drill down into the underlying financial transactions to display the calculated key figures for
single items.
You can compare key figures for different periods ("historical development").
The stored calculation bases can be displayed. These are not affected by changes made later
to the market data tables.
The SAP list viewer functions can be used for single items. All characteristics of the analysis
structure can be shown and used for further analyses.
RDB functions:
AIS_STDREP- Analyzer Information System
Figure 712: Market Risk Analyzer Reporting in the Results Database
You can further analyze the value-at-risk values on the basis of the risk hierarchy.
The value-at-risk values can be displayed on the nodes of the risk hierarchy ( Risk
Decomposition ).
It is also possible to display the underlying distribution of profit and loss as a list of values and
a graphic.
You can use the results database to calculate a portfolio VaR for various confidence levels,
holding periods, and VaR procedures (such as historical simulations, variance/covariance, or
Monte Carlo simulations).

RDB functions:
AIS_STDREP- Analyzer Information System
LESSON SUMMARY

Unit 6
Lesson 4
Considering Credit Risk
LESSON OBJECTIVES
The (new) Yield Curve Framework
Figure 713: Market Risk Analyzer — The Treasury Risk Manager's Questions Part 5
You need a lot of knowledge and experience to execute Risk Management in Treasury.
background.

Lesson: Considering Credit Risk
Figure 714: The (new) Yield Curve Framework Introduction
Reference Interest Rates (for example, 3-month EURIBOR) belong to the most important
market data in Treasury and Risk Management.
Yield curves are built using reference interest rates or corresponding derivatives as grid
points.
The main features of a Yield Curve Framework needed for fair value calculations are:
discount factors in order to determine Net Present Values (NPVs) of future cash flows
forward-projecting interest rates for non adjusted reference interest rates

Figure 715: Yield Curve Framework Overview
Before being able to use the new features that come with the yield curve framework, you have
to activate it in the IMG. More information is provided in the subsequent training on
customizing.
Credit Spread Curves
Figure 716: Credit Spread Curves

Since the financial crisis in August 2007, reference interest rates like LIBOR and EURIBOR,
considered formerly as proxies for risk-free rates, have been carrying non-negligible amounts
of credit and liquidity risk.
This resulted in steeply widened Tenor Basis Spreads, Cross-Currency Basis Spreads and
other spreads between formerly equivalent reference interest rates.
A tenor basis spread is the difference between the swap rates of two swaps with identical
term, but different tenor structure (for example. vs. 3m LIBOR rate and 6m LIBOR rate).
Figure 717: Yield Curve Framework Composite Curve - Definition
A composite curve is the composition of one yield curve and:
(zero to many) basis spread curves for discounting and forward calculation
(zero or one) credit spread curves for discounting
Use: the calculation of discount factors or forward rates is done with a composite curve.

Figure 718: Yield Curve Framework Basis Spreads: Introduction
A tenor basis spread is the difference between the swap rates of two swaps with identical
term, but different tenor structure (e.g. vs. 3m LIBOR rate and 6m LIBOR rate).
Since the financial crisis in August 2007 reference interest rates like LIBOR and EURIBOR,
considered formerly as proxies for risk-free rates, have been carrying non-negligible amounts
of credit and liquidity risk.
This resulted in steeply widened tenor basis spreads, cross-currency basis spreads and other
spreads between formerly equivalent reference interest rates.
Figure 719: Yield Curve Framework Basis Spread Curve: Example
This example:
Basis Spread Curve Type

Tenor/currency pair:
EUR 3M <-> 6M
EUR <-> USD 3M
Figure 720: Yield Curve Framework Basis Spread Curve Use Case: Forward Rate Calculation
Basis Spread Curve use Case: Forward Rate Calculation.
Figure 721: Yield Curve Framework Spread Curve Derivation (Forward Calculation)
This diagram shows the Spread Curve Derivation for forward calculations.

Figure 722: Yield Curve Framework Spread Curve Derivation (Discounting/Evaluation)
This diagram shows the Spread Curve Derivation for Discounting and Evaluation.
Figure 723: Yield Curve Framework What-if Analysis
The existing transactions for market data shifts (JBR0) and scenarios (TV21) are enhanced to
support Basis Spreads.

Figure 724: Yield Curve Framework Credit Spread Curves: Motivation
However, there were some disadvantages to this solution:
No credit spread curves, only parallel shifts
No automated market data import for credit spreads
Spreads had to be maintained per transaction/position (no derivation logic)
Figure 725: Yield Curve Framework New Functionality: Credit Spread Curves
The new Functionality: Credit Spread Curves

Credit Spreads per:
Business Partner
Security ID
Company Code

Benefits of the new solution:
Automatic market data import
Flexible storage of spreads, e.g. per Business Partner
Time-dependent spread curves
Flexible determination of spread curves during price calculations
Customizing steps are available for Credit Spread Curve definition (see subsequent training
on configuration).
Figure 726: Yield Curve Framework Credit Spread Curves Master Data: Reference Entity
Reference Entities are maintained with transaction RMRE

, and can also be generated
automatically for business partners with RMREBP .
Figure 727: Yield Curve Framework Credit Spread Curves Market Data
The Credit Spread ID is defined in configuration. It differentiates Credit spreads.

In the Evaluation Type (transaction JBREVAL), you can control the usage of Credit Spread
Curves in the Yield Curve Framework with the settings on the tab Evaluation Control .

Figure 728: Yield Curve Framework Credit Spread Curves Reference Entity Derivation
This schema shows the Reference Entity Derivation.
Figure 729: Yield Curve Framework Credit Spread Curves What-if Analysis
The existing transactions for market data shifts ( JBR0) and scenarios ( TV21) are enhanced to
support Credit Spreads.

Figure 730: Enhancement for Accounting Determine Net Present Values with Credit Spread Curves
Enhancement for Accounting: Determine Net Present Values ( TPM60) can be run with credit
spread curves. As a result, the NPVs include the Credit Spread information. The accounting
evaluation step makes use of these NPVs: evaluation incorporates the considerations
concerning counterparty credit risk .
Credit and Debit Value Adjustments
Figure 731: Credit and Debit Value Adjustments in a Nutshell
Motivation
IFRS13 : value OTC derivatives including credit value adjustments (CVA) and debit value
adjustments (DVA).

Definition
CVA: accounts for possibility of a default by the counterparty
DVA: accounts for possibility of a default by your own company
NPV = Risk-Free NPV - CVA - DVA
Main Features
Calculation via Expected Exposures
Consideration of Netting
Consideration of Collateral.
Figure 732: Credit and Debit Value Adjustments Netting Groups
In the Default Risk Limit tab (the Credit Risk Analyzer tab) netting groups are introduced.
They allow to combine contracts which netting can be calculated for.
A BAdI is available for calculating the collateralization percentage for transactions and netting
groups. Expected exposures are reduced by the collateralization percentage. The
implementation delivered by SAP follows a simple approach and sets collateral to 100%,
thereby setting expected exposure to 0, if a transaction or a netting group has a collateral
assigned to it in the Credit Risk Analyzer (transaction KLSI01), or if a clearing account is
entered in a transaction.

Figure 733: Credit and Debit Value Adjustments Determine NPVs Including CVA and DVA Process flow
Existing functionality/process: TPM60 - VTVBAR - TPM1 with
TPM60 - Determine Net Present Values stores NPV values into table VTVBAR
TPM1 - Execute Valuation reads NPV values from table VTVBAR and executes the
Valuation.
New functionality: CVA Calculation:
Where do the EEs come from in case of calculation via EEs?
The whole process is started by transaction TPM60CVA. It does the whole calculation „in
one go".
Customizing Entities: CVA Type and EE Type control the calculations in the corresponding
„grey boxes".
TPM60CVA - Determine NPVs Including CVA and DVA
JBNPV - Enter Net Present Values

TPMEEM - Enter Expected Exposures
Hint: You can still use transaction JBNPV - Enter Net Present Values to display (and maintain)
the stored fair values. The drilldown options available from the results screen in transaction
TPM60CVA are also available here via the CVA Calculation pushbutton.

Figure 734: Credit and Debit Value Adjustments Determine NPVs including CVA and DVA (TPM60CVA)
Credit and Debit Value Adjustments: Determine NPVs Including CVA and DVA (TPM60CVA)
system examples.
LESSON SUMMARY

Unit 6
Learning Assessment
1. Risk Management is not necessary, better save on cost and invest in new products.
X True
X False
2. The Market Risk Analyzer provides the following functions and benefits
X A Net Present Value analysis is provided, sensitivities are determined.
X B Value at Risk figures can be calculated: Variance/ Covariance; Historical

Simulation, Monte Carlo Simulation.
X C Cash Flow at Risk can be calculated using the Monte Carlo Simulation.
X D Simulation options/ What If Analysis are provided: single value and Scenarios (e.g.
best case, expected case, worst case), Market data shifts.
X E The Next Crisis Function (NCF) determines the date of the next financial crises
3. Which information is correct about the Financial Object?

X A The Financial Object needs to be in place from the very beginning for Treasury and
Risk Management process.
X B The Financial Object is a central entity providing a harmonized view on the TRM
data.
X C The Financial Object is derived from the Transaction Managers Transactions and
Positions automatically upon creation.
X D The Financial Object is used to map the data structures in operative world
(Transaction Manager) to the characteristics in the analytical world (Market-/ Credit
Risk Analyzer).
X E The Analyzers, e.g. MRA or CRA, access the Financial Object, not the
Transactions/ Positions in TRM

4. Modified duration is suitable only for an instrument with fixed cash flows.
X True
X False
5. Match each risk analysis procedure with the corresponding description.

Historical Simulation Determines the value-at-risk

using volatilities and correla-
Variance/Covariance Ap-
tions.
proach
Determines the value-at-risk
Monte Carlo Simulation
using historical data.
Determines the potential
changes in value-at-risk using
a stochastic process to gener-
ate simulations.
6. Which of the following functions are introduced in the new Yield Curve Framework?
X A Automated market data import for reference interest rates
X B Automated market data for basis spreads as well as credit spreads
X C Credit spread (as parallel shift of yield curve)
X D Different yield curves for forward calculation and discounting
X E Different yield curves for different reference interest rates
X F Flexible framework to derive credit spread curve and add it to discounting yield
curve during valuation runs

Unit 6
1. Risk Management is not necessary, better save on cost and invest in new products.
X True
X False
This is correct. Risk Management is a necessity because financial risks can harm the
company.
2. The Market Risk Analyzer provides the following functions and benefits
X A Net Present Value analysis is provided, sensitivities are determined.
X B Value at Risk figures can be calculated: Variance/ Covariance; Historical

Simulation, Monte Carlo Simulation.
X C Cash Flow at Risk can be calculated using the Monte Carlo Simulation.
X D Simulation options/ What If Analysis are provided: single value and Scenarios (e.g.
best case, expected case, worst case), Market data shifts.
X E The Next Crisis Function (NCF) determines the date of the next financial crises
This is correct. Next Crisis Function (NCF) is not available. It is still a very important task
of the Treasurer itself to use all the analysis functions of the MRA (and other sources of
information) to draw his own conclusions.

3. Which information is correct about the Financial Object?

X A The Financial Object needs to be in place from the very beginning for Treasury and
Risk Management process.
X B The Financial Object is a central entity providing a harmonized view on the TRM
data.
X C The Financial Object is derived from the Transaction Managers Transactions and
Positions automatically upon creation.
X D The Financial Object is used to map the data structures in operative world
(Transaction Manager) to the characteristics in the analytical world (Market-/ Credit
Risk Analyzer).
X E The Analyzers, e.g. MRA or CRA, access the Financial Object, not the
Transactions/ Positions in TRM
This is correct. The use of Analyzers can also begin later on because programs for the
initialization of the Financial Objects exist.
4. Modified duration is suitable only for an instrument with fixed cash flows.
X True
X False
That is correct. Macauley Duration is a time measure with units in years and suitable only
for an instrument with fixed cash flows. On the other hand, Modified Duration can be
applied to interest-rate sensitive instruments with non-fixed cash flows.
5. Match each risk analysis procedure with the corresponding description.

Historical Simulation Determines the value-at-risk

using historical data.
Variance/Covariance Ap-
proach Determines the value-at-risk
using volatilities and correla-
Monte Carlo Simulation
tions.
Determines the potential
changes in value-at-risk using
a stochastic process to gener-
ate simulations.
That is correct. You have matched all the pairs correctly.

6. Which of the following functions are introduced in the new Yield Curve Framework?
X A Automated market data import for reference interest rates
X B Automated market data for basis spreads as well as credit spreads
X C Credit spread (as parallel shift of yield curve)
X D Different yield curves for forward calculation and discounting
X E Different yield curves for different reference interest rates
X F Flexible framework to derive credit spread curve and add it to discounting yield
curve during valuation runs
That is correct. Following are the functions that are introduced in the new Yield Curve
Framework: 1) Automated market data for basis spreads as well as credit spreads 2)
Flexible framework to derive credit spread curve and add it to discounting yield curve
during valuation runs

UNIT 7 Risk Limitation with the
Credit Risk Analyzer
Lesson 1
Explaining the Credit Risk Analyzer Functional Approach 602
Lesson 2
Using the Credit Risk Analyzer Process 619
UNIT OBJECTIVES
Explain the Credit Risk Analyzer functional approach
Explain the Credit Risk Analyzer process
Define and display limits
Provide interim limits and perform limit transfers
Check the limit utilization
Perform the day end process

Unit 7
Lesson 1
Explaining the Credit Risk Analyzer Functional
Approach
LESSON OBJECTIVES
The Credit Risk Analyzer Overview and Process
Figure 735: Credit Risk Analyzer — Risk Categories
Treasury and Risk Management Limit Management:
The tightening of regulations (Supervision and Transparency in the Area of Enterprise Act,
Basel II, and IAS/IFRS) with regard to risk controlling underlines the increasing importance
of analyzing and limiting the risk of insolvency.
It also makes business sense to have a system support for measuring, analyzing, and
managing or limiting counterparty default risks.

Lesson: Explaining the Credit Risk Analyzer Functional Approach
SAP's Credit Risk Analyzer incorporates central limit management functions, enabling you to
set limits for counterparty default risk including online monitoring.
The system calculates credit risk, settlement and default risks arising from the companies’
activities on the financial and capital markets.
By defining differentiated upper risk limits, it is possible to restrict potential losses on

financial transactions as a result of business partner insolvency. In the same way, the limit
system can be used to maintain control over the activities of the traders.
The limit system contains an extensive range of standard reports for evaluation and
analysis purposes. The existing utilizations can be displayed in aggregated form for any
given key date and, with the appropriate system settings, can take business partner
relationships into account.
This allows you to track limit utilization over time and see exactly which transactions affect
it. This in turn enables you to monitor all trading activities, thus offering a high level of
security.
Figure 736: Default Risk and Limit System
The default risk and limit system supports the quantification of various risk positions and
default risks in line with the current market position.
The risk exposures (attributable amounts) from the individual transactions then are
compared with the centrally-defined limits.
The exposures are calculated as part of end-of-day processing, and can be updated during
the day using the integrated default risk limit check.
This means that traders can use the integrated limit check before concluding a transaction
to determine online the exposure linked to the financial transaction. They then can let the
system check this exposure against limits stored centrally in Limit Management. Once the

Unit 7: Risk Limitation with the Credit Risk Analyzer
transaction has been concluded, the exposure automatically increases the utilization of
the affected limits.
As a basis for the integrated limit check, the financial positions must be valued
consistently.
The system displays the result of the limit check and generates a log for later evaluations.
Calculation: The risk exposures = attributable amounts are compared to the limits. An
attributable amount can be a nominal value. It can also be calculated by a formula. For
example, it can be a Net Present Value (NPV).
Summary: Credit Risk Analyzer enables the active control of default risk by computation of
attributable amount and the specification of limits. It also contains the following features:
Controls and monitors the counterparty risk
Provides integrated limit checking in the single transaction
Determines the end-of-day attributable amount and the utilization of limits
Attributable amount is used to perform the quantification of the default risk (NPV or
nominal are used as the basis of calculation )
Provides different procedures for attributable amount determination to allow the credit
risk to be determined and evaluates precisely
Creates different limit types depending on limit characteristics like BP, currency, and so on
Credit Risk Analyzer - Limit System

The need for a limit system results from the requirements addressed by different job roles.
The dimensions range from operational to global/ strategic:
Traders or credit analysts need to be supported in the assessment of existing limit

specifications.
Customer advisors need to create, release or block limit specifications for their customers,
if necessary. They need to call up the current status of limits, utilization and collateral at
any time.
Credit risk controllers need to use a range of flexible methods to set limits and to measure
and report on credit risk towards business partners and in a portfolio.
Credit portfolio managers need to assign and monitor limits for individual portfolio
segments or for entire portfolios and analyze portfolios according to various criteria.
Treasury auditors need an instrument to enforce the companies risk management policies.
Treasury management needs to comply to the compliance rules.

Figure 737: The Credit Risk Analyzer Overview and Process
This overview shows important steps to be performed when the limit system is implemented.
It also shows the main limit management functions and process:
Define Limit Structure: multi dimensional limit structure
Create Limits
Manage Limits: Display, Change, Seasonal Limits, Limit Transfer, Limit audit, Limit
Reservation
Check Limits: online limit check
Monitor Limit Utilization: alerts, reports
Limit Structure definition and Limit Measurement
Figure 738: Limit Management: Fiori Tiles
Fiori tiles in our training system. Groups and available tiles can be adjusted for your system.

Figure 739: Define Limit Structure: Limit Type
The limit type is the central instrument in limit management.
A limit type defines the limit which is intended to be set (such as Trader Limit or Business
Partner Limit)
It can have one or more than one dimension (such as Business Partner or Business
Partner and Product Group)
The limit type is assigned to a determination procedure (which provides the information on
the measurement of the limit use).
You must first define limit types in the system settings before you can create limits and
calculate the corresponding limit utilizations.
Figure 740: Define Limit Structure: Limit Type Characteristics
In the application, you can store a limit for any combination of limit characteristic values.

There are four types of limit characteristics:
Direct limit characteristics
Derived characteristics
Free (or custom) limit characteristics
Generated characteristics
Direct limit characteristics are those derived directly from the data of a transaction. Derived
limit characteristics are those derived from direct characteristics, such as the business
partner.
The business partner can be interpreted as either the counterparty or the issuer.
The monitoring unit is a free field in the transaction data and you can enter anything you want
in it. A limit can be assigned to all transactions that have the same field assignments.
Free (custom) characteristics:
You also have the option of creating 15 free characteristics as limit characteristics. You can
derive these from the characteristics provided by SAP with the help of the SAP enhancement
concept. One example of a free limit characteristic could be a geographical group of countries
with the characteristic values Asia, Latin America, North America and Western Europe . In this
case, the values would be derived from the characteristic country of the business partner .
Generated characteristics:
You are also able to take characteristics from the active analysis structure in the Market
Risk component, generate them in Limit Management, and use them there as limit
characteristics. If you are using generated characteristics , you are able to use them in all limit
management functions in the same way as direct characteristics.
Figure 741: Define Limit Structure: Limit Types with N-Dimensions

It is possible to combine a number of limit characteristics to create multidimensional limit

types.
This provides the opportunity to restrict default risks and to monitor trader activities at the
same time.
The limit is then stored in a combination of limit characteristics values.
In the example above, the trader "Bauer" was allowed to take a maximum default risk of one
million euro in the foreign exchange transactions product type. The business partner involved
in the transactions is irrelevant in this case.
If you define a three-dimensional limit type, you can also take the business partner into
consideration. For example, to make sure that your money market trader does not exceed a
certain exposure level with a business partner, you could define a limit type with the limit
characteristics trader, limit product group, and business partner, and then set a limit amount
for the exposure.
Figure 742: Trader Limit
The trader limit function (limit for each product type and transaction type) has been
enhanced as of Enhancement Package 3. Enhancements: trader, counterparty, and
transaction type.
This enables you to manage trader limits using the following:
company code
counterparty
product type
transaction type
trader
currency characteristics

In the case of trader limits, these are maximum amount specifications that must not be
exceeded when a transaction is entered. Risk management offers an efficient tool to check
that traders comply with risk guidelines. If a trader enters a financial transaction that exceeds
the trader's authorization, a message is sent to another employee, such as a risk controller,
by way of a work flow. This other employee must be defined in the system. Standard reports
are also available that document when limits have been exceeded.
Figure 743: Default Risk Rule with Determination Procedure
After the limits are defined and set, the utilization of the limits is measured using the
attributable amount.
The attributable amount is determined using the determination procedure. It can be the
nominal value or a value using a calculation formula (see next slide).
A three step schema is available to classify the result. This is subject to configuration. Other
values for the yellow category are possible.

Figure 744: Default Risk Rule with Determination Procedure Calculates the Attributable Amount
A determination procedure covers the rules and definitions that are necessary, in relation to
transactions with default risk:
to determine risks related to a particular risk category
from a specific business perspective
This definition is explained as follows:
If credit and settlement risks are to be determined for a transaction, two determination
procedures must be defined (one determination procedure for each risk category).
If you want to evaluate a transaction by different methods, you can do this by setting up
different determination procedures. You can evaluate a transaction from the perspective
of supervisory law as well as internal risk in parallel.
Within a determination procedure, you can evaluate various transactions that have different
risk properties, with differentiated methods too.
The determination procedure or determination procedures are then combined to a default
risk rule.
If a transaction contains several risks (counterparty credit risk, issuer credit risk,
counterparty settlement risk), the system can generate a number of attributable amounts.
This is controlled by the choice of determination procedure, which forms the methodical unit
for determining attributable amounts for the counterparty /issuer default risk for all
transactions in a particular risk view. That means: If a transaction contains a credit risk as well
as a settlement risk, at least two determination procedures are needed to measure the
different risks. This methodology enables the attributable amount of a transaction to be
calculated for the same risk category in different ways.
You can use two different determination procedures to evaluate the credit risk of a money
market transaction from the internal company perspective, for example, as well as from the
risk perspective of supervisory law (IAS/IFRS, KontraG, Solvey). From within a determination
procedure you can evaluate transactions that possess different risk properties according to

different methods. This makes it possible to attribute money market transactions with their
nominal values and derivatives with their NPVs to a limit. You can adapt this to your individual
requirements.
Another important factor in determining the attributable amount is the default risk rule. This
rule specifies the criteria used to determine the market value change period and the risk
commitment period of a transaction. You can choose Term end of the transaction or Fixed
rate period of the transaction amongst others. The recovery rate determination is also defined
in the default risk rule.
Figure 745: Attributable Amount Determination
The determination procedure or determination procedures are combined to a default risk

rule.
The default risk rule is derived as soon as a contract is captured.
Each transaction receives one default risk rule. It serves as an ID for risk attribution.
The default risk rule is used to group transactions whose contents are evaluated in the next
step according to uniform methods and procedures.
Default risk rule as well as determination procedures are defined in Customizing. This can be
by way of derivation rules, assignments, table accesses, and individual enhancements. A
variety of characteristics (such as the product type or transaction type) are available in the
standard SAP system to perform derivations. In addition to these you can specify and use
your own characteristics.
Transactions that are to be evaluated according to different methods within a uniform
business perspective (for example, supervisory law) must be assigned to different default risk
rules.

Figure 746: Default Risk Rules
Default Risk Rule as well as Determination Procedures are defined in Customizing. This can be
by way of derivation rules, assignments, table accesses, and individual enhancements. A
variety of characteristics (such as the product type or transaction type) are available in the
standard SAP system to perform derivations. In addition to these you can specify and use
your own characteristics.
The default risk rule is derived when the contract is captured. Exactly one default risk rule is
derived.
Figure 747: Limit measurement Example 1
In this example, a Fixed Term Deposit is captured in the system with:

Business Partner: Deutsche Bank,
Trader: Mr. Miller,
Deposit 2,000,000.
The example depicts the function of the limit management using nominal values.
Figure 748: Limit measurement Example 2
In this example, a Fixed Term Deposit is captured in the system with:
Business Partner: UBS,
Trader: Mr. Smith,
Deposit 2,000,000.
The example depicts the function of the limit management using both NPV and nominal
values.
Create/ Manage Limits
Figure 749: The Credit Risk Analyzer Create/ Manage Limits
The limit type is the central instrument in Limit Management.


The Function Overview Limits allows you to list the existing limits
The Function Maintain Limits allows you to create, display and change limits
Figure 750: Overview Limits
Function TBL3 Overview Limits
Figure 751: Overview Limits
Function TBL3 Overview Limits: Overview Limits allows you to display limits and to branch
out to Business Partner, Notes, Change Documents and Customizing.

Figure 752: Create/ Manage Limits
TBL1 - Maintain Limits.
Hint:
Select all limit types, display Limits: provides an overview on all limits. Selection
of single limit types is possible too.
Figure 753: Create/ Manage Limits
A distinction is made between internal and external limits.

Internal Limit Amount: the external limit is, for example, the limit told to a customer. The
internal limit is generally higher than the external limit, and is the amount which can not be
exceeded internally. In the output list, amounts which exceed an external limit are
displayed in yellow, and amounts which exceed an internal limit are displayed in red.
External Limit Amount: the external limit is the one communicated to the customer. The
internal limit is generally higher than the external one, and cannot be exceeded internally.
In the output list, an amount which exceeds an external limit is displayed in yellow, and one
which exceeds an internal limit in red.
Internal and external Limits are frequently used by banks. In Treasury usually only the
internal limit is used. The external limit remains empty.
Critical Limit Utilization in Percent: If the limit utilization exceeds the critical utilization level, a
warning function is triggered.
Prerequisite: The underlying limit type has been assigned early warning control type
percentage barrier.
Maximum Risk Commitment Period in Months: the maximum risk commitment period
specifies the maximum risk commitment period in which a transaction is attributed to the
limit.
Risk Commitment Period in Months: the risk commitment period is the time frame within
which a transaction can not be cancelled, or can only be done so with great difficulty. The risk
commitment period is crucial for determining the default probability.
Hint:
If you intend to prevent a new transaction from being saved after the limit has
been exceeded, you have to select the "fully active" setting in Customizing. This
is only advisable in a few cases, however, since the transaction with the bank has
already been concluded.
Figure 754: Interim Limits
It is possible to provide interim limits:
Interim limits are temporary limit adjustments
It is possible to create a number of Interim Limits that overlap chronologically
Interim limits can become permanent limits.

As an example, trader Mr. Smith is provided with additional limits for a certain time until
exceptional business activities have ended.
Figure 755: Limit Transfer
It is possible to perform limit transfers:
Limits are transferred for a certain period of time.
In contrast to the interim limit, the limit total is not increased.
For example, business partner Bank B gets a limit transferred because Bank A can not
provide a certain contract for the time being.
Figure 756: Limit Release and Limit Attribution time
Limit Management provides a release procedure for limits according to the dual control
principle:
You can activate the release procedure in Customizing by setting a flag (release active) for
each limit type.
When you specify the initial status, you define whether the release procedure begins with
not released (status 0) or is flagged for release (status 1). This setting is dependent on the

organizational processes at the company. You can release each limit individually or as a
group of certain limit types.
Each change in the limit (such as a limit increase) moves the release step back one level.
Released: Status 2.
Attribution time allows you to define at which point in time a transaction becomes relevant for
limit management: with the conclusion or with the start of the transaction.
Reason: Financial transactions are often concluded with a term that starts in the future.
For example, a parent company and subsidiary agree today that the parent company will
provide the subsidiary with a loan in one month from now.
The question arises: At what point in time does this loan become relevant for credit risk
management - as soon as the transaction has been concluded (today) or at the start of the
term (in one month)?
With the Credit Risk Analyzer, you have the opportunity to configure this depending on the
product category.
Function: Create Limit Reservations.
LESSON SUMMARY

Unit 7
Lesson 2
Using the Credit Risk Analyzer Process
LESSON OBJECTIVES
Limit Checks
Figure 757: The Credit Risk Analyzer Check Limits
Functions:
Master Data/ Limits
TBL1 - Maintain Limits
TBLC - Lock/Unlock
TLL5 - Collective Processing of Limit Transfers
KLMAXLIMIT - Edit Limits by Product Type and Transaction Type
Release
TBLR - Limits
TBIR - Interim Limits
TBLW2 - Change Review Recipient
KLREL_LIMIT_ASS - Limits
Reservations

TLR1 - Create
TLR2 - Change
TLR3 - Display
TLR4 - Collective Processing
End-of-Day Processing
KLNACHT- Generate Utilizations
KLNACHT2- Execute Postprocessing
JBMT2- Parallel Processing
Review of Limits
TBLW1- Send
The limit type is the central instrument in limit management.

Configuration: Limit Types: Example from sample content.
Limit Utilization
Figure 758: The Credit Risk Analyzer Limit Utilization Details: Online Limit Check
The credit risk analyzer supports an integrated default risk limit check. Traders can use this
function to determine the transaction risk and check the transaction against the limits defined
in Limit Management before the transaction is finalized.
Once a transaction has been concluded, the exposure automatically increases the
utilization of the affected limits.
As a basis for the integrated limit check, all financial positions must be valued consistently.

Lesson: Using the Credit Risk Analyzer Process
The system displays the result of the limit check. To do this, limit utilizations are
determined from the single transaction exposure calculated on the basis of current market
data.
They are then updated in Limit Management .
In addition to the utilizations for each centrally-defined limit, the system also generates
individual records for each transaction. You can therefore see the impact of individual
deals on the total utilization and use this information as a basis for changing financial
transactions during the course of the day.
When you activate the credit risk analyzer in customizing, the Default Risk Limit tab page
appears when you create a transaction. In this way, you can check whether the credit risk
analyzer has been activated before you save the transaction.
Hint: You do not need to include all transactions (such as inter-company transactions) in limit
attribution.
The push button enables you to check the derivation rule you defined in customizing (for
example, assigned default risk rule, limit group, and so on). The default risk rule determines
the calculation base in connection with the market value change periods and the risk
commitment duration.
The integrated default risk limit check is an instrument that you can use to monitor risk as
early as possible. This is controlled by means of the limit type. For each limit type, you define
whether the limit level is relevant for the integrated default risk limit check.
Figure 759: The Credit Risk Analyzer Limit utilization details: online limit check
In our case the limits are exceeded and the message on the right side is displayed.

Figure 760: The Credit Risk Analyzer Create/ Manage Limits
To update limit utilizations, you need to run a program in the background (transaction:
KLNACHT). Once the limit utilizations have been determined in this process, they are updated
in the corresponding limit.
The limit utilization reporting, you can start via transaction TBLB.
In addition to end-of-day processing, you can also run single transaction checks. These allow
you to update limit utilizations whenever required.
By using an evaluation type, you can determine which market data is used for calculating
NPVs.
Figure 761: Credit Risk Analyzer: End-of-Day Processing
End-of-Day Processing functions:
KLNACHT- Generate Utilizations
KLNACHT2- Execute Postprocessing
JBMT2- Parallel Processing

Figure 762: Credit Risk Analyzer: End-of-Day Processing
End-of-Day Processing: KLNACHT- Generate Utilizations.

End-of-Day processing is usually started at the end of day but can also be started more
frequently!
Hint:
It is NOT a prerequisite for the online limit check.
Figure 763: The Credit Risk Analyzer Limit Utilization - Overview: Selection Using All Chars
Red: the limit is over exceeded, no free limit.

Yellow: limit utilization is close to the limit, for example, 90%. The value from which the color
yellow is used is subject to the limit configuration.
Utilizations Functions:
TBLB - Overview: Selection using all characteristics
TBL4 - Overview: Selection using direct characteristics
TISCLU- Simplified Overview
Figure 764: The Credit Risk Analyzer Limit Utilization report: Options
The pictures show the upper ribbon of the report and the result of the drill through to the
single transaction level.
The single transaction level view is very useful to analyze the reason why a limit is over
exceeded.

Figure 765: The Credit Risk Analyzer Limit Utilization Analysis Simplified
Limit Utilization analysis simplified report is another option to analyze the limit utilization
(Simplified Overview, TISCLU).
Consideration of Corporate Relationships
Figure 766: Credit Risk Analyzer Consideration of Corporate Relationships
Consideration of Corporate Relationships
Default risks related to a subsidiary can be attributed either solely to the subsidiary or to
both the subsidiary (always at 100%) and to the parent company (at 100%).
In Business Partner Customizing (transaction BCA0) you can define a relationship category
that allows you to attribute default risks to multiple parent companies.

This relationship category is defined in the business partner master data of the group
subsidiary with an attribution rate (a percentage, for example, corresponding to the share
proportion).
Further:
Financial transactions of the parent company can also be attributed as a percentage to

limits that are valid for the subsidiary.
In configuration it can be determined how deeply it is intended to evaluate the relationship

network.
In configuration the type of attribution is determined by the limit type.
LESSON SUMMARY

Unit 7
Learning Assessment
1. The Credit Risk Analyzer provides the following functions and benefits
X A It provides a Limit management: the Limits are freely definable, multi-dimensional

limits are possible.
X B It provides a Limit management: the Limits are predefined by SAP, using year long
experience, and can not be altered.
X C An Online Limit check is provided: the moment a Transaction is created the limits
are checked during saving. A function to check this beforehand is provided.
X D A utilization analysis is available: the utilization of limits is usually determined at

day end.
X E Service functions such as Interim Limits provision and Limit Transfers are
available.
2. The following are typical examples of Limits

X A Business Partner Limit (inclusion of Business Partner hierarchies)
X B Trader Limit
X C Department
X D Country
X E Industry

3. The Limit Utilization report provides -besides the information on limit use - the following
options:
X A Direct access to Limit maintenance and Limit Transfer
X B Branch to Business Partner detail information
X C A Limit Release function (double control)
X D Utilization details (branch to single transactions)
X E Options for Groupings (using the available characteristics)

Unit 7
1. The Credit Risk Analyzer provides the following functions and benefits
X A It provides a Limit management: the Limits are freely definable, multi-dimensional

limits are possible.
X B It provides a Limit management: the Limits are predefined by SAP, using year long
experience, and can not be altered.
X C An Online Limit check is provided: the moment a Transaction is created the limits
are checked during saving. A function to check this beforehand is provided.
X D A utilization analysis is available: the utilization of limits is usually determined at

day end.
X E Service functions such as Interim Limits provision and Limit Transfers are
available.
This is correct. Limits are not predefined by SAP, they can be defined freely.
2. The following are typical examples of Limits

X A Business Partner Limit (inclusion of Business Partner hierarchies)
X B Trader Limit
X C Department
X D Country
X E Industry
This is correct. Limits can be set for Business Partners, Traders or Countries.

3. The Limit Utilization report provides -besides the information on limit use - the following
options:
X A Direct access to Limit maintenance and Limit Transfer
X B Branch to Business Partner detail information
X C A Limit Release function (double control)
X D Utilization details (branch to single transactions)
X E Options for Groupings (using the available characteristics)
This is correct. A Limit Release function to achieve a double control is usually

implemented separately using the SAP Workflow.

UNIT 8 Further Topics
Lesson 1
Understanding Further Topics 632
UNIT OBJECTIVES
Further Topics
Understand the different types of data provided on the Treasury executive dashboard
Understand basic overview information and the process flow of liquidity planning in SAP
Analytics Cloud

Unit 8
Lesson 1
Understanding Further Topics
LESSON OBJECTIVES
Further Topics
Analytics Cloud
Treasury Executive Dashboard

Overview
Figure 767: Embedded SAC for Treasury Executive Dashboard
The Treasury Executive Dashboard visualizes real-time insights into treasury operations for
treasury executives. The app shows key performance indicators (KPIs), such as liquidity, cash
position, debt volume and structure, counterparty limits, volume of bank guarantees, and
market trends.
The data presented from different application areas, such as Cash and Liquidity Management,
Treasury and Risk Management, and Financial Accounting, is based on live data access,
without data replication. The data is shown in the display currency and presented in the most
appropriate way using a broad range of graphs, such as bar chart, column chart, pie chart,
heat map, tables, or line chart.

Lesson: Understanding Further Topics
Figure 768: Treasury Executive Dashboard Overview
The Treasury Executive Dashboard enables you to create different stories to analyze
important treasury key figures in the SAP Analytics Cloud.
Along with these stories, pre-delivered, ready-to-use, standard dashboards are delivered.
These dashboards on the other hand are still flexible to cater for your reporting requirements.
Filter, sort, compare, or export the data of the various charts depending on your companies
needs. You can also change the story variables to a user-defined set in order get an even
deeper insight to your numbers. Key features include the following:
Liquidity
Shows the liquidity as a KPI and analyzed by different attributes, such as regions, company
codes, financial position groups, financial positions, and currencies. The liquidity is defined as
the sum of financial positions representing assets.
Cash Management
Shows your cash position forecast, mid-term liquidity forecast, as well as actual cash flows.
Bank Relationship
Provides an overview of your banks and bank groups by different attributes, such as ratings,
payment amounts, number of company codes and bank accounts.
Indebtedness
Monitors KPIs related to the debt of your company and analyzed by different attributes.
Counterparty Risk
Provides an overview of the limit utilization and free limits of a specific limit type by
counterparty and counterparty ratings.
Market Risk
Provides you with the key performance indicators net present value and value at risk including
charts analyzing these values by different aspects.
Bank Guarantee
Provides an overview of the volume and average fee rate of bank guarantees.
Market Overview
Shows the trend for different market rates as KPIs and analyzed by different attributes.

Unit 8: Further Topics
Liquidity
Figure 769: Liquidity Overview
The Liquidity tab shows the liquidity as a key performance indicator and analyzed by different
attributes, such as countries, regions, company codes, financial position groups, financial
positions, and currencies.
The liquidity is the sum of financial positions representing assets in the display currency
specified.
Figure 770: Liquidity - Liquidity Overview
In the Liquidity Overview group, the app shows the liquidity for all countries or for a specific
country as a key performance indicator. The delivered Standard view displays the liquidity for
all countries. You can change this setting by choosing a country in the geo map. The selected
country is relevant for the shown key performance indicator Liquidity and for all other charts
of the Liquidity Overview group. The charts of this group are interactive, if you choose, for
example, a certain region in the Liquidity by Region chart, this choice will also be reflected in
all other charts of the group.
In the Liquidity Overview group, the following charts are available for analyzing the liquidity by
different attributes.
Liquidity by Country (Geographical Map)
On this map, you can see the distribution of liquidity among the different countries. The
liquidity is represented as bubbles, where the amount of liquidity determines the size of the
bubbles. The liquidity of a country is the sum of the liquidity of all company codes in the
country. The delivered Standard view shows the liquidity for all countries. You can change this

setting by selecting a country in the geo map. The selected country is then also relevant for
the shown Liquidity measure and for all other charts in the Liquidity Overview group.
Liquidity
The liquidity is displayed as measure on the top of the page. The delivered Standard view
displays the overall liquidity for all countries in all regions.
Liquidity by Region
This bar chart shows all regions the total liquidity of this region and the distribution of the
liquidity across the different financial position groups, which are displayed in different colors.
Liquidity by Company Code
This bar chart shows for the all regions the liquidity at the company code level. It also shows
the distribution of the liquidity of the company code on the different financial position groups,
which are displayed in different colors. Only the top 5 company codes with the highest
liquidity amounts are shown.
Liquidity by Financial Position Group
This bar chart shows the following for the selected regions: The liquidity on the level of the
financial position group. Using the context menu, you can jump to the Financial Status - Book
Value, Financial Status - Nominal Amount, and Define Financial Positions apps.
Liquidity by Currency
This bar chart shows for the selected regions the liquidity on the currency level. The
currencies displayed are restricted to the top 10 currencies with the highest liquidity.
Figure 771: Liquidity - Liquidity by Treasury Center
In the Liquidity by Treasury Center and Financial Positions group, the app shows the
distribution of the liquidity on financial positions for your top 5 treasury centers.
Cash Management
Figure 772: Cash Management Overview
The Cash Management tab in the Treasury Executive Dashboard shows KPIs to help you
understand the cash and liquidity status of your company.

On this tab, you can view cash management KPIs based on data from the One Exposure from
Operations hub, for the following groups:
Cash Position Forecast
In this group, you can view cards that display the cash position figures by various dimensions,
such as region, company code, bank, and so on.
Liquidity Forecast
In this group, you view cards that display the mid-term liquidity forecast for the next 90 days.
Actual Cash Flows
In this group, you can view cards that display the actual cash flows, namely the actual
amounts of money that have been received by or paid from your bank accounts, for the past
90 days.
Figure 773: Cash Management - Cash Position
The Cash Position shows today's Forecast Closing Balance on group level.
The following chart views are available for the Cash Position:
Cash Position by Region
Cash Position by Company Code
Cash Position by Bank Account Currency
Cash Position by Bank
Cash Position by Bank Account
The Balance Profile must be assigned for the Cash Position to define what cash flows are
considered.
Figure 774: Cash Management - Liquidity Forecast

The Liquidity Forecast shows forecasted balance and cash flows for the next 90 days. Cash
flows can be broken down according to liquidity item which indicates use and source of cash
flows.
For the Liquidity Forecast, the balance profile must be defined so that the cash flows are
considered.
Figure 775: Cash Management - Actual Cash Flow
Actual Cash Flows shows the bank confirmed cash flows for the past 90 days.
Cash flows can be broken down according to liquidity item which indicates use and source of
cash flows.
Bank Relationship
Figure 776: Bank Relationship Overview
This tab of the Treasury Executive Dashboard shows bank relationship KPIs for the following
groups:
Bank and Bank Group Profile
In this group, you can get an overview of your total and average bank payments. You can also
analyze your banks and bank groups in various dimensions. For banks, you can check them by
bank rating, number of bank accounts, company codes, and payment amount. For bank
groups, you can view them by the number of company codes and number of bank accounts.
Financial Status
In this group, you get an overview of your assets, liabilities, credit lines, and financial balances
sorted by bank group and company code. You can quickly identify banks and bank groups
with the highest balances, which helps you evaluate which banks are most likely to provide

loans. You can also view tree maps for your assets and liabilities, total credit lines, and
unutilized credit lines by bank group.
Bank Fees
In this group, you get an overview of your bank fees by bank group. You can also analyze your
service charges by bank group, service common code, and service type.
Amount of Financial Transactions
In this group, you compare your relationships with all your bank groups over all currencies
based on the amounts of financial transactions. The charts in this group are interactive; for
example, if you select a specific region on the left under Company Code by Region, this
selection is reflected in all charts in the group.
Figure 777: Bank Relationship - Bank and Bank Group Profile
In the Bank and Bank Group Profile section, you can use cards to check your banks by bank
rating, number of bank accounts, and payment amount. Figures for the total and average
bank payments are also shown.
The app is delivered with a default Standard view. For the Bank Relationship tab, the display
currency is set to EUR, the exchange rate to M Standard Translation at Average Rate. You can
change the settings for cards of the Bank Profile group.
Note:
In this group, only banks that are maintained with ratings are taken into
consideration.
Only bank accounts with the statuses Active and Closing Request Sent to
Bank are taken into account.
The company code information is taken from house bank data.
The incoming and outgoing payment amounts are calculated based on actual cash
flows from the One Exposure from Operations hub.

Figure 778: Bank Relationship - Financial Status by Bank Group
In the table chart of the Financial Status, you get an overview of your assets, liabilities, and
financial balances sorted by bank group and company code. You can quickly identify banks
and bank groups with the highest balances. Get the distribution of assets/liabilities/credit
line/unutilized credit line amounts per bank groups.
Gain insights into assets, liabilities, and credit line per bank group on a specific date by relying
on customizing of Financial Positions. To do this, the Financial Position configuration was
enhanced by an additional Asset/Liabilities category Not Specified to enable the introduction
of additional sources for data other than assets or liabilities.
With the Financial Status table, you can view the following key figures in book value to
understand your financial situation in each bank group:
Assets
Consists of asset financial positions, such as current account balances from Cash and
Liquidity Management, and of investments managed in Treasury and Risk Management, such
as money market investments, purchased money market funds, and bonds.
Liabilities
Borrowings managed in Treasury and Risk Management, such as money market borrowings
or issued bonds.
Financial Balance
The sum of your assets and liabilities.

Figure 779: Bank Relationship - Bank Fees
The Bank Fees tab offers various views on service charges from the banks or bank groups.
Most notably, you can find information on:
Service charge and tax per bank group in a period.
Top / bottom N charges paid to the bank groups.
Distribution of service charges per bank groups and service type / service common code.
Figure 780: Bank Relationship - Amount of Financial Transactions
Amount of Financial Transactions: In this group, you compare your relationships with all your
bank groups over all currencies based on the amounts of financial transactions. The charts in
this group are interactive; for example, if you select a specific region on the left
under Company Code by Region, this selection is reflected in all charts in the group. The
following charts are available:
Distribution of Product Group Amount by Bank Groups
Display the percentages of the total amount for a product group by the different bank groups.
The total amount of a product group is the sum of the amounts of all financial transactions

belonging to the product group. The amount of a bank group is the sum of the amounts of
financial transactions done with that bank group.
Moving the cursor over the different areas of the chart shows you the details for the product
group amount of a bank group in separate text boxes.
History of Product Group Amount by Bank Group
Shows the development of the product group amount for the different bank groups within a
period (default setting is the previous year). On the left under Select Product Group, you can
switch between the different product groups.
Moving the cursor over the different curves of the chart shows you the details for the product
group amount of a bank group in separate text boxes.
Indebtness
Figure 781: Indebtness Overview
Indebtness shows key performance indicators to help you understand and analyze the debt of
your company. On this tab, you can view KPIs related to the debt of your company and
organized into the following groups:
Total Amount of Debt by Different Attributes
In this group, you can view graphics that display the total amount of debt by various
dimensions, that is, by company code, product type, and transaction currency. You can also
view the debt maturity profile.
Structure of Interest Rate Debt
In this group, you can view graphics that display the structure of interest rate debt.
Total Credit Line and Credit Line Utilization
In this group, you can view graphics that display the total credit line by various dimensions,
that is, by counterparty, company code, and by transaction currency. You can also view the
utilized and available amount of the credit line as well as a forecast of the available amount in
a time line.

Figure 782: Indebtness - Total Amount of Debt by Different Attributes
Total Amount of Debt by Different Attributes: In this group, you can view graphics that display
the total amount of debt by various dimensions, that is, by company code, product type, and
transaction currency. You can also view the debt maturity profile.
Amount of Debt by Company Code
Shows you at a glance the 5 company codes with the highest outstanding nominal amount of
debt (Top 5). You can also filter for the 5 company codes with the lowest amount of debt
(Bottom 5).
Amount of Debt by Product Type
Shows you at a glance the 5 product types with the highest outstanding nominal amount of
debt (Top 5). You can also filter for the 5 product types with the lowest amount of debt
(Bottom 5).
Total Amount of Debt by Transaction Currency
Shows you at a glance the 5 transaction currencies in which you have the highest outstanding
nominal amount of debt (Top 5). You can also filter for the 5 transaction currencies with the
lowest amount of debt (Bottom 5).
Debt Maturity Profile
Shows you at a glance the debt maturity profile for the next 5 years and beyond. The
outstanding nominal amount of debt is displayed in a bar chart, showing the proportional
amounts for each product type and maturity year.
Figure 783: Indebtness - Structure of Interest Rate Debt

Structure of Interest Rate Debt: In this group, you can view graphics that display the structure
of interest rate debt.
Structure of Interest Rate Debt
Shows you at a glance the outstanding nominal amount of interest rate instruments without
interest rate swaps and their maturity for the next 5 years and beyond. The amount of interest
rate debt is displayed in a bar chart, showing the proportional amounts for interest rate
instruments with fixed interest category against the interest rate instruments with variable
interest category.
Structure of Interest Rate Debt Including Swaps
Shows you at a glance the outstanding nominal amount of interest rate instruments including
interest rate swaps and their maturity for the next 5 years and beyond. The amount of interest
rate debt is displayed in a bar chart, showing the proportional amounts for interest rate
instruments with fixed interest category against the interest rate instruments with variable
interest category.
Figure 784: Indebtness - Total Credit Line and Credit Line Utilization
In the Total Credit Line and Credit Line Utilization group, you can view graphics that display
the total credit line by various dimensions, that is, by counterparty, company code, and by
transaction currency. You can also view the utilized and available amount of the credit line as
well as a forecast of the available amount in a time line.
Total Credit Line
Displays the total credit line, the utilized amount, and the available amount.
Total Credit Line by Counterparty
Shows you at a glance the credit line, the utilized amount, and the available amount in display
currency for the 5 counterparties with the largest credit line (Top 5). You can also filter for the
5 counterparties with the smallest credit line (Bottom 5).
Total Credit Line by Company Code
Shows you at a glance the credit line, utilized amount, and available amount in display
currency for the 5 company codes with the largest credit line in million EUR (Top 5). You can
also filter for the 5 company codes with the smallest credit line (Bottom 5).
Total Credit Line by Transaction Currency

Shows you at a glance the credit line, utilized amount, and available amount in display
currency for the 5 transaction currencies with the largest credit line (Top 5). You can also
filter for the 5 transaction currencies with the smallest credit line (Bottom 5).
Forecast of Available Amount
Shows you at a glance the total available amount in display currency over the course of one
year. You can also filter for a different time period, that is, one month, 3 months, 6 months,
year to date, or for all data.
Counterparty Risk
Figure 785: Counterparty Risk Overview
The Counterparty Risk tab shows counterparty limit utilization, internal limits, and free limits
of a specific limit type from different perspectives and also counterparty ratings.
Due to risk controlling regulations as well as for purely business reasons, you must measure,
analyze, and control counterparty/issuer risks. The Treasury and Risk Management offers
functions for controlling the counterparty risk by means of limits.
The Counterparty Risk tab only monitors limit utilizations and free limits of one specific limit
type. This limit type must use the characteristics business partner and limit product group.
Therefore, you can only monitor limits of the limit types BP./LPG. only
assets and CoCd./BP/LPG only assets.
The counterparty limit utilizations and free limits are analyzed due to different aspects.

Note:
Calculation of the internal limit amount, limit utilization amount, and the free
limit amount:The determination of the valid internal limit amount on a specific
date is complex. The internal limit amount is the sum of the limit specification
amounts, the interim limit amounts, and the limit transfers (formula: Internal
limit specification amount + internal interim limit amount + internal limit
transfer amount = internal limit amount). The limit specifications, interim
limits, and limit transfers are defined in the Manage Limits app. You can also
define external limits in the Manage Limits app, but they are not shown in this
app.
The limit utilization of the single record or transaction is the risk amount
calculated for a single transaction by the attributable amount determination
function. Using the limit characteristics and their values, the system combines
the utilizations of the single records with the limit utilizations of the totals
records or the limit. The limit utilization of a certain limit is, therefore, the total
of the attributable amounts of all transactions attributed to the limit on the
basis of their characteristic values.
The internal free limit amount is the internal limit amount minus the limit
utilization.
To ensure that current data are available on the Counterparty Risk tab, you must run the End-
of-Day Processing the same day before you start the Treasury Executive Dashboard.
Figure 786: Counterparty Risk - Counterparties with High and Low Utilization
The Counterparties with High and Low Utilizations section shows you at a glance the biggest
risks and opportunities in the counterparty risk management:
Counterparties with the lowest free limits (Bottom 5)
Counterparties with the highest free limit (Top 5)
Counterparties with the highest limit utilization
The data is displayed as bar charts.

The names of the business partners are displayed at the left, and beside the displayed bars
the amounts of the free limit/limit utilizations are also shown. For positive amounts, the bars
are on the right of the plumb line. For negative amounts, the bars are on the left of the plumb
line. A negative free limit indicates that the counterparty limit is exceeded.

Figure 787: Counterparty Risk - Limit Utilizations by Counterparty
In the Limit Utilizations, Free Limits and Ratings section, the charts of this group analyze the
counterparty limit utilizations and free limits by different aspects.
Limit Utilizations by Counterparty
The bar chart shows for each counterparty the internal limit amount, the limit utilization, and
the resulting free limit.
The charts of this group are responsive for the counterparty. If you set the cursor on a specific
counterparty in this chart, all other charts only show the data relevant for the chosen
counterparty.
Limit Utilization by Product Group
The graphic shows the internal limit amounts, the limit utilization, and the resulting free limits
on the level of the limit product groups.
Free Limit by Counterparty and Product Group (Heat Map Chart)
This heat map shows you at a glance the current free limits by counterparty and limit product
group.
Figure 788: Counterparty Risk - Utilization Overview by Counterparty
The Utilization Overview by Counterparty and Product Group (table chart) shows you the limit
utilization amount, internal limit amount, and the resulting free limit amount by counterparty
and limit product group.

Note:
If you set the cursor on a specific counterparty in the table chart, all rows in the
table relevant for the counterparty are highlighted in the table. In addition,
the Counterparty Rating table chart now only shows the rating for this specific
counterparty.
Figure 789: Counterparty Risk - History of Free Limits by Counterparty
The line chart for the History of Free Limits by Counterparty shows you the historic and
current values of the free limits of your counterparties for the current year. This allows you to
track the evolution of the free limit from the past to today. You can set the cursor on one or
more counterparties, so you can see the values of these counterparties highlighted in the line
chart.
You can also change the displayed Determination Period using the Set Chart
Prompts function.
Market Risk
Figure 790: Market Risk Overview
The Market Risk tab shows you the total net present value of your assets and liabilities and
your overall value at risk at a glance and by different attributes.
There are generally the following two charts in the Market Risk area:
Net Present Value and Value at Risk by Different Attributes
History of Net Present Values
Prerequisites:

You must define market risk key figures sets using the Manage Market Risk Key Figure
Sets app.
To ensure that current data is available on the Market Risk tab, you must calculate the market
risk key figures before you start the Treasury Executive Dashboard using the job
template Calculate Market Risk Key Figures in the Schedule Treasury Middle Office Jobs app,
so you can plan it as a periodic activity.
Figure 791: Market Risk - Net Present Value and Value at Risk
For the Net Present Value and Value at Risk by Different Attributes there are several different
measures and charts available to effectively control the Net Present Value and Value at Risk.
The single measures are as follows:
Net Present Value (NPV) (Measure)
The Net Present Value (NPV) measure shows the total net present value of all your assets and
liabilities in the chosen display currency in millions EUR.
Value at Risk (VaR) (Measure)
The Value at Risk (VaR) measure shows the overall value at risk for all your assets and
liabilities in the chosen display currency in millions EUR and you can compare this value
directly to the overall NPV displayed beside.
Negative and Positive NPVs (Bar Chart)
You can see the total volume of the negative NPVs and of the positive NPVs.
Net Present Value by Product Category (Bar Chart)
You get an overview on the distribution of the NPV on the different product categories.
Value at Risk by Product Category (Bar Chart)
You get an overview on the distribution of the VaR on the different product categories and you
can compare this values directly to the NPVs on same levels displayed beside.
Net Present Value by Key Figure Set and Product Category (Bar Chart)
As the other charts displayed the NPV and VaR for one market risk key figure set, you get in
this chart the NPVs for different market risk key figure sets. Therefore, this chart enables you
to see the effects of different market data scenarios and market data shifts on the NPVs of
your assets and liabilities.
Value at Risk by Company Code and Product Category (Heat Map)
This heat map gives you an overview on the distribution of the VaR over your company codes
and product categories. Dark colored fields imply a higher value at risk compared to the
lighter colored fields.

Figure 792: Market Risk - History of Net Present Value
The other option in the Market Risk tab is the History of Net Present Values. This chart shows
the development of the NPVs over a specific time period. The chart shows the overall NPV for
all calculation days of the selected market risk key figure sets. This enables you to see the
trend.
Hovering over a single data point gives you more information on the item. From the legend at
the top, you can also filter specific sets of information that will be highlighted in the chart.
Bank Guarantee
Figure 793: Bank Guarantee Overview
The Bank Guarantee tab of the Treasury Executive Dashboard shows the key performance
indicators related to bank guarantees and analyzed by different attributes.
They are organized into the following groups:
Total Volume of Bank Guarantees by Different Attributes
In this group, you can view bar charts displaying the total volume of bank guarantees by
various dimensions, that is, by company code, counterparty, and currency. You can also view
the number of bank guarantee transactions.
Average Fee Rate by Counterparty and by Calculation Types
In this group, you can view the average fee rate of bank guarantees by counterparty and
filtered according to the selected fee calculation type. By default, linear interest calculation is
selected as the fee calculation type. You can change this setting on the left in the Fee
Calculation Type area.

Figure 794: Bank Guarantee - Total Volume of Bank Guarantees
In this group, you can view bar charts displaying the total volume of bank guarantees by
various dimensions, that is, by company code, counterparty, and currency. You can also view
the number of bank guarantee transactions.
Total Volume by Company Code
Shows you at a glance the 5 company codes with largest volume of bank guarantees (Top 5).
You can also filter for the 5 company codes with the smallest volume of bank guarantees
(Bottom 5).
Total Volume by Counterparty
Shows you at a glance the 5 counterparties with the largest volume of bank guarantees (Top
5). You can also filter for the 5 counterparties with the smallest volume of bank guarantees
(Bottom 5). Using the context menu, you can jump to the Maintain Business Partner app to
display the master data of the counterparty.
Total Volume by Currency
Shows you at a glance the 5 nominal currencies with the largest volume of bank guarantees
(Top 5). You can also filter for the 5 nominal currencies with the smallest volume of bank
guarantees (Bottom 5).
Figure 795: Bank Guarantee - Average Fee by Counterparty
In the Average Fee Rate by Counterparty and by Calculation Types group, you can view the
average fee rate of bank guarantees by counterparty and filtered according to the selected
fee calculation type. By default, linear interest calculation is selected as the fee calculation
type. You can change this setting on the left in the Fee Calculation Type area.
Average Fee Rate by Counterparty
Shows you at a glance the 5 counterparties with the highest average fee rate in percent
filtered by fee calculation type (Top 5). You can also filter for the 5 counterparties with the
lowest average fee rate in percent (Bottom 5).
Volume and Average Fee Rate by Counterparty
Shows you at a glance the total volume of bank guarantees in million EUR in proportion to the
average fee rate in percent. By default, the top 10 fee rates by counterparty are displayed.
You can also filter for the top 5 or the bottom 5 fee rates by counterparty.

Market Overview
Figure 796: Market Overview
The Market Data Overview provides a historical trend of different market data categories. It
shows the trend for different market rates as key performance indicators and analyzed by
different attributes. On this tab, you can monitor the KPIs for the following market rates:
Foreign Exchange Rate
Shows you at a glance the trend for the foreign exchange rate for specified currency pairs
over the course of one year. You can also filter for a different time period, that is, one month, 3
months, 6 months, year to date, or for all data.
Reference Interest Rate
Shows you at a glance the trend of the reference interest rate for specified currencies over
the course of one year. You can also filter for a different time period, that is, one month, 3
Security Price
Shows you at a glance the trend of the security price for specified security classes over the
course of one year. You can also filter for a different time period, that is, one month, 3
Implied Volatility
Shows you at a glance the trend for implied volatility for the specified volatility name, volatility
profile, and volatility type over the course of one year. You can also filter for a different time
period, that is, one month, 3 months, 6 months, year to date, or for all data.
Credit Spread
Shows you at a glance the trend for the credit spread for the specified reference entity and
credit spread ID over the course of one year. You can also filter for a different time period, that
is, one month, 3 months, 6 months, year to date, or for all data.
Basis Spread
Shows you at a glance the trend for the basis spread for the specified basis spread ID over the
course of one year. You can also filter for a different time period, that is, one month, 3

Figure 797: Market Overview - Foreign Exchange Rate
The chart on the Foreign Exchange Rate shows you at a glance the trend for the foreign
exchange rate for specified currency pairs over the course of one year. You can also filter for a
different time period, that is, one month, 3 months, 6 months, year to date, or for all data.
For the Foreign Exchange Rate group, the following default values are set for the relevant
variables:
The exchange rate type is set to M Standard Translation at Average Rate.
The currency pair is set to EUR/USD.
The calendar date is specified to lie between January 1 2018 and the current date.
Figure 798: Market Overview - Reference Interest Rate
The Reference Interest Rate chart shows you at a glance the trend of the reference interest
rate for specified currencies over the course of one year. You can also filter for a different time
period, that is, one month, 3 months, 6 months, year to date, or for all data. For the Reference
Interest Rate group, the following default values are set for the relevant variables:
The reference interest rate is set to EURBOND 2 Years.
The calendar date is specified to lie between January 1 2018 and the current date.

Liquidity Planning using SAP Analytics Cloud (SAC)
Figure 799: Liquidity Planning using SAP Analytics Cloud (SAC)
SAP Analytic Cloud (SAC) for Planning is integrated with S/4HANA Cloud or S/4HANA On-
Premise in order to enable Liquidity Planning.
The integration between SAP Analytics Cloud and SAP S/4HANA or SAP S/4HANA Cloud
enables cash managers to get actual and forecasted cash flow figures and use them as
reference data in developing liquidity plans. Last year's data is also available as reference
data.
Master data and actual data from the Cash Management in S/4HANA are replicated into a
SAC planning model via OData Services in S/4HANA.
Figure 800: Liquidity Planning Process
The overall liquidity planning cycle contains the following steps.

In order to help the users with the planning, it is useful to get reference data as a start to the
plan. The reference sources can be from:
S/4HANA Cloud
S/4HANA On-Premise
External file upload

The reference sources can be the Liquidity Forecast or the Last Year Actuals. From here the
Cash Manager would trigger a new planning cycle for developing a monthly rolling liquidity
plan.
Upon his request, the assigned end users enter or adjust the planning data in planning
currencies for the liquidity item.
Having finished this task, the manager can review the planning data by planning currencies or
an aggregated currency view from the end users. He is also able to track the planning status
of subsidiaries.
When all subsidiaries have finished their planning, the cycle can be closed.
The process flow supports workflow and email notifications.
Version management is supported to track the various versions of the plan.
Each round of planning would typically have a specific version.
It is possible to create either private or public plan versions.
Figure 801: The Planning Form (Sample)
Here we see a sample planning form.

The main dimensions supported in SAC Liquidity Planning solution are:
Company Code
Liquidity Items / Liquidity Item Hierarchies
Currency
Bank Account
Liquidity items provide the sources and uses of cash, and are defined in configuration. They
can be created based on the customer's desired level of granularity. Liquidity items provide
the categories for grouping both the actual and planning data.

Figure 802: Liquidity Planning Report Data
From the reporting sheet the manager can easily see an overview of the forecast or actual
data for the specified period and the corresponding plan data.
Hybrid Landscapes
Figure 803: SAP S/4HANA Hybrid Landscape Options
The SAP S/4HANA Cloud system is a Treasury workstation that connects to on-premise
system. There are three different scenarios are supported, each with different complexity.
Option1: Managing Cash and bank connectivity
Option 2: Establishing a centralized cash management including a payment processing or a
payment factory with bank connectivity
Option 3: Managing central cash, payments and Treasury and Risk Management processes
Advantages of using these landscapes are the following:
Centralize cash and payment operations for increased cash visibility
Deliver up-to-date cash flow forecast using all sources for critical liquidity decisions
Build a foundation for frictionless, instant, secure, and cost-effective future treasury
operations
Treasury and Risk Management is localized for the following twenty-one countries currently.
1. Australia

2. Austria
3. Belgium
4. Brazil
5. Canada
6. China
7. Denmark
8. France
9. Germany
10. Indonesia
11. Ireland
12. Japan
13. Mexico
14. Netherlands
15. Singapore
16. Spain
17. Sweden
18. Switzerland
19. Turkey
20. USA
21. United Kingdom
Figure 804: SAP S/4HANA Cloud Scope Items
The scope items relevant to the Treasury workstation in the Cloud options are the following:
Treasury Workstation Accounting Integration ( 33E)
Bank Integration with SAP Multi-Bank Connectivity ( 16R)
Treasury Workstation Cash Integration ( 34P)
Treasury Workstation Payment Integration ( 3NA)

Treasury Trading via Trading Platforms ( 2F5)
Liquidity Planning ( 3L5)
Figure 805: Option 1: Manage Cash and Bank Connectivity
Option1 relates to cash management functionality along with bank connectivity. For example,
integration possibility between an SAP S/4HANA on-premise system to a SAP S/4HANA
Cloud system.
SAP supports the following processes to integrate SAP and non-SAP Systems into the Cloud
Treasury workstation.
Bank Account Management (BAM) Integration
Bank Account Inbound Integration via IDoc (sender system is SAP S/4HANA and receiver
SAP S/4HANA Cloud)
Bank Account Outbound Integration via IDoc (sender system is SAP S/4HANA Cloud and
receiver SAP S/4HANA )
Note: Replication from SAP ECC to SAP S/4HANA Cloud and / or Cloud to ECC is not
supported. The on-premise system must be an SAP S/4HANA system.
Cash flow Integration
Cash Management Inbound Integration via Web Services
Upload of bank statements. Bank statements must be implemented twice. Once in the
Cloud system for cash management and also in the on-premise system for bank account
reconciliation and clearing of open items.
Manual upload of account balances
Accounting integration
This enable customers to replicate all accounting documents from the S/4HANA Cloud
system to the central accounting system using an FI IDOC. In the current version, SAP ECC
system or SAP S/4HANA on-premise system are covered.

Figure 806: Option 2: Cash, Bank Connectivity, and Payments
Option 2 relates to cash management, bank connectivity, and payment processes.

Advanced Payment Management (APM) helps customers optimize payment processing

and cash position visibility by centralizing all payment activities for the corporate group.
The solution supports monitoring and approving of payments originating out of both, SAP
and non-SAP systems.
Integration with cash management processes allows for one single source of truth for
payments and the related cash positions.
The solution also leverages the existing setup in bank account management.
APM provides more insights into cash flows because those payments are automatically
updated as memo records into the cash position report.
Integration with SAP Multi-Bank Connectivity allows the communication with banks out-of-
the-box and, therefore, supports a fully automated end-to-end process.
Additionally, the solution supports the conversion of various payment formats, such as
CSV or TXT payment files into country- or bank-specific formats.
Payments are typically initiated in local systems of the affiliates, subsidiaries, or lines of
business. These local system can be SAP or non-SAP and can be on-premise or cloud
solutions. Therefore their capabilities to handle payments in a flexible way might be more
sophisticated or less, but for sure they are not providing a centralized view on global cash
positions or status monitoring and typically do not provides features to handle exceptions or
to optimize payment execution including bank determination. In the SAP reference
architecture, all systems of such an heterogenous landscape submit their payments to a
centralized payment factory, for example SAP S/4HANA Finance for Advanced Payment
Management. This can be achieved using web services (APIs), IDocs, or even physical files.
Within Advanced Payment Management, the payments are converted to an internal format
and are processed based on the configured rules potentially resulting in updates to SAP Cash
Management, postings to the SAP General Ledger or even SAP In-House Cash. During
processing, the solution leverages the bank account management information to determine
the bank to be used and triggers the final approval via Bank Communication Management.
Once approved the external payment format is generated leveraging DMEEX functionality and
gets passed via the standard integration to SAP Multi-Bank Connectivity. The bank

integration via SAP Multi-Bank Connectivity is fully API-based and therefore adds another
layer of security and is removing batch processes for file based integration.
Figure 807: Option 3: Cash, Payments, and Treasury and Risk Management
Option 3 includes Treasury and Risk Management functionality added to the Cloud system.
BAM Integration
Bank Account Inbound Integration via IDoc (sender system is SAP S/4HANA and receiver
SAP S/4HANA Cloud)
Bank Account Outbound Integration via IDoc (sender system is SAP S/4HANA Cloud and
receiver SAP S/4HANA)
Note: Replication from SAP ECC to SAP S/4HANA Cloud and / or Cloud to ECC is not
supported.
Cash flow Integration
Cash Management Inbound Integration via Web Services
Upload of Bank Statements
Manual Upload of Account Balances
Accounting integration
This enable customers to replicate all accounting documents from the S/4HANA Cloud
system to the central accounting system using FI IDOC. In the current version, SAP ECC
system or SAP S/4HANA on-premise system are supported.
Payment integration
This scenario allows to run Treasury and Risk Management in SAP S/4HANA Cloud, while
keeping the payment in an existing central accounting system, which is SAP Business
Suite or SAP S/4HANA system
Exposure Management
Exposure Management is a manual upload process

Market Data
Market data is automatically imported from the currency service provided by SAP Cloud
Platform. Market rates with either Refinitiv data option, or via Bring Your Own Rates
(BYOR) can be imported. Market data, such as from Refinitiv, is imported into the Cloud
system and the on-premise system.
Figure 808: SAP S/4HANA Cloud Scope Items
SAP's Digital Business Framework helps SAP customers solve complexity and transition
issues they are facing in their journey into the digital economy. This slide describes the
Treasury Eco System within SAP.
SAP Treasury Applications are integrated part of the digital core. SAP can deliver end-to-end
treasury functionality embedded in SAP S/4 HANA allowing customers to manage the entire
portfolio from operational tasks like payments, Cash and Liquidity Management and bank
connectivity, to Transaction Management and accounting Integration, through to the
management of financial risks.
This slide shows the details of a possible hybrid landscape.
At the same time, treasury is a central function requiring additional integration capabilities
such as:
Allowing subsidiaries to integrate cash flow relevant data and forecast data into the central
treasury system. In many cases, payment operations are fully centralized today which
allows customers to steer the treasury business in a more effective way
Key to Treasury is the connectivity to banks. SAP provides several options to do so, e.g.
direct Bank Communication via H2H, SWIFT Integration or Integration to Ariba, allowing
customers to benefit from AribaPay or to bridge to SCF platforms such as Prime Revenue.
Customers can capture their FX deals in online trading platforms and integrate the capture
the deals automatically in SAP without having to manually create the deals. This can be
accomplished using the Trading Platform Integration (2F5) or custom BAPIs.
Below is information on the arrows displayed.

1. Correspondence with Treasury counterparties can be done by email or by SAP Multi-Bank
Connectivity, or the SWIFT Integration Package with MT300 and MT320 SWIFT messages.
2. Trading Platform Integration (2F5) allows SAP customers to integrate with front-office
trading systems such as 360T and FXAll from a Cloud system.

3. In addition, Trading Platform Integration (2F5) allows SAP customers to integrate from a
front-office trading systems such as 360T and FXAll to a Cloud system. (This can be a two-
directional interface.)
4. SAP Trade Repository by Virtusa. This cloud-based extension allows customers to benefit
from a service allowing them to report their trade derivatives according to EMIR in EMEA. This
integration is planned to cover DFA in the future as well.
5. There are a number of options available for cash flow integration with remote systems.
Please see the SAP help page on Integration with Remote Systems under Cash and Liquidity
Management for the different options available for the different types of cash flow data.
6. Market Data can be integrated to the Cloud Treasury workstation via Reuters/Bloomberg
either via File Upload or WebServices.
7. Market Data can be integrated to the on-premise system via Reuters/Bloomberg either via
File Upload or WebServices.
8. SAP Multi-Bank Connectivity (16R) will deliver bank statements from the banks to the
Cloud Treasury workstation for cash management purposes.
9. SAP Multi-Bank Connectivity (16R) will deliver bank statements from the banks to the on-
premise system for bank account reconciliation.
10. Treasury Cloud payment files and acknowledgements can be transferred to and from the
banks through SAP Multi-Bank Connectivity (16R).
11. On-premise payment files and acknowledgements can be transferred to and from the
banks through SAP Multi-Bank Connectivity (16R).
12. In some cases, payment orders from an on-premise system can be integrated with a Cloud
system through IDocs.
13. Accounting postings made in the Cloud system are integrated back to the on-premise
system using FIDCC2 IDocs.
14. Account statements can be transferred from the Cloud to an on-premise system through
Idocs.
15. FX exposures from the on-premise system can be accomplished ash flow integration from
the on-premise system to the Cloud system can be accomplished. See item #5 above.
16. Cash flow integration from the on-premise system to the Cloud system can be
accomplished. See item #5 above.
17. Using Treasury Workstation Cash Integration (34P), the bank account information is
replicated across systems.
* For reference purpose only. Not a recommendation
** Partner-delivered APIs
LESSON SUMMARY
Further Topics
Analytics Cloud

Unit 8
Learning Assessment
1. The SAP Treasury dashboard shows key performance indicators grouped into which of
the following categories?
X A Liquidity
X B Counterparty Risk
X C Payment Monitoring
X D Market Overview
2. When starting a plan, reference data can come from which of the following sources?
X A SAP S/4HANA Cloud
X B SAP S/4HANA On-Premise
X C External file upload
3. Which of the following statements is true regarding liquidity items?

X A Can be created by business users
X B Provide the sources and uses of cash
X C Can be defined on a customer specific level of granularity
X D Provide the categories for grouping both the actual and planning data

Unit 8
1. The SAP Treasury dashboard shows key performance indicators grouped into which of
the following categories?
X A Liquidity
X B Counterparty Risk
X C Payment Monitoring
X D Market Overview
2. When starting a plan, reference data can come from which of the following sources?
X A SAP S/4HANA Cloud
X B SAP S/4HANA On-Premise
X C External file upload
3. Which of the following statements is true regarding liquidity items?

X A Can be created by business users
X B Provide the sources and uses of cash
X C Can be defined on a customer specific level of granularity
X D Provide the categories for grouping both the actual and planning data

UNIT 9 Commodities
Lesson 1
Understanding Commodities 665
UNIT OBJECTIVES
Understand the SAP Commodity Management solution

Unit 9
Lesson 1
Understanding Commodities
LESSON OBJECTIVES
Commodities Overview
Figure 809: Commodities Overview
Only SAP offers Commodity Management in a unified and integrated platform with embedded
intelligent technologies.
SAP Commodity Management is part of the intelligent suite - powered by SAP Leonardo.
It is a single instance with fully integrated end-to-end processes that utilizes SAP's latest
technology.

Unit 9: Commodities
Figure 810: Commodities Overview
The SAP Commodity Management solution streamlines business processes from end-to-end
- enabling accurate, timely, and profitable procurement, sales, and hedging of commodities.
In addition, the Commodity Management solution fits into the back-office and accounting
framework that is part of the Treasury and Risk Management solution.
Business units that do not align on commodity management now have a platform on which to
collaborate resulting in an effective and efficient solution across multiple disciplines. Different
departments of an organization now have one version of the truth.
Figure 811: SAP Commodity Management functionality
The system supports the requirements from the definition and capture of commodity
contracts through back-office processing and risk management.
There is snapshot functionality to record the current situation as well as end-of-day mark-to-
market reporting. This is in addition to the SAP standard functionality supporting a full audit
trail on all transactions and processing.

Lesson: Understanding Commodities
Figure 812: SAP S/4HANA Commodity Risk Management application
Here we see the functionality available at each point along the life-cycle of the commodities
trades. As mentioned, the Commodities module uses the Treasury and Risk Management
framework for deal capture and back-office processing.
The key functions and features of the Commodities Risk Management solution are the
following:
Financial transactions management for commodity derivative types futures, options,

swaps, and forwards, seamlessly provided within the underlying SAP Treasury and Risk
Management functionality.
Full integration into SAP Accounting and SAP Payment Engine functionality.
Query based real-time and end-of-day commodity risk reporting including financial
commodity derivatives, physical transactions* and material stock*, covering:
Position reporting
Mark-to-Market reporting
Day-over-day TpL (Traders P&L) reporting
*Risk reporting including physical commodity transactions and material stock is only
provided within SAP Commodity Risk Management, and requires additional deployment and
licensing of either SAP Commodity Management for S/4HANA or SAP Agricultural Contract
Management for SAP S/4HANA.
LESSON SUMMARY

Unit 9
Learning Assessment
1. Trades created in the Commodity Management solution fall into the back-office and
accounting framework of Treasury and Risk Management.
X True
X False
2. The Commodity Management solution provides which of the following?

X A Trade capture
X B Back-office processing
X C Direct integration to the SAP general ledger
X D Risk reporting

Unit 9
1. Trades created in the Commodity Management solution fall into the back-office and
accounting framework of Treasury and Risk Management.
X True
X False
2. The Commodity Management solution provides which of the following?

X A Trade capture
X B Back-office processing
X C Direct integration to the SAP general ledger
X D Risk reporting

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Business Processes in Treasury and

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vii Course Overview

1 Unit 1: Overview SAP Treasury and Risk Solution

2 Lesson: Describing Financials in SAP S/4HANA

52 Unit 2: General Master Data

53 Lesson: Capturing Banks Master Data Using Bank Account

81 Unit 3: The Debt and Investment Management process

84 Lesson: Explaining the Debt and Investment Management Process

338 Unit 4: The FX Risk Management Process

340 Lesson: Handling FX Deals

© Copyright. All rights reserved. v

469 Lesson: Employing Market Data

511 Lesson: Understanding Risk Management

601 Unit 7: Risk Limitation with the Credit Risk Analyzer

602 Lesson: Explaining the Credit Risk Analyzer Functional Approach

631 Unit 8: Further Topics

632 Lesson: Understanding Further Topics

664 Unit 9: Commodities

665 Lesson: Understanding Commodities

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Super / Key / Power User

Business Process Architect

Business Process Owner/Team Lead/Power User

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Describe SAP HANA and SAP S/4HANA

Explain the SAP Treasury and Risk Management solution architecture

Explain the transaction manager main process

Understand the importance of authorization concept and dual/ triple control

Describe the core Treasury processes

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Describe SAP HANA and SAP S/4HANA

Explain SAP HANA and SAP S/4HANA

The World Is Now Digital

Figure 1: The World Is Now Digital

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Trade-Off - Broad and Deep or Speedy and Simple

Figure 2: Trade-Off - Broad and Deep or Speedy and Simple

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Figure 3: Advances in Technology

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The Vision of SAP HANA

Figure 4: The Vision of SAP HANA

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Remove Complexity with SAP S/4HANA

Figure 5: Remove Complexity with SAP S/4HANA

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SAP S/4HANA, Next Generation Business Software

Figure 6: SAP S/4HANA, Next Generation Business Software

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SAP S/4HANA Core and Lines of Business Solutions