Sie sind auf Seite 1von 43

Hedge Accounting for Exposures (E-HA)

PDF download from SAP Help Portal:


http://help.sap.com/erp2005_ehp_06/helpdata/en/b3/401750a6bb4569e10000000a44176f/content.htm
Created on November 17, 2014

The documentation may have changed since you downloaded the PDF. You can always find the latest information on SAP Help Portal.

Note
This PDF document contains the selected topic and its subtopics (max. 150) in the selected structure. Subtopics from other structures are not included.

2014 SAP SE or an SAP affiliate company. All rights reserved. No part of this publication may be reproduced or transmitted in any form or for any purpose
without the express permission of SAP SE. The information contained herein may be changed without prior notice. Some software products marketed by SAP SE
and its distributors contain proprietary software components of other software vendors. National product specifications may vary. These materials are provided by
SAP SE and its affiliated companies ("SAP Group") for informational purposes only, without representation or warranty of any kind, and SAP Group shall not be
liable for errors or omissions with respect to the materials. The only warranties for SAP Group products and services are those that are set forth in the express
warranty statements accompanying such products and services, if any. Nothing herein should be construed as constituting an additional warranty. SAP and other
SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP SE in Germany and other
countries. Please see www.sap.com/corporate-en/legal/copyright/index.epx#trademark for additional trademark information and notices.

Table of content

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 1 of 43

Table of content
1 Hedge Accounting for Exposures (E-HA)
1.1 Hedging Relationships
1.1.1 Hedge Plan (Hedging Relationship Management)
1.1.2 Hedging Relationship Status Overview
1.1.3 Reverse a Single Hedging Relationship Dedesignation
1.1.4 Reverse a Single Hedging Relationship Dissolution
1.1.5 Exposure Upload from Money Market or Loans
1.1.6 Exposure Upload from External Source
1.1.7 Fair Value Hedge (FVH)
1.1.7.1 Fair Value Hedge (FVH) to Hedge Foreign Currency Risk
1.1.7.2 Fair Value Hedge (FVH) to Hedge Interest Rate Risk
1.1.7.2.1 FVH: Interest Rate Swap Used as a Hedging Transaction
1.1.7.2.2 FVH: Cross-Currency Interest Rate Swap Used as a Hedging Transac
1.1.7.2.3 FVH: Interest Rate Swap and a Cross-Currency Interest Rate Swap
1.1.8 Cash Flow Hedge (CFH)
1.1.8.1 Cash Flow Hedge (CFH) to Hedge Foreign Currency Risk
1.1.8.1.1 CFH: Fixed Term Deposit, Commercial Paper, Interest Rate Instrum
1.1.8.1.2 CFH: Forward Exchange Transaction Used As a Hedging Transaction
1.1.8.1.3 CFH: Option on a Forward Exchange Transaction Used as a Hedging
1.1.8.1.4 CFH: Foreign Exchange Collars Used as Hedging Transactions
1.1.8.1.5 CFH: Cross-Currency Interest Rate Swap Used as a Hedging Transac
1.1.8.2 Cash Flow Hedge (CFH) to Hedge Interest Rate Risk
1.1.8.2.1 CFH: Interest Rate Swap Used as a Hedging Transaction
1.1.8.2.2 CFH: Cap/Floor Used as a Hedging Transaction
1.1.8.2.3 CFH: Cap/Floor Collars Used as Hedging Transactions
1.1.8.2.4 CFH: FRA Used as a Hedging Transaction
1.1.8.2.5 CFH: Cross-Currency Interest Rate Swap Used as a Hedging Transac
1.1.8.2.6 CFH: Cross-Currency Interest Rate Swap/Interest Rate Swap Used a
1.1.9 Net Investment Hedge (NIH) in a Foreign Operation
1.1.9.1 NIH: Fixed Term Deposit, Commercial Paper, Interest Rate Instrum
1.1.9.2 NIH: Forward Exchange Transaction Used As a Hedging Transaction
1.1.9.3 NIH: Option on a Forward Exchange Transaction Used as a Hedging
1.1.9.4 NIH: Cross-Currency Interest Rate Swap Used as a Hedging Transac
1.1.10 Hypothetical (Perfect) Derivative
1.2 Expiration of Risks
1.2.1 Exposure Expiration
1.2.2 Reverse Exposure Expiration
1.2.3 Hedge Plan Expiration
1.2.4 Hedging Relationship Dedesignation
1.2.5 Reverse Hedging Relationship Dedesignation
1.3 Closing Operations in Hedge Accounting for Exposures
1.3.1 Closing
1.3.1.1 Storing Net Present Values
1.3.1.2 Define Net Present Values on Inception Date
1.3.1.3 Define net present values of OTC transactions
1.3.1.4 Interest Rate Adjustment for Exposures
1.3.2 Accounting
1.3.2.1 Transfer of Prospective Effectiveness Assessment
1.3.2.2 Reverse Transfer of Prospective Effectiveness Assessment
1.3.2.3 Retrospective Effectiveness Assessment
1.3.2.3.1 Dissolve Ineffective Hedging Relationships
1.3.2.3.2 Reverse Dissolution of Ineffective Hedging Relationships
1.3.2.4 Manual Equity Capital (EC) Reclassification
1.3.2.5 Reverse Manual Equity Capital Reclassification
1.3.2.6 Automatic Equity Capital Reclassification
1.3.2.7 Reversal of Automatic Equity Capital Reclassification
1.3.2.8 Fair Value Changes to Be Posted
1.3.2.9 Reverse Fair Value Changes to be Posted
1.4 Information Systems
1.4.1 Effectiveness Test

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 2 of 43

1.4.1.1 Noise Threshold Value and Transition Speed


1.4.1.2 Regression Analysis
1.4.2 Account Balances
1.4.3 Hedge Plan Overview
1.4.4 Hedging Relationships per Derivative
1.4.5 Prematurely Reclassified OCI
1.4.6 E-Hedge Accounting: Change Documents
1.4.7 Hedging Relationship Documentation
1.5 BAPIs in Hedge Accounting for Exposures

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 3 of 43

1 Hedge Accounting for Exposures (E-HA)


The Hedge Accounting for Exposures area helps you hedge your transactions against foreign currency risks and interest rate risks. It also maps fair value
hedges and cash flow hedges using the corresponding hedging relationships.
With Hedge Accounting for Exposures , you can perform extensive effectiveness tests, view detailed documentation on your hedging relationships, and use
additional comprehensive valuation and accounting functions.
Hedge Accounting for Exposures covers the following areas:
Exposure Management
Hedging Relationships
Expiration of Risks
Closing Operations
Information System
BAPIs in Hedge Accounting for Exposures

Integration

1.1 Hedging Relationships


Use
This function is provided to enable you to comply with US-GAAP / IAS accounting rules.
According to FAS 133 / IAS 39, derivatives must be shown in the balance sheet at fair value. If you wish to use a derivative financial instrument as a hedging
transaction in accordance with FAS 133 / IAS 39, then special hedge accounting rules apply as far as the market value of the derivative is concerned. In this
case, the hedging relationship and valuation functions must fulfill the following requirements:
The derivative must be linked to the exposure, and the hedging strategy must be defined at the start. You create a hedge plan (Hedging Relationship
Management) for this.
A prospective effectiveness assessment must show that the effectiveness of the hedging relationship can be assumed. A hedging relationship is effective if
the change in value of the derivative is sufficiently related to the change in value of the hedged exposure. You can carry out a prospective effectiveness
assessment by executing an effectiveness measurement with a market data scenario. For more information, see Effectiveness Test . The prospective
effectiveness assessment can also be carried out in an external system.
The result of the prospective effectiveness assessment is transferred to Hedge Accounting for Exposures . For more information, see Transfer of
Prospective Effectiveness Assessment .
On the valuation key date (see Key Date Valuation ) the retrospective effectiveness assessment automatically checks whether the hedging relationship has
proved to be effective in the previous period. You can use various calculation methods to perform the retrospective assessment. The relevant calculation
methods depend on the underlying hedging category ( Cash Flow Hedge, Fair Value Hedge or Net Investment in Foreign Subsidiary ) and on the product
category of the hedging transaction. For more information, see Effectiveness Test .
If the hedging relationship proves effective in the retrospective effectiveness assessment, the key date valuation carries out the retrospective effectiveness
valuation as the next step of the effectiveness test. There are various calculation methods for doing this.
You must dissolve the hedging relationship if it does not prove to be effective in the retrospective effectiveness assessment. For more information, see
Dissolve Ineffective Hedging Relationships .

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 4 of 43

Integration
To calculate the market value of a derivative financial instrument, Hedge Accounting for Exposures uses Mark-to-Market Valuation (stored in Mark-toMarket Valuation Financial Transactions) from Risk Management.
There is a link to Market Data Supply . This is important later on for the effectiveness test.
The key date valuation (accounting valuation of transactions relative to market value) reads saved net present values from the mark-to-market valuation.
Unrealized gains and losses are distributed to appropriate accounts according to Hedge Accounting principles.
The key date valuation and the realized gains and losses ensure automatic integration to Financial Accounting .
The following graphic serves as an illustration of the described processes:

Prerequisites
FAS 133 / IAS 39 is used once OTC net present values of the derivative financial instruments have been saved with a net present value type, and a valuation
with this net present value type and the selected hedge accounting indicator is performed.
You can find out which settings are necessary in the Implementation Guide (IMG): See the appropriate section under
for Exposures.

General Settings

Hedge Accounting

Process Flow
For more information, see:
Hedge Plan (Hedging Relationship Management)
Reverse a Single Hedging Relationship Dedesignation
Reverse a Single Hedging Relationship Dissolution
Exposure Upload from Money Market or Loans
Exposure Upload from External Source

1.1.1 Hedge Plan (Hedging Relationship Management)


For more information, see Hedging Relationships.

Activities
Choose

Transaction Manager

Hedge Accounting for Exposures

Hedging Relationships

Hedging Relationship Management

1. The first step in Hedge Accounting for Exposures is to create a hedge plan.
Here, you can summarize exposure according to specific criteria. You might, for example, use one hedge plan to manage those exposures that represent a
certain product group. The list of hedge plans provides an initial overview of all the hedge plans already created with their exposures and hedging
relationships. By double-clicking on any plan, you get to the details. From there, you can use the Hedge Accounting for Exposures pushbutton to get to the
exposures and hedging relationships.
To create a new hedge plan, choose the Create button and enter the hedge plan details. Besides the ID and name of the plan, you enter the start and end
dates and also the risk category. The start date of the hedge plan will normally be the valid from date of the exposure that begins first. Similarly, the end
date is the date on which the last exposure affects net income. In the case of a forecasted sale, this would be the (anticipated) receivables date; in the case
of a forecasted purchase, it would be the date on which the receivable for the original purchase was posted. For all exposures in the hedge plan, the risk
category uniquely determines the risk to be hedged - the exchange rate risk and the interest rate risk.
With the interest rate risk, you must also maintain the nominal amount and the currency of the interest rate instrument. You can also select the "Single
Hedge" indicator. This way you can set restrictions so that the hedge plan contains only one hedge object and all exposures are assigned to this object. The
hedge object then corresponds to the interest rate instrument to be hedged and the exposure corresponds to the individual cash flows of the interest rate
instrument. All the exposures are part of a single hedge object, and all cash flows belong to the same interest rate instrument. If you do not select the
indicator, each exposure will represent an individual hedge object that must be hedged separately - as is also the case with exchange rate risk.
2. Choose the Hedge Plan button to go to the screen where you can enter an exposure.
You can create the following exposure categories:
Forecasted purchase/sale
Firm commitment: Purchase/sale

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 5 of 43

Asset/Liability: Cash flow transactions, position-transactions and net investments


Exposures represent cash flows or positions that can be hedged against a specific risk. A hedge object is generated as soon as you as you decide to
hedge a specific exposure. The hedge object initially indicates only the intention to hedge an exposure. The actual hedging takes place later in the Hedging
Relationship tab page.
An exposure consists of one or more transactions, the sum of which equals the value (volume) of the exposure. A transaction should reflect a real business
transaction. The transaction is defined by its category and activity. The transaction category defines which category a transaction is assigned to according to
FAS 133 / IAS 39 (for example, forecasted transaction or firm commitment). The transaction activity serves to further specify the category. This could be the
decision as to whether a forecasted transaction is a purchase or a sale, for example.
To create a new transaction, choose the Create button and enter the appropriate details. There, as well as the transaction category and transaction activity
fields, you also maintain the transaction ID, the nominal amount, and the transaction currency. Other important entries are the Valid From date and the
Fixing Date . The Valid From date is the date on which the transaction first becomes valid. This can be either the start date of the transaction or the date on
which the transaction was forecasted. The start date of the transaction must not be before the date on which the hedge plan becomes valid. In the case of an
individual hedge object with one interest rate instrument, the valid-from date corresponds with the start date of the interest rate instrument for all entered
exposures/transactions. The "Fixing Date" describes the expiry date of the transaction or exposure. This is the latest date on which profit and loss can be
affected. If you have already entered an exposure (consisting of at least one transaction), you can choose the Exposure field to create a new transaction for
the exposure. Alternatively, you can generate a new exposure when you create the transaction.
3. You use the Hedge tab to enter the underlying hedging category according to FAS 133 / IAS 39 (Hedge Accounting). You differentiate on the basis of the
type of underlying transaction (exposure) that is hedged. The system supports the categories Cash Flow Hedge , Fair Value Hedge and Net Investment
in Foreign Subsidiary . A Cash Flow Hedge and a Fair Value Hedge differ with respect to the hedged risk. Whereas Cash Flow Hedges cover potential
fluctuations in future cash flows, Fair Value Hedges cover changes in the fair value of an underlying transaction. A Net Investment in Foreign Subsidiary
is a special kind of Cash Flow Hedge .
Using the hedging target ratio, you can define a target value to be hedged (in percent) according to your risk guidelines. The actual ratio shows the actual
level of hedging. The system calculates the actual ratio as soon as you incorporate a derivative financial instrument, or part thereof, as a hedging instrument
in a hedging relationship. The actual ratio is defined as that portion of an exposure (in percent) that is hedged at a given time.

Note
In contrast to an exposure , a hedged item refers to a specific valuation area. The system first assumes that a hedged item should be created in the
leading valuation area. Use the Change Valuation Area function to create the hedged item in another valuation area.
4. Using the hedging relationship tab page, you enter the financial transaction and the volume that is to be used to hedge the object.
You can either enter the transaction number directly in the Derivative field, or you can use the F4 Help to choose from the list of transactions. The system
supports the following product categories as hedging transactions:
Foreign exchange
Cap/Floor
Swap
Forward Rate Agreement (FRA)
OTC options (only foreign exchange)
Commodity Forwards
Commodity Swap
At least one side of the transaction must have the local currency of the company code. You enter the derivative volume that you wish to use for the hedge in
the Des. Volume Deriv field. You also enter the date from which the hedging relationship is to take effect, and the hedging strategy to be used later for the
effectiveness test. The hedging strategy defines all the parameters that are required in order to determine the effectiveness. Hedging strategies are defined
once in Customizing and are then available for selection in the application. The only selection strategies that you can choose from are those that are also
permissible for the derivatives to be valued. In the case of options, for example, the only hedging strategies available for selection will be those with
calculation categories that are also suitable for options.

Features
The Hedge Accounting for Exposures functions can be summarized as follows:
Exposure Management
Hedge Plan
Exposure
Transaction (category and activity)
Define Hedging Relationships
Hedge category
Target ratio
Designating one or more hedging instruments to one or more exposures
Documentation of the hedge strategy
Effectiveness Test
Retrospective effectiveness assessment
Effectiveness measurement
Prospective effectiveness assessment

1.1.2 Hedging Relationship Status Overview


Use
This function provides an overview of all the existing versions for a selected hedging relationship. You can select hedging relationships on the basis of the
company code, hedge plan ID, transaction, portfolio, and the date on which the hedging relationship was created. A green traffic light indicates the current version.
Other versions have a red traffic light.

Features
PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 6 of 43

You can also use this function to reverse dedesignations and dissolutions that have already been processed by the hedge management application. However, you
cannot use it to reverse dedesignations and dissolutions processed by other applications, such as the application for exposure expiration. When you select a
dissolved version, you are prompted to enter a reversal reason. If you want to reverse an OCI reclassification, you are prompted to confirm the reversal posting.
The system automatically recreates the previous version of the hedging relationship.

Activities
1. Choose Hedge Accounting for Exposures Hedging Relationships Hedging Relationship Status Overview .
Enter your selection criteria in the following entry fields:
1. Company Code
2. Up to and Incl. Due Date
3. Hedge Plan ID
4. Hedge Item ID
5. Hedge Category
6. Transaction Category
7. Transaction Activity
2. You can simulate the upload by setting the Test run indicator. In this case, the system displays the data, but no changes are made to the database. If you
do not set this indicator, the system actually reverses the exposure expiration.

1.1.3 Reverse a Single Hedging Relationship Dedesignation


Use
You can use this function to reverse the dedesignations for a group of hedging relationships.

Activities
1. Enter your selection criteria in the following entry fields:
2.
1. Company Code
2. Transaction
3. Hedge Item ID
3. The system determines the dedesignated hedging relationships. Choose Execute to select the dedesignations you want to reverse.
4. You can simulate the reversal by setting the Test Run indicator. In this case, the system displays the data, but no changes are made to the database. If
you do not set this indicator, the reversal is saved to the database.

1.1.4 Reverse a Single Hedging Relationship Dissolution


Use
This function reverses the dissolution of a single hedging relationship.

Prerequisites
Before you can reverse the dissolution of a hedging relationship, you must first check the status of the derivative. The dissolution cannot be reversed if the
derivative has been fully assigned to other hedging relationships, or if the derivative has been valued since dissolution of the hedging relationship. If both checks
are successful, you can reverse the OCI reclassification that was carried out when the hedging relationship was dissolved and create a new version of the
hedging relationship. The new version should correspond to the version before dissolution. The system displays the results of the reversal, or the reason why it
was unable to perform the reversal.

Features
The system determines the hedging relationship on the basis of the values you enter for key fields (such as company code, derivative and number of the hedged
item). You can use the Test run indicator to test the reversal before you update the database.

Activities
1. Enter your selection criteria in the following entry fields:
1.
2.
3.
4.

Company Code
Transaction
Hedge Item ID
CFM Reversal Reason

1. You can simulate the reversal by setting the Test Run indicator. In this case, the system displays the data, but no changes are made to the database. If
you do not set this indicator, the reversal is saved to the database.

1.1.5 Exposure Upload from Money Market or Loans


PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 7 of 43

Use
You can use this report to upload interest rate exposures from money market instruments with the category "interest rate instrument" automatically. Fixed interest
exposures are imported to Hedge Accounting for Exposures as fair value hedges, and variable interest exposures as cash flow hedges.

Prerequisites
Before you run the import, you must create a hedge plan for interest rate risks in Hedge Accounting for Exposures.
After the first import, you can have the interest rate exposure updated on an ongoing basis. You use the update mode to import the calculated interest amounts
after processing an interest rate adjustment in the money market area.

Features
This function does not import charges or flows for discounts or premiums. The upload is restricted to functional currency cash flows.

Activities
Enter your selection criteria in the following entry fields:
Company Code
Hedge Plan
Transaction
Due Date
You can simulate the upload by setting the Test Run indicator. In this case, the system displays the data, but no changes are made to the database. If you do
not set this indicator, the system actually uploads the data.

1.1.6 Exposure Upload from External Source


Use
In general, exposures that take the form of planned purchases or sales are not managed in the system by the corporate treasury department. They may even be
decentralized and managed by the operational units. Often, the hedge manager processes the planning data using an external tool, such as Excel. However, to
take advantage of Hedge Accounting for Exposures, these exposures and the subsequent hedging instruments must be entered in the system.
When exposures are managed outside the Hedge Accounting application (transaction THMEX), you would normally need to recreate these exposures manually in
the Hedge Accounting application. For more information, see Hedge Accounting/Hedging Relationships .
To simplify this process, exposures managed outside the Hedge Accounting application can be imported into a central repository (risk object) using the external
data transfer ( EDT ) function. This repository is the source of exposure information for Hedge Accounting (E-HA) , and the data no longer has to be entered
manually.
The function for importing external exposure data to the risk object repository is designed to work with aggregated period-based figures, such as monthly
forecasted purchases or sales. Once the forecasted figures have been created in Hedge Accounting, they need to be adjusted upwards or downwards as
forecasts are modified. This is done by updating the external exposure data in the risk object repository.You can define any date in the future as the due date for
extending or rolling over a financial contract.

Activities
Step 1: External Data Transfer
The first step is to upload the exposures to the risk object repository using the external data transfer function.
For a technical overview of the process for transferring external data, see SAP Library under External Data Transfer .
The settings for external data transfer involve three activities:
1. Data preparation
2. Customizing
3. Application settings for the external data transfer run
The external data transfer program uses an import (receiver) structure called a transfer category to map external data to risk objects.The external exposure upload
program recognizes the transfer category 040. You can use this transfer category to upload external data to the risk object repository using the direct input
functionality of the Business Data Toolset (BDT).
The master data structure of the risk object contains the global risk object data, such as the activity category, external number, and status.The external number of
the risk object must begin with '&HM', followed by the external risk object ID, such as &HM1234567. Leading and trailing zeros are significant. If the risk object
ID does not follow this naming convention, the external upload function (transaction THMRO) will not function correctly.
The basic transactions are grouped together in a hierarchy within the risk object. Level 1 of the risk object item structure (basic transaction structure) contains the
basic transactions and, where relevant, optional information for each basic transaction. Level 2 of the risk object item structure (flow data structure) contains the
cash flows for individual basic transactions.
The risk object hierarchy allows several basic transactions to be created for each risk object ID. The dates for the start and end of term can differ for each basic
transaction. However, the Hedge Accounting application ignores any differences in the term start and end dates and sets one term start date and one term end

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 8 of 43

date for the hedging relationship, encompassing all the start/end dates for the different transaction terms.
( )
The Hedge Accounting application views the hierarchy as a grouping of cash flows without a specific parent-child relationship.

Step 2: External Exposure Upload (Transaction THMRO)


The external exposure upload creates and updates hedge accounting data by capturing all the risk object exposures uploaded in step 1.Using these risk object
exposures, the system automatically creates a hedge plan and subsequent hedge accounting exposure data for the Hedge Accounting application. In the Hedge
Accounting application, you can then link the exposures to hedging instruments manually.
The original data is stored in the risk object master data repository. Consequently, periodic updates of the hedge accounting exposure data created from risk object
exposures must be carried out using the external exposure upload (THMRO). Only hedge accounting exposure data created via the risk object will be affected
by the update.
Risk object exposures with the same currency and due date are automatically aggregated for the upload to Hedge Accounting.
You can use the external exposure to create the hedge accounting data, and then to update it later on. These two steps and the corresponding data entries are
described below:

Creating Hedge Accounting Data


To create hedge accounting exposures from risk object exposures, you run the external exposure upload program. The following selection options are available:
General Selections :
Enter a company code (mandatory).
Enter an external risk object number to restrict the selection (optional).
Hedge Accounting :
Choose Create. The system then creates hedge accounting exposure data based on the risk object exposures.
Risk Object ID Linked to / Cash Flows Linked to :
Single Plan : If you choose this option, the system creates a separate hedge plan for each risk object.This hedge plan contains all the cash flows for a
single risk object.
Multiple Plans : If you choose this alternative, you have an additional option. You can create a hedge plan containing all the cash flows for a single risk
object, or a hedge plan containing all the cash flows from several risk objects.In addition, the menu bar contains an extra function that allows you to add all
the cash flows of a risk object to an existing hedge plan, rather than creating a new one.
When you execute the external exposure upload, the system displays a validated list of the hedge plan/exposures from an external source. This validation
ensures that the exposures that are going to be created do not already exist in Hedge Accounting.
For each risk object, you can change the descriptive Plan Text and Transaction Text .
The system creates the hedge plan ID and the transaction/exposure ID in the background upon saving. The system determines the hedge accounting transaction
activity on the basis of the hedge accounting transaction category (for example, "forecasted transaction") in conjunction with the risk object cash flow type (for
example, "sale").

Updating Hedge Accounting Data


Once hedge accounting exposures have been created from risk object exposures, you perform subsequent updates using the update function of the external
exposure upload. The following selection options are available:
General Selections :
Enter a company code (mandatory).
Enter an external risk object number (optional).
Hedge Accounting :
To update hedge accounting exposure data, choose Update. The system then updates the hedge accounting data based on the risk object exposures.
Plans Valid After :
If you enter a date in this section (optional), the system only selects hedge plans that expire after the specified date.
When you execute the external exposure upload, the system displays a validated list of the hedge plan/exposures from an external source. This validation
ensures that the exposures that are going to be updated already exist in Hedge Accounting.
The list display assigns the exposure amounts and due dates of the risk objects to the corresponding hedge accounting exposures. Any financial contracts with
"rollover" status that are linked to the hedge accounting exposure are checked before display. Therefore, all financial contracts linked to E-HA exposures that are
subject to rollover must be rolled over before you run the external exposure upload.
The risk object information is used to update Hedge Accounting.
If there has been a key date valuation for the hedging relationship, the following applies:
1. If the new exposure amount is zero, the exposure is assumed to be improbable. As a consequence, the hedging relationship is dissolved and all OCI
balances are reclassified.
2. If the new exposure amount falls below the designated hedge amount, but is greater than zero, the designated amount in the hedging relationship is adjusted
to the new, lower amount. The difference between the old and new designated amounts determines any OCI reclassifications.
If there has been no key date valuation for the hedging relationship, the following applies:
1. If the new exposure amount is zero, the existing hedging relationship is deleted.
2. If the new exposure amount falls below the designated hedge amount, but is greater than zero, the designated amount in the hedging relationship is adjusted
to the new, lower amount.

1.1.7 Fair Value Hedge (FVH)


You can use a fair value hedge to hedge the exposure to recognized assets or liabilities and unrecognized firm commitments against changes in fair value.
Changes in fair value are usually due to exchange rate risks or interest rate risks, and influence the net earnings of a company.

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 9 of 43

If the fair value hedge is effective, the changes in value of both the hedging instrument and the underlying transaction that result from the hedged risk need to be
included in the profit and loss statement as affecting net income.
The fair value hedge adjusts the book value of the underlying transaction. This adjustment is only permitted if hedge management is in use. This procedure
applies to financial instruments that are valued at amortized cost ( held to maturity , loans and receivables ) as well as to financial instruments designated as
available for sale .

Note
If you use a fair value hedge to hedge an unrecognized firm commitment as an underlying transaction, the change in fair value is shown as an asset or a
commitment in the balance sheet. At the same time, an offsetting posting is made via the profit and loss statement. If the firm commitment is actually used as
an asset or liability, the acquisition costs are adjusted by the cumulated changes in value.
See also:
Fair Value Hedge (FVH) to Hedge Foreign Currency Risk
Fair Value Hedge (FVH) to Hedge Interest Rate Risk

Fair Value Hedge ( FVH ) to Hedge Foreign Currency Risk


The International Accounting Standards ( IAS ) 21 and the Financial Accounting Standards Board ( FASB ) Statement No. 52 stipulate that changes in
value of monetary assets or liabilities (such as interest rate instruments in foreign currency) that result from fluctuations in the foreign currency need to be included
in profit or loss.
This does not apply, however, to monetary transactions that are used as hedging instruments in a cash flow hedge or net investment hedge.
Hedge Accounting is used only for selected monetary assets and liabilities since the changes in value of the hedging instrument and the underlying transaction
have usually already been recognized in profit and loss.
However, in the case of non -monetary financial instruments classified as Available for Sale , IAS 21 and FASB Statement No. 115 state that changes in
value need to be recognized in equity and not affect profit and loss. For this reason, a fair value hedge could be used for non-monetary assets and liabilities.

Example
You hedge the fair value of a foreign stock against the risk of fluctuations in foreign currency. The stock represents the exposure.

Note
Since the system cannot load stocks as exposures, it is not currently possible to map fair values hedges to hedge exchange rate risks.

1.1.7.2 Fair Value Hedge (FVH) to Hedge Interest Rate Risk


When you hedge an underlying transaction with fixed interest payments using a hedging transaction with variable interest, the fixed interest payments represent
the exposure.
A fair value hedge can be used to attempt to transform the fixed payment flows into variable ones. This applies to all funds transactions, such as fixed-term
deposits, interest rate instruments, or loans.
See also:
FVH: Interest Rate Swap Used as a Hedging Transaction
FVH: Cross-Currency Interest Rate Swap Used as a Hedging Transaction
FVH: Interest Rate Swap and a Cross-Currency Interest Rate Swap Used as a Hedging Transaction

FVH : Interest Rate Swap Used as a Hedging Transaction


Use in Hedge Accounting for Exposures
As part of the effectiveness test, the system calculates the net present value (fair value) of the interest rate swap and the exposure on the valuation key date. The
calculation of the interest rate swap does not include accrued interest but is rather the clean price. These values are then compared.

Note
If you were to include accrued interest in the net present value, this would usually result in an ineffective hedging relationship.
To calculate the net present value of the exposure, the system takes markup (spread) into account. The basic concept of the markup is that the yield curve used
to discount the underlying transaction is shifted by a constant spread. The markup represents the default risk at the time the hedging relationship is created. The
parallel shift of the yield curve enables you to differentiate between the credit risk and interest rate risk. The markup is constant so that changes to the credit risk
do not affect the effectiveness test.
To valuate the underlying transaction and the interest rate swap, the system runs a foreign currency valuation and security valuation. If the hedging relationship is
partially or completely effective, the total change in fair value (clean price) of the underlying transaction is recorded on the profit and loss statement.

Note
If the interest rate swap and underlying transaction are in local currency, the total effect is derived from the interest rate effect. However, when using a foreign
currency, the total effect depends on the interest rate and foreign exchange.
When you value a financial asset or liability, you always need to enter the foreign exchange effect or underlying transaction in foreign currency on the profit and

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 10 of 43

loss statement. If the hedging relationship is effective, the interest rate effect is also taken into account in profit and loss. You can also use a hypothetical
derivative.

Creating a Hedging Relationship


To create a hedging relationship, proceed as follows:
1. On the SAP Easy Access screen, choose
Treasury and Risk Management Transaction Manager Hedge Accounting for Exposures
Relationships
Hedge Plan
(THMEX).
2. Create a new hedge plan and choose the risk category Interest Rate Risk . You can also set the Single Hedged Item indicator.

Hedging

Recommendation
In the case of interest rate risk, the system automatically loads the transaction or interest payments belonging to a transaction as an exposure. If you set
the Single Hedged Item indicator, the exposures are only assigned to one hedged item. We recommend setting this indicator if you only want to use an
interest rate swap to hedge an interest rate instrument with multiple interest payments.

Note
Depending on the underlying transaction, the system automatically assigns Financial Asset or Financial Liability to the Transaction Category field,
or Position or Cash Flow to the Transaction Activity field.
3. On the Hedged Item tab page, choose the hedge category Fair Value Hedge .
4. For the hedging relationship, specify the interest rate swap that you entered as the hedging instrument. Choose hedge strategy 500 Benchmark Clean
Price and specify a spread.

Recommendation
We recommend that you choose one value so that the net present value of the underlying transaction corresponds to the market value at the start of the
hedging relationship.

Selecting the Hedge Strategy


The standard Customizing setting available is hedge strategy 500 with calculation type 201 Interest Rate Instrument: Benchmark without Accrued Interest. If you
decide to use another hedge strategy, it must use a calculation type based on calculation category 201.

Settings in the Money Market and Position Management Areas


The standard setting defined in Customizing for the underlying transaction is product type 55B Interest Rate Instrument, Hedge Acc . which is assigned to
valuation procedure 3002 Money Market Transactions: Underlying Transaction, Hedge Acc.
The standard Customizing setting for the hedging instrument is product type 62C Int. Rate Swap: Hedge Accounting which is assigned to valuation
procedure 3000 Derivatives: Hedging Inst., Hedge Acc.
See also:
Fair Value Hedge (FVH) to Hedge Interest Rate Risk

FVH : Cross-Currency Interest Rate Swap Used as a Hedging


Transaction
Use in Hedge Accounting
As part of the effectiveness test, the system calculates the net present value (fair value) of the cross-currency interest rate swap and the exposure on the
valuation key date. The calculation of the interest rate swap does not include accrued interest but is rather the clean price. These values are then compared.

Note
If you were to include accrued interest in the net present value, this would usually result in an ineffective hedging relationship.
To calculate the net present value of the exposure, the system takes markup (spread) into account. The basic concept of the markup is that the yield curve used
to discount the underlying transaction is shifted by a constant spread. The markup represents the default risk at the time the hedging relationship is created. The
parallel shift of the yield curve enables you to differentiate between the credit risk and interest rate risk. The markup is constant so that changes to the credit risk
do not affect the effectiveness test.
To valuate the underlying transaction and the cross-currency interest rate swap, the system runs a foreign currency valuation and security valuation. If the hedging
relationship is partially or completely effective, the total change in fair value (clean price) of the underlying transaction is recorded on the profit and loss statement.

Note
If the cross-currency interest rate swap and underlying transaction are in local currency, the total effect is derived from the interest rate effect. However, when
using a foreign currency, the total effect depends on the interest rate and foreign exchange .
When you value a financial asset or liability, you always need to enter the foreign exchange effect or underlying transaction in foreign currency on the profit and
loss statement. If the hedging relationship is effective, the interest rate effect is also taken into account in profit and loss. You can also use a hypothetical
derivative.

Creating a Hedging Relationship


To create a hedging relationship, proceed as follows:

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 11 of 43

1. On the SAP Easy Access screen, choose


Treasury and Risk Management Transaction Manager Hedge Accounting for Exposures
Relationships
Hedge Plan
(THMEX).
2. Create a new hedge plan and choose the risk category Interest Rate Risk . You can also set the Single Hedged Item indicator.

Hedging

Recommendation
In the case of interest rate risk, the system automatically loads the transaction or interest payments belonging to a transaction as an exposure. If you set
the Single Hedged Item indicator, the exposures are only assigned to one hedged item. We recommend setting this indicator if you only want to use a
cross-currency interest rate swap to hedge an interest rate instrument with multiple interest payments.

Note
Depending on the underlying transaction, the system automatically assigns Financial Asset or Financial Liability to the Transaction Category field,
or Position or Cash Flow to the Transaction Activity field.
3. On the Hedged Item tab page, choose the hedge category Fair Value Hedge .
4. For the hedging relationship, specify the cross-currency interest rate swap that you entered as the hedging instrument. Choose hedge strategy 500
Benchmark Clean Price and specify a spread.

Recommendation
We recommend that you choose one value so that the net present value of the underlying transaction corresponds to the market value at the start of the
hedging relationship .

Selecting the Hedge Strategy


The standard Customizing setting available is hedge strategy 500 with calculation type 201 Interest Rate Instrument: Benchmark without Accrued Interest. If you
decide to use another hedge strategy, it must use a calculation type based on calculation category 201.

Settings in the Money Market and Position Management Areas


The standard setting defined in Customizing for the underlying transaction is product type 55B Interest Rate Instrument, Hedge Acc . which is assigned to
valuation procedure 3002 Money Market Transactions: Underlying Transaction, Hedge Acc.
The standard Customizing setting for the hedging instrument is product type 62D Cross-Currency Int. Rate Swap: Hedge Accounting which is assigned to
valuation procedure 3000 Derivatives: Hedging Inst., Hedge Acc.
See also:
Fair Value Hedge (FVH) to Hedge Interest Rate Risk

FVH : Interest Rate Swap and a Cross-Currency Interest Rate Swap


Used as a Hedging Transaction
Example:
Your local currency is EUR. You want to use a cross-currency interest rate swap to hedge the interest rate risk of an interest rate instrument with fixed interest in
USD. You have two options:
You can use one cross-currency interest rate swap as a hedging transaction to convert USD (fixed) to EUR (variable) for example. This is the standard
method delivered with the system.
You can also hedge your exposure using a USD interest rate swap (USD, fixed, to USD, variable) and a USD/EUR cross-currency interest rate swap
(USD, variable, to EUR, variable).

Note
Usually, you cannot assign more than one hedging transaction to an exposure since the nominal amount of the exposure has already been hedged
with the first hedging transaction.
If your hedging transactions are linked by the reference category HMT Reference in Hedge Accounting , you can still only assign them to one
exposure even if the total nominal amount of the hedging transactions exceeds the exposure value. The system calculates the effectiveness for each
hedging transaction and compares the underlying and exposure.
The actual effectiveness of the hedge is usually only derived from the group of assigned hedging transactions.
During the valuation, each hedging transaction is considered individually. The same restrictions apply as for the effectiveness test. If you use the second method,
you need to ensure that the assignment is appropriate from a business point of view.
See also:
Fair Value Hedge (FVH) to Hedge Interest Rate Risk

1.1.8 Cash Flow Hedge (CFH)


Cash flow hedges are transactions that are used to hedge against the risk of variations in future cash flows (interest rate risks or foreign currency risks).
Hedge Accounting
Hedge accounting for cash flow hedges is used mainly for hedging instruments.
According to IAS 39, in the case of effective cash flow hedges, the effective portion of the change in value of the hedging instrument is recognized in equity.
The amounts in equity are written off on a pro rata basis and posted to the profit and loss statement once the hedging relationship has been dissolved.
The ineffective portions of the changes in value of hedging instruments are posted directly to the profit and loss statement.
See also:

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 12 of 43

Cash Flow Hedge (CFH) to Hedge Foreign Currency Risk


Cash Flow Hedge (CFH) to Hedge Interest Rate Risk

1.1.8.1 Cash Flow Hedge (CFH) to Hedge Foreign Currency Risk


In the case of a planned transaction in foreign currency, fluctuations in the foreign currency may result in the payment amount being greater than expected. You
can hedge this risk with a cash flow hedge . The payment represents the exposure.
To map a hedging relationship, the following product types are provided for the hedging instrument:
Money market transactions: Fixed-term deposit, Commercial Paper, Interest rate instrument
Forward exchange transaction
Option on forward exchange transaction
Currency option collar
Cross currency interest rate swap
See also:
CFH: Fixed Term Deposit, Commercial Paper, or Interest Rate Instrument Used as a Hedging Transaction
CFH: Cap/Floor Used as a Hedging Transaction
CFH: Option on Forward Exchange Transaction Used as a Hedging Transaction
CFH: Currency Option Collar (Option Spread) Used as a Hedging Transaction
CFH: Cross Currency Interest Rate Swap Used as a Hedging Transaction
Cash Flow Hedge (CFH) to Hedge Interest Rate Risk

1.1.8.1.1 CFH: Fixed Term Deposit, Commercial Paper, Interest


Rate Instrument Used as Hedging Transactions

Valuation and Effectiveness Test


Non-derivative financial instruments can only be used to hedge foreign currency effects. The valuation and effectiveness test therefore only use the foreign
currency effect (spot method).
As part of the effectiveness test, on the valuation key date, the system translates the nominal values for the defined hedging transactions and the corresponding
exposures at the spot rate and then compares them. All the interest flows and amortization flows associated with the money market transaction are ignored.
If the test proves the hedging relationship to be 100% effective, the foreign currency effect is posted to equity capital (OCI) without affecting profit and loss.
If an effective hedging relationship is not 100% effective, the system differentiates between the following two scenarios:
If the change in value of the hedging transaction is greater than the change in value of the hedged item, the foreign currency effect is posted proportionately to the
profit and loss account.
If the change in value of the hedging transaction is less than the change in value of the hedged item, the hedging transaction value is posted to equity and not
recognized in profit and loss.

Alternatively, you can use a hypothetical derivative in the effectiveness test.

Creating a Hedging Relationship


You have already created a money market transaction using Create Financial Transaction (FTR_CREATE). To create a hedging relationship, proceed as follows:
On the SAP Easy Access screen, choose Treasury and Risk Management Transaction Manager Hedge Accounting for Exposures Hedging
Relationships Hedge Plan (THMEX).
Generate a new hedge plan and specify the risk category Exchange Rate Risk .
Create a new exposure on the Exposure tab page. Specify the nominal amount. Choose the transaction category Planned Transaction or Firm Commitment as
well as the transaction activity Purchase or Sale .
Create a new hedged item on the Hedged Item tab page using the exposure you created previously. Choose the hedge category Cash Flow Hedge . Save your
entries.
Specify your hedging instrument as the money market transaction that you have already created on the Hedging Relationship tab page. Choose the hedge
strategy 100 CF Spot Rate Period/Period .

Selecting the Hedge Strategy


We recommend that you use the hedge strategy 100 ( CF Spot Rate Period/Period ) with calculation type 100 that are defined as standard in Customizing.
If you decide to use a different hedge strategy, it must use a calculation type based on calculation category 003 Cash Flow Differences Acc. to Spot Rate, and
on Cash Flow Determination Method 1 ( FAS133) . To create a hedge strategy, in Customizing for the Transaction Manager , choose General Settings
Hedge Accounting for Exposures Effectiveness Test Define Hedge Strategies.

Customizing Settings

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 13 of 43

In Customizing for the Transaction Manager, you can use product type 55C ( Interest Rate Transaction: Hedging Instr. Hedge Acc. ) by choosing Money
Market Transaction Management Product Types Define Product Types.
Product type 55C is assigned to position management procedure 3003 ( Money Market Transactions Used as Hedging Instr., Hedge Acc. ). This setting is in
Customizing for the Transaction Manager under Accounting Settings for Position Management Assign Position Management Procedure .
For fixed-term deposits and Commercial Paper, you can define individual product types and assign position management procedure 3003.
See also:
Hypothetical (Perfect) Derivative
Cash Flow Hedge (CFH) to Hedge Foreign Currency Risk

1.1.8.1.2 CFH: Forward Exchange Transaction Used As a


Hedging Transaction
Valuation and Effectiveness Test
In the case of forward exchange transactions, as part of the effectiveness test and the valuation, you can decide whether to view only the foreign currency effect
(spot method) or the interest rate and foreign currency effects together (full fair value method).

Spot Method:
As part of the effectiveness test, on the valuation key date the system translates the nominal values for the defined hedging transactions and the corresponding
exposures at the spot rate. It then compares these values.
For the valuation of the forward exchange transaction, the system takes into account the foreign currency effect and the interest rate effect.
If the hedging relationship is 100% effective, the system posts the foreign currency effect to equity (OCI) without affecting net income. The interest rate effect,
however, is recorded in the income statement.
If an effective hedging relationship is not 100% effective, the system differentiates between the following two posting scenarios:
1. If the change in value of the hedging transaction is greater than the change in value of the hedged item, the foreign currency effect is posted proportionately
to the profit and loss account.
2. If the change in value of the hedging transaction is less than the change in value of the hedged item, the hedging transaction value is posted to equity and
not recognized in profit and loss.

Full Fair Value Method:


As part of the effectiveness test, the system calculates the net present value of the forward exchange transaction and the exposure on the valuation key date. It
then compares these values.
For the valuation of the forward exchange transaction, the system takes into account the foreign currency effect and the interest rate effect.
If the hedging relationship is 100% effective, the system posts the foreign currency effect to equity where it has no affect on net income. The interest rate effect,
however, is posted as affecting net income in the income statement.
If an effective hedging relationship is not 100% effective, the system differentiates between two posting scenarios as mentioned above.

Note
Alternatively, you can use a suitable hypothetical derivative for both methods in the effectiveness test.

Creating a Hedging Relationship


You have the following two options when you create a hedging relationship:

Option A:
You create the forward exchange transaction at the same time as the exposure, hedging relationship, and corresponding hedging instrument.
1. On the SAP Easy Access screen, choose
Treasury and Risk Management Transaction Manager Foreign Exchange Trading Create
Financial Transaction
(FTR_CREATE).
2. Create a forward exchange transaction. Choose product type 60B Foreign Exchange (FX) Hedge Accounting with transaction type 102 Foreign
Exchange (FX) Hedge Accounting Forward Transaction . On the Structure tab page, enter the required transaction conditions.
3. On the Hedge Accounting tab page, enter the transaction category Cash Flow Hedge and the activity category Planned Transaction or Firm
Commitment .
4. Choose hedge strategy 100 CF Spot Rate Period/Period or 200 - NPV Period/Period .

Option B:
You have already created the forward exchange transaction and now want to create a hedging relationship.
1. On the SAP Easy Access screen, choose
Treasury and Risk Management Transaction Manager Hedge Accounting for Exposures
Hedging
Relationships
Hedge Plan
(THMEX).
2. Specify the risk category Exchange Rate Risk and the required date for the new hedge plan. Choose the transaction activity Planned Transaction or Firm
Commitment. Specify the transaction activity Purchase or Sell .
3. Choose the Hedged Item tab page and select the relevant exposure.
4. Specify the transaction category Financial Asset or Financial Liability. Choose the hedge category Cash Flow Hedge .
5. On the Hedging Relationship tab page, specify the hedging instrument using one of your foreign exchange transactions with a freely-defined derivative
volume. Choose hedge strategy 100 CF Spot Rate Period/Period or 200 - NPV Period/Period .

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 14 of 43

Selecting the Hedge Strategy


Spot Method:
We recommend that you use the hedge strategy 100 ( CF Spot Rate Period/Period ) with calculation type 100 that are defined as standard in Customizing.
If you decide to use a different hedge strategy, it must use a calculation type based on calculation category 003 Cash Flow Differences Acc. to Spot Rate, and
on Cash Flow Determination Method 1 ( FAS133) .

Full Fair Value Method:


We recommend that you use hedge strategy 200 - NPVPeriod/Period in the standard system with calculation type 200.
If you decide to use a different hedge strategy, it must use a calculation type based on calculation category 100 NPV and on Cash Flow Determination Method 1
( FAS133) .

Customizing Settings
Spot Method:
In the Foreign Exchange area, there is no corresponding product type available in the standard system in Customizing for the Transaction Manager. To
define a forward exchange transaction as a hedging transaction, in Customizing for the Transaction Manager, choose
Foreign Exchange Transaction
Management Product Types
Define Product Types. You then copy product type 60B Foreign Exchange (FX) Hedge Accounting as your new
product type.
Assign this product type to position management procedure 3004 Money Market Transactions as Hedging Instruments, Hedge Acc . To do this, in
Customizing for the Transaction Manager, choose
General Settings
Accounting Settings for Position Management Assign Position Management
Procedure
.
You also need to make the required settings in Customizing for the Transaction Manager by choosing
General Settings
Hedge Accounting for
Exposures
Effectiveness Test.

Full Fair Value Method:


For the Foreign Exchange area, the product type 55B Foreign Exchange (FX) Hedge Accounting is available in the standard Customizing settings for the
Transaction Manager . This product type is assigned to the position management procedure 3001 Foreign Exchange Transactions: Hedging Instr.
Hedge Acc . ( Mark-to-Market).
See also:
Hypothetical and Perfect Derivative
Cash Flow Hedge (CFH) to Hedge Foreign Currency Risk

1.1.8.1.3 CFH: Option on a Forward Exchange Transaction Used


as a Hedging Transaction
Valuation and Effectiveness Test
As part of the effectiveness test and the valuation for options on forward exchange transactions, you can decide whether to view only the foreign currency effect of
the underlying (spot method) or the total effect of the option (full fair value method: interest rate effect and foreign currency effect of the forward exchange transaction
as well as the time value of the option).

Spot Method:
As part of the effectiveness test and on the valuation key date, the system translates the nominal values of the forward exchange transaction (underlying) and the
corresponding exposures at the spot rate and then compares them.
During the option valuation for the forward exchange transaction, the system takes into account the foreign currency effect and interest rate effect as well as the
time value of the option.
If the hedging relationship is 100% effective, the foreign currency effect of the forward exchange transaction is posted in equity without affecting profit and loss. The
time value of the option and the interest rate effect of the forward exchange transaction are recognized however on the profit and loss statement.
If an effective hedging relationship is not 100% effective, the system differentiates between the following two scenarios:
If the change in value of the hedging transaction is greater than the change in value of the hedged item, the foreign currency effect is posted proportionately to the
profit and loss account.
If the change in value of the hedging transaction is less than the change in value of the hedged item, the hedging transaction value is posted to equity and not
recognized in profit and loss.

Full Fair Value Method:


As part of the effectiveness test, the system calculates the intrinsic value of the option as well as the net present value of the exposure on the valuation key date.
It then compares these values. When the system calculates the intrinsic value of the option, it converts the values of the underlying flows using the forward rate
and then discounts them. If the amount is negative, it is set automatically to zero.
During the option valuation, the system takes the total value of the option into account (interest rate effect and foreign exchange effect of the forward exchange
transaction as well as the time value of the option).
If the hedging relationship is 100% effective, the total value of the option is posted in equity without affecting profit and loss.
If an effective hedging relationship is not 100% effective, the system differentiates between two scenarios as mentioned above.

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 15 of 43

Alternatively, you can use a suitable hypothetical derivative for both methods in the effectiveness test.

Creating a Hedging Relationship


To create a hedging relationship, proceed as follows:
On the SAP Easy Access screen, choose Treasury and Risk Management Transaction Manager Hedge Accounting for Exposures Hedging
Relationships Hedge Plan (THMEX).
Specify the risk category Exchange Rate Risk and the required date for the new hedge plan. Choose the transaction category Planned Transaction or Firm
Commitment. Specify the transaction activity Purchase or Sell .
Choose the Hedged Item tab page and select the relevant exposure.Choose the hedge category Cash Flow Hedge .
On the Hedging Relationship tab page, specify one of the options that you entered as the hedging instrument. Choose the hedge strategy 405 Options:
Intrinsic Value Spot Rate or 400 - Option Intrinsic Value, Forward Rate Disc. Period/Period.

Selecting the Hedge Strategy


Spot Method:
We recommend that you use the hedge strategy 405 ( Option, Intrinsic Value, Spot Rate Period/Period) defined as standard in Customizing.
If you decide to use a different hedge strategy, it must use a calculation type based on calculation category 11 Options: Intrinsic Value, Spot Rate and on Cash
Flow Determination Method 1 ( FAS133) .
( )
If hedge strategy 405 is not available in your system, in Customizing for the Transaction Manager, choose General Settings Effectiveness Test Define
Calculation Types . Copy calculation type 400 and change the ID to 405. Enter the description Option: Intrinsic Value, Spot Rate Period/Period and select
calculation category 11 Option: Intrinsic Value, Spot Rate .
In Customizing for the Transaction Manager , choose General Settings Hedge Accounting Effectiveness Test Define Hedge Strategies . Create a
copy of hedge strategy 400 with ID 405. Change the description to Option: Intrinsic Value, Spot Rate Period/Period and enter 405 under Assmt Calc Type and
Measmt CalcType.

Full Fair Value Method:


We recommend that you use hedge strategy 400 ( Option, Intrinsic Value, Forward Rate, Disc. Period/Period ) defined as standard in Customizing together with
calculation type 400.
If you decide to use a different hedge strategy, it must use a calculation type based on calculation category 13 Options: Intrinsic Value, Forward Rate, Disc. and
on Cash Flow Determination Method 1 ( FAS133) .

Customizing Settings
Spot Method and Full Fair Value Method:
In Customizing for the Transaction Manager , you can use the standard product type 76X OTC Forex Option, Hedge Acc . To use this, choose OTC
Derivatives Transaction Management Product Types Define Product Types.
Product type 76X is assigned to position management procedure 3000 - Derivatives: Mark-to-Market as Hedging Inst., Hedge Acc. This setting is available in
Customizing for the Transaction Manager under General Settings Accounting Settings for Position Management Assign Position Management
Procedure .

Full Fair Value Method Only:


To ensure that the time value is also posted to equity (and not recorded in profit and loss) when determining the effectiveness of the hedging relationship, you need
to make the following settings in Customizing for the Transaction Manager :
Choose General Settings Accounting Hedge Accounting for Exposures Update Types Assign Update Types for Hedge Accounting .
Double-click on the line for position management procedure 3000.
Under Treatment of Time Value, choose B - No Classification of Time Value. Save your entries.
See also:
Hypothetical (Perfect) Derivative
Cash Flow Hedge (CFH) to Hedge Foreign Currency Risk

1.1.8.1.4 CFH: Foreign Exchange Collars Used as Hedging


Transactions
General Information on Foreign Exchange Collars
Foreign exchange collars (option spreads) involve the purchase of a call option and the sale of a put option, or vice versa.

Example

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 16 of 43

On January 1 of the current year, you intend to purchase goods on February 1 the following year at a value of USD 1,000. Your local currency is EUR. The
exchange rate for USD is 1.20 on January 1 of the current year.
If the exchange rate drops in the meantime, however, the payment you make in EUR will be greater than expected. To hedge this risk, you buy a European
call option to purchase USD 1,000 at an exchange rate of 1.17 (USD/EUR). You pay a premium of USD 12 to buy the option.
To clear the premium payment, you sell a European put option so that the sale of USD 1,000 occurs at an exchange rate of 1.23 USD/EUR.
The exercise key date for both options is January 1 the following year.
In this example, you use a foreign exchange collar to hedge an exchange rate of less than 1.17. At the same time, profit gained due to a higher exchange rate
is limited to the amount that you would receive if the exchange rate were to increase to 1.23. The exchange rate spread from 1.17 to 1.23 allows you to profit
from favorable exchange rate developments.
You can also use foreign exchange collars (also known as range forwards ) to determine upper and lower limits to exercise purchase and sale transactions.

Mapping Foreign Exchange Collars in the System


Foreign exchange collars are mapped in the system using two options on forward exchange transactions. The two options are linked to each other with reference
categoryOPT- Option Spread. To create and use both options directly in an option spread, on the SAP Easy Access screen, choose
Treasury and Risk
Management Transaction Manager Foreign Exchange Trading Currency Option Entry Spread
(transaction TI4B).
Alternatively, you can create both options separately then link them with referenceHMT Reference in Hedge Accounting orOPT Option Spread. On the
SAP Easy Access screen, choose
Treasury and Risk Management Transaction Manager Derivatives
Back Office Reference Create
(TBR6).

Valuation and Effectiveness Test


Usually, you cannot assign more than one option to an exposure since the nominal amount of the exposure has already been hedged with the first option. You can
therefore only hedge exposures with foreign exchange collars if the options are linked to the reference in categories OPT - Option Spread or HMT Reference in
Hedge Accounting . You can use the reference to assign more than one option to the exposure, even if the total nominal amount of the options exceeds the
exposure value. In this case, the system checks only the maximum nominal amount of a reference.
The effectiveness test and measurement are carried out separately for each currency option. When doing this, the system compares the values of the underlying
with the exposure. In practice, the effectiveness of the hedge is determined by the group of assigned derivatives.

Creating a Hedging Relationship


To create a hedging relationship, proceed as follows:
1. On the SAP Easy Access screen, choose
Treasury and Risk Management Transaction Manager Hedge Accounting for Exposures
Hedging
Relationships
Hedge Plan
(transaction THMEX).
2. Specify the risk category Exchange Rate Risk and the required date for the new hedge plan. Choose the transaction activity Purchase or Sell .
3. Choose the Hedged Item tab page and select the relevant exposure. Specify the transaction category Planned Transaction or Firm Commitment. Choose
the hedge category Cash Flow Hedge .
4. On the Hedging Relationship tab page, specify the first option of the currency option collar. If you have assigned an option to a currency option collar, the
system displays the Reference Category and Reference fields.
5. Choose the hedge strategy 405 Options: Intrinsic Value Spot Rate or 400 - Option Intrinsic Value, Forward Rate Disc. Period/Period.
6. Create another hedging relationship and specify the second option of the currency option collar as the hedging instrument. Choose the hedge strategy that
you selected for the first option.
See also:
Cash Flow Hedge (CFH) to Hedge Foreign Currency Risk

1.1.8.2.5 CFH: Cross-Currency Interest Rate Swap Used as a


Hedging Transaction
Valuation and Effectiveness Test
As part of the effectiveness test and the valuation for the cross-currency interest rate swap, you can decide whether to view only the foreign currency effect (spot
method) or the total effect of the option (full fair value method: interest rate effect and foreign currency effect).

Spot Method:
As part of the effectiveness test and on the valuation key date, the system translates the nominal values of the cross-currency interest rate swap and the
corresponding exposures at the spot rate and then compares them. All the interest flows associated with the cross-currency interest rate swap are ignored.
To value the cross-currency interest rate swap, the system runs a foreign currency valuation and security valuation.
If the hedging relationship is 100% effective, the system posts the foreign currency effect to equity (OCI) without affecting net income. The interest rate effect,
however, is recorded in the income statement.
If an effective hedging relationship is not 100% effective, the system differentiates between the following two scenarios:
1. If the change in value of the hedging transaction is greater than the change in value of the hedged item, the foreign currency effect is posted proportionately
to the profit and loss account.
2. If the change in value of the hedging transaction is less than the change in value of the hedged item, the hedging transaction value is posted to equity and
not recognized in profit and loss.

Full Fair Value Method:


As part of the effectiveness test, the system calculates the net present value of the cross-currency interest rate swap and the exposure on the valuation key date.
It then compares these values.
To value the cross-currency interest rate swap, the system takes into account the foreign currency effect and the interest rate effect.

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 17 of 43

To value the cross-currency interest rate swap, the system takes into account the foreign currency effect and the interest rate effect.
If the hedging relationship is 100% effective, the total effect (forex effect and interest rate effect) is recognized in equity without affecting profit and loss.
If an effective hedging relationship is not 100% effective, the system differentiates between two posting scenarios as mentioned above.

Note
Alternatively, you can use a suitable hypothetical derivative for both methods in the effectiveness test.

Creating a Hedging Relationship


To create a hedging relationship, proceed as follows:
1. On the SAP Easy Access screen, choose
Treasury and Risk Management Transaction Manager Hedge Accounting for Exposures
Hedging
Relationships
Hedge Plan
(transaction THMEX).
2. Specify the risk category Exchange Rate Risk and the required date for the new hedge plan. Choose the transaction activity Planned Transaction or Firm
Commitment. Specify the transaction activity Purchase or Sell .
3. Choose the Hedged Item tab page and select the relevant exposure.
4. Specify the transaction category Planned Transaction or Financial Liability. Choose the hedge category Cash Flow Hedge .
5. On the Hedging Relationship tab page, specify one of your cross-currency interest rate swaps that you entered as the hedging instrument. Choose hedge
strategy 100 CF Spot Rate Period/Period or 200 - NPV Period/Period .

Selecting the Hedge Strategy


Spot Method:
We recommend that you use the hedge strategy 100 ( CF Spot Rate Period/Period ) with calculation type 100 that are defined as standard in Customizing.
If you decide to use a different hedge strategy, it must use a calculation type based on calculation category 003 Cash Flow Differences Acc. to Spot Rate, and
on Cash Flow Determination Method 1 ( FAS133) .

Full Fair Value Method:


We recommend that you use hedge strategy 200 - NPVPeriod/Period in the standard system with calculation type 200.
If you decide to use a different hedge strategy, it must use a calculation type based on calculation category 100 NPV and on Cash Flow Determination Method 1
( FAS133) .

Customizing Settings
In Customizing for the Transaction Manager , you need to define product type 62D (Cross -Currency Interest Rate Swap, Hedge Acc .). To do this, choose
Listed Derivatives
Transaction Management Product Types
Define Product Types
.
Product type 62D must be assigned to position management procedure 3000 ( Derivatives : Hedging Instr., Hedge Acc. ). This setting is in Customizing
for the Transaction Manager under
Accounting Settings for Position Management Assign Position Management Procedure
.
To use a cross-currency interest rate swap as a hedging instrument, you need to select A with Reset in the input help Generation Type of Flows for
Realization for position management procedure 3000. You do this in Customizing for the Transaction Manager by choosing
General Settings
Accounting Hedge Accounting for Exposures
Assign Update Types for Hedge Accounting.
See also:
Hypothetical (Perfect) Derivative
Cash Flow Hedge (CFH) to Hedge Foreign Currency Risk

1.1.8.2 Cash Flow Hedge (CFH) to Hedge Interest Rate Risk


In the case of a planned transaction, interest rate trends may result in the payment amount being greater than expected. You can hedge this risk with a cash flow
hedge . The payment represents the exposure.
To map a hedging relationship, the following product types are provided for the hedging instrument:
Interest rate swap
Cap/floor
Cap/floor collar
FRA (Forward Rate Agreement)
Cross currency interest rate swap
See also:
CFH: Interest Rate Swap Used as a Hedging Transaction
CFH: Cap/Floor Used as a Hedging Transaction
CFH: Cap/Floor Collar Used as a Hedging Transaction
CFH: FRA Used as a Hedging Transaction
CFH: Cross Currency Interest Rate Swap Used as a Hedging Transaction
CFH: Cross Currency Interest Rate Swap and Interest Rate Swap Used as a Hedging Transaction
Cash Flow Hedge (CFH) to Hedge Foreign Currency Risk

1.1.8.2.1 CFH: Interest Rate Swap Used as a Hedging


Transaction
PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 18 of 43

Valuation and Effectiveness Test


As part of the effectiveness test, the system determines the forward rates of the variable interest payments of the interest rate swap and the assigned variable
interest payments of the exposure. These values are discounted on the valuation key date and then totaled for the underlying transaction and hedging transaction.
Both totals are then compared.
For the interest rate swap, the system runs a foreign currency valuation and security valuation.
If the hedging relationship is 100% effective, the total effect is recognized in equity without affecting profit and loss.

If the underlying transaction and the hedging transaction (interest rate swap) are concluded in local currency, the total effect comprises only the interest rate effect.
If a foreign currency is involved, the total effect comprises the interest rate and foreign currency effects. The system cannot manage these effects separately in the
effectiveness test.
If an effective hedging relationship is not 100% effective, the system differentiates between the following two scenarios:
If the change in value of the hedging transaction is greater than the change in value of the hedged item, the foreign currency effect is posted proportionately to the
profit and loss account.
If the change in value of the hedging transaction is less than the change in value of the hedged item, the hedging transaction value is posted to equity and not
recognized in profit and loss.

Alternatively, you can use a hypothetical derivative in the effectiveness test.

Creating a Hedging Relationship


To create a hedging relationship, proceed as follows:
On the SAP Easy Access screen, choose Treasury and Risk Management Transaction Manager Hedge Accounting for Exposures Hedging
Relationships Hedge Plan (transaction THMEX).
Specify Interest Rate Risk as the risk category.
( )
If the Single Hedged Item indicator is set, the system assigns all the loaded exposures (an interest rate instrument or the interest payment in a transaction) to
only one hedged item. We recommend setting this indicator if you want to hedge multiple interest payments for an interest rate instrument using an interest rate
swap.
Once the underlying transaction has been uploaded, Liabilities or Financial Assets are displayed under the Transaction Category, and Position or Cash
Flow are displayed under Transaction Activity . You can also specify the underlying transaction manually.
Choose the Hedged Item tab page and select the hedge category Cash Flow Hedge .
On the Hedging Relationship tab page, specify the interest rate swap that you entered as the hedging instrument.
Select the hedge strategy 103 CF Forward discounted, cumulated .

Selecting the Hedge Strategy


We recommend that you use the hedge strategy 103 CF Forward discounted, cumulated delivered as standard in Customizing with the calculation type 103.
If you decide to use a different hedge strategy, this strategy must use a calculation type based on calculation category 003 Cash Flow Differences, Forward Rate
Discounted and on Cash Flow Determination Method 2 ( FAS133: DIG G7 method 1)

Customizing Settings
In Customizing for the Transaction Manager, you can use the standard product type 62C ( Interest Rate Swap, Hedge Accounting ) by choosing OTC
Derivatives Transaction Management Product Types Define Product Types.
Product type 62C is assigned to position management procedure 3000 ( Derivatives : Hedging Instr., Hedge Acc. ). This setting is in Customizing for the
Transaction Manager under Accounting Settings for Position Management Assign Position Management Procedure .
See also:
Hypothetical (Perfect) Derivative
Cash Flow Hedge (CFH) to Hedge Interest Rate Risk

1.1.8.2.2 CFH: Cap/Floor Used as a Hedging Transaction


Valuation and Effectiveness Test
As part of the effectiveness test, the system determines the sum of the intrinsic values of each caplet on the valuation key date. The intrinsic value of a caplet is
found by subtracting the strike amount from the value of the interest flow. (If the result is negative, the system sets it automatically to zero.) The value is translated

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 19 of 43

using the forward rate and is then discounted.


This result is then compared with the change in value of the underlying transaction. The change in value is determined by subtracting the strike amount from the
interest flows of the exposure, translating the amount with the forward rate, and then discounting it. If this results in a negative value, it is also set to zero.
Floors are calculated in the same way. For caps and floors, the system runs a foreign currency valuation and security valuation.
If the hedging relationship is 100% effective, the total effect is recognized in equity without affecting profit and loss.
If the underlying transaction and the hedging transaction (interest rate swap) are concluded in local currency, the total effect comprises only the interest rate effect.
If a foreign currency is involved, the total effect comprises the interest rate and foreign currency effects. The system cannot manage these effects separately in the
effectiveness test.
If an effective hedging relationship is not 100% effective, the system differentiates between the following two scenarios:
If the change in value of the hedging transaction is greater than the change in value of the hedged item, the foreign currency effect is posted proportionately to the
profit and loss account.
If the change in value of the hedging transaction is less than the change in value of the hedged item, the hedging transaction value is posted to equity and not
recognized in profit and loss.

Alternatively, you can use a hypothetical derivative in the effectiveness test.

Creating a Hedging Relationship


To create a hedging relationship, proceed as follows:
On the SAP Easy Access screen, choose Treasury and Risk Management Transaction Manager Hedge Accounting for Exposures Hedging
Relationships Hedge Plan (transaction THMEX).
Specify Interest Rate Risk as the risk category.
If the Single Hedged Item indicator is set, the system assigns all the loaded exposures (an interest rate instrument or the interest payment in a transaction) to
only one hedged item. We recommend setting this indicator if you want to hedge multiple interest payments for an interest rate instrument using a cap or floor.
Once the underlying transaction has been uploaded, Liabilities or Financial Assets are displayed under the Transaction Category, and Position or Cash
Flow are displayed under Transaction Activity .You can also select the underlying transaction manually.
Choose the Hedged Item tab page and select the hedge category Cash Flow Hedge .
On the Hedging Relationship tab page, specify the interest rate swap that you entered as the hedging instrument.
Select the hedge strategy 103 CF Forward discounted, cumulated .

Selecting the Hedge Strategy


We recommend that you use the hedge strategy 103 CF Forward discounted, cumulated delivered as standard in Customizing with the calculation type 103.
If you decide to use a different hedge strategy, this strategy must use a calculation type based on calculation category 003 Cash Flow Differences, Forward Rate
Discounted and on Cash Flow Determination Method 2 ( FAS133: DIG G7 method 1) .

Customizing Settings
In Customizing for the Transaction Manager the product types 62C ( Int. Rate Swap: Hedge Accounting ) and 61D ( FLOOR Hedge Accounting) are delivered
with the standard system. To select these, choose OTC Derivatives Transaction Management Product Types Define Product Types
These product types are assigned to the position management procedure 3000 (Derivatives: Mark-to-Market as Hedging Instr., Hedge Acc.) . This setting is in
Customizing for the Transaction Manager under Accounting Settings for Position Management Assign Position Management Procedure .
See also:
Hypothetical and Perfect Derivative
Cash Flow Hedge (CFH) to Hedge Interest Rate Risk

1.1.8.2.3 CFH: Cap/Floor Collars Used as Hedging Transactions


General Information About Cap/Floor Collars
Cap/Floor collars combine the purchase of a cap and the sale of a floor or the sale of a cap and the purchase of a floor.

Example
You take out a loan on 01.01 of the current year. The monthly interest rate is variable. The term is one year. On 12.31. the previous year, the interest rate was
3.5 %
To hedge against the interest rate risk, you purchase a cap with a strike of 3.75.
You pay a premium of EUR 1,200. To clear the premium payment, you sell a floor with a strike of 3.25.
This cap/floor collar allows you to hedge against an interest rate that would exceed 3.75. At the same time, you limit profit realized due to a lower interest rate to
the amount that you would receive if the interest rate were to drop to 3.25. You need to take into account the uncertainty of interest rate developments in the

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 20 of 43

interest rate spread of 3.25 to 3.75.

Mapping Cap/Floor Collars in the System


The system maps cap/floor collars by linking the hedging transactions (cap and floor) with each other using a reference categoryHMT Reference in Hedge
Accounting . You can access the transactions for the references on the SAP Easy Access screen by choosing
Treasury and Risk Management
Transaction Manager Money Market/Forex/Derivatives/Securities
Back OfficeReference
(transaction TBR6) .

Valuation and Effectiveness Test


Usually, you cannot assign more than one hedging transaction to an exposure since the nominal amount of the exposure has already been hedged with the first
hedging transaction. Therefore, it is only possible to hedge exposures with cap/floor collars using the reference from category HMT Reference in Hedge
Accounting . You can use the reference to assign more than one hedging transaction to the exposure, even if the total nominal amount of the cap/floor collar
exceeds the exposure value. In this case, the system checks only the maximum nominal amount of a reference.
The effectiveness test and measurement are carried out separately for each hedging transaction. When doing this, the system compares the values of the
underlying with the exposure.

Creating a Hedging Relationship


To create a hedging relationship, proceed as follows:
1. On the SAP Easy Access screen, choose
Treasury and Risk Management Transaction Manager Hedge Accounting for Exposures
Hedging
Relationships
Hedge Plan
(transaction THMEX).
2. Specify Interest Rate Risk as the risk category.
3. Set the Single Hedged Item indicator. If this indicator is set, the system assigns all the loaded exposures (an interest rate instrument or the interest
payment in a transaction) to only one hedged item.
4. Choose the Hedged Item tab page and select the hedge category Cash Flow Hedge .
5. On the Hedging Relationship tab page, specify the first hedging transaction as the hedging instrument. If the cap or floor was assigned to a collar, the
fields Reference Category and Reference are displayed.
6. Choose the hedge strategy 103 CF Forward Discounted, Cumulated .
7. Create another hedging relationship and specify the second hedging transaction as the hedging instrument. Choose the hedging strategy 103 CF Forward
Discounted, Cumulated .
See also:
Cash Flow Hedge (CFH) to Hedge Interest Rate Risk

1.1.8.2.4 CFH: FRA Used as a Hedging Transaction

Mapping Cap/Floor Collars in the System


A forward rate agreement (FRA) represents an agreement on a future interest rate. A FRA is used to hedge against falling or rising interest rates.

Valuation and Effectiveness Test


As part of the effectiveness test, the system differentiates between a variable and fixed part of the FRA. The system sets the fixed portion to zero and determines
the forward interest rates for the variable part of the FRA and the assigned variable interest payment of the exposure. These values are discounted on the
valuation key date and then totaled for the underlying transaction and hedging transaction. Both totals are then compared.
If the test proves the hedging relationship to be 100% effective, the total effect is posted to equity capital (OCI) without affecting profit and loss.
( )
If the underlying transaction and the hedging transaction (FRA) are concluded in local currency, the total effect comprises only the interest rate effect. If a foreign
currency is involved, the total effect comprises the interest rate and foreign currency effects. The system cannot manage these effects separately in the
effectiveness test.
If an effective hedging relationship is not 100% effective, the system differentiates between the following two scenarios:
If the change in value of the hedging transaction is greater than the change in value of the hedged item, the foreign currency effect is posted proportionately to the
profit and loss account.
If the change in value of the hedging transaction is less than the change in value of the hedged item, the hedging transaction value is posted to equity and not
recognized in profit and loss.
( )
Alternatively, you can use a hypothetical derivative in the effectiveness test.

Creating a Hedging Relationship


To create a hedging relationship, proceed as follows:
On the SAP Easy Access screen, choose Treasury and Risk Management Transaction Manager Hedge Accounting for Exposures Hedging
Relationships Hedge Plan (transaction THMEX).
Specify Interest Rate Risk as the risk category.
( )
If the Single Hedged Item indicator is set, the system assigns all the loaded exposures (an interest rate instrument or the interest payment in a transaction) to

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 21 of 43

only one hedged item. We recommend that you set this indicator. The reason for this is that a FRA refers to only one interest payment whilst the interest rate
instrument usually covers multiple interest payments.
Once the underlying transaction has been uploaded, Liabilities or Financial Assets are displayed under the Transaction Category, and Position or Cash
Flow are displayed under Transaction Activity . You can also select the underlying transaction manually.
Choose the Hedged Item tab page and select the hedge category Cash Flow Hedge .
On the Hedging Relationship tab page, specify the FRA that you entered as the hedging instrument.
Select the hedge strategy 103 CF Forward discounted, cumulated .

Selecting the Hedge Strategy


We recommend that you use the hedge strategy 103 CF Forward discounted, cumulated delivered as standard in Customizing with the calculation type 103.
If you decide to use a different hedge strategy, this strategy must use a calculation type based on calculation category 003 Cash Flow Differences, Forward Rate
Discounted and on Cash Flow Determination Method 2 ( FAS133: DIG G7 method 1) .

Customizing Settings
In Customizing for the Transaction Manager, you can use the standard product type 63B ( FRA Hedge Accounting ) by choosing OTC Derivatives
Transaction Management Product Types Define Product Types.
Product type 63B is assigned to position management procedure 3000 ( Derivatives : Hedging Instr., Hedge Acc. ). This setting is in Customizing for the
Transaction Manager under Accounting Settings for Position Management Assign Position Management Procedure .
See also:
Hypothetical (Perfect) Derivative
Cash Flow Hedge (CFH) to Hedge Interest Rate Risk

1.1.8.2.5 CFH: Cross-Currency Interest Rate Swap Used as a


Hedging Transaction
Valuation and Effectiveness Test
As part of the effectiveness test, the system determines the forward interest rates of the variable interest payments of the cross-currency interest rate swap, and
the variable interest payments of the assigned exposure. These values are discounted on the valuation key date and then totaled for the underlying transaction and
hedging transaction. Both totals are then compared.
To value the cross-currency interest rate swap, the system runs a foreign currency valuation and security valuation.
Unlike other interest rate instruments, cross-currency interest rate swaps are characterized by a one-off repayment at the end of the term. This future cash flow is
usually linked to a currency risk. To ensure that only the interest rate effect is posted as part of the effectiveness test for the hedging relationship, the system first
subtracts the change in value caused by the repayment from the total value of the cross-currency interest rate swap.
( )
When you use a cross-currency interest rate swap to hedge interest rate risk, it is important that the critical terms of the hedging transaction match those of the
underlying transaction (particularly the nominal values). If this is not the case, the system subtracts the wrong amount from the value of the cross-currency interest
rate swap.
As part of this operation, only the foreign currency effect associated with the repayment of the underlying transaction is subtracted from the value of the crosscurrency interest rate swap. The total effect of all the interest payments from the cross-currency interest rate swap is posted to equity without affecting profit and
loss.
Since it is not technically possibly to separate the value of the repayment from the value of the cross-currency interest rate swap, the system first calculates the
change in value of the underlying transaction and deducts this from the total change in value of the cross-currency interest rate swap. The difference represents
the interest rate effect that the system posts to equity. The change in value of the underlying transaction is recorded on the profit and loss statement.

Alternatively, you can use a hypothetical derivative in the effectiveness test.

Creating a Hedging Relationship


To create a hedging relationship, proceed as follows:
On the SAP Easy Access screen, choose Treasury and Risk Management Transaction Manager Hedge Accounting for Exposures Hedging
Relationships Hedge Plan (transaction THMEX).
Specify Interest Rate Risk as the risk category.
( )
If the Single Hedged Item indicator is set, the system assigns all the loaded exposures (an interest rate instrument or the interest payment in a transaction) to
only one hedged item. We recommend setting this indicator if you want to use only one cross-currency interest rate swap to hedge an interest rate instrument with
multiple interest payments.
Once the underlying transaction has been uploaded, Liabilities or Financial Assets are displayed under the Transaction Category, and Position or Cash
Flow are displayed under Transaction Activity .You can also select the underlying transaction manually.

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 22 of 43

Choose the Hedged Item tab page and select the hedge category Cash Flow Hedge .
On the Hedging Relationship tab page, specify the cross-currency interest rate swap that you entered as the hedging instrument.
Choose hedge strategy 103 CF Forward Rate, Discounted , Period/Period .

Selecting the Hedge Strategy


We recommend that you use the hedge strategy 103 ( CF Forward Rate, Disc., Period/Period ) with calculation type 103 that are defined as standard in
Customizing.
If you decide to use a different hedge strategy, this strategy must use a calculation type based on calculation category 003 Cash Flow Differences, Forward Rate
Discounted and on Cash Flow Determination Method 2 ( FAS133: DIG G7 method 1)

Customizing Settings
In Customizing for the Transaction Manager , you need to define product type 62D (Cross -Currency Interest Rate Swap, Hedge Acc .). To do this, choose OTC
Derivatives Transaction Management Product Types Define Product Types
Product type 62D must be assigned to position management procedure 3000 ( Derivatives : Hedging Instr., Hedge Acc. ). This setting is in Customizing for the
Transaction Manager under Accounting Settings for Position Management Assign Position Management Procedure .
See also:
Cash Flow Hedge (CFH) to Hedge Interest Rate Risk

1.1.8.2.6 CFH: Cross-Currency Interest Rate Swap/Interest Rate


Swap Used as a Hedging Transaction
Example
Your local currency is EUR. You intend to hedge the interest rate risk of an interest rate instrument with variable interest in USD using a cross-currency interest
rate swap. You have two options:

Option A:
You can use a cross-currency interest rate swap as a hedging transaction to convert USD (variable) to EUR (fixed) for example. This is the standard method
delivered with the system.

Option B:
You can hedge your exposure using a combination of an interest rate swap (USD, variable, to USD, fixed) and a cross-currency interest rate swap (USD,
fixed, to EUR fixed).
Usually, you cannot assign more than one hedging transaction to an exposure since the nominal amount of the exposure has already been hedged with the
first hedging transaction.
If the hedging transactions are linked by the reference category HMT Reference in Hedge Accounting , you can still assign multiple hedging transactions
to an exposure, even if the total nominal amount of the hedging transactions exceeds the exposure value.
The system also carries out the effectiveness test for this method for each hedging transaction in which it compares the underlying with the exposure. The
valuation is run in the same way.
See also:
Cash Flow Hedge (CFH) to Hedge Interest Rate Risk

1.1.9 Net Investment Hedge (NIH) in a Foreign Operation


The Hedge of a Net Investment in a Foreign Subsidiary (or Foreign Operation ) involves hedgingforeign currency risk (see IAS/ IFRS 39).
In the case of an effective net investment hedge, the changes in value of the hedging instrument that result from foreign currency fluctuations are posted to equity
capital without affecting profit and loss (as opposed to being recognized in profit and loss). The changes in value are transferred from equity capital to profit and
loss once the net investment is returned.
The following product types are delivered as standard to map hedging relationships in hedging transactions:
Money market transactions: Fixed-term deposit, Commercial Paper, Interest rate instrument
Forward exchange transaction
Option on forward exchange transaction
Cross currency interest rate swap
See also:
NIH: Fixed Term Deposits, Commercial Paper, or Interest Rate Instruments Used in a Hedging Transaction
NIH: Forward Exchange Transaction Used in a Hedging Transaction
NIH: Option on a Forward Exchange Transaction Used in a Hedging Transaction
NIH: Cross Currency Interest Rate Swap Used in a Hedging Transaction
Hypothetical and Perfect Derivative

1.1.9.1 NIH: Fixed Term Deposit, Commercial Paper, Interest


Rate Instrument Used as Hedging Transactions
PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 23 of 43

Valuation and Effectiveness Test


As part of this test, the system takes into account the foreign exchange effect resulting from the foreign currency valuation. All the interest flows and amortization
flows associated with the money market transaction are ignored.
If the test proves the hedging relationship to be 100% effective, the foreign currency effect is posted to equity (OCI) without affecting profit and loss.
If an effective hedging relationship is not 100% effective, the system differentiates between the following two scenarios:
If the change in value of the hedging transaction is greater than the change in value of the hedged item, the foreign currency effect is posted proportionately
to the profit and loss account.
If the change in value of the hedging transaction is less than the change in value of the hedged item, the hedging transaction value is posted to equity and
not recognized in profit and loss.
As part of the effectiveness test, on the valuation key date the system translates the nominal values for the defined hedging transactions and the corresponding
exposures at the spot rate. It then compares these values.

Creating a Hedging Relationship:


You have already created a money market transaction using Create Financial Transaction ( FTR _CREATE). To create a hedging relationship, proceed as
follows:
1. On the SAP Easy Access screen, choose
Treasury and Risk Management Transaction Manager Hedge Accounting for Exposures
Hedging
Relationships
Hedge Plan
(THMEX) .
2. Generate a new hedge plan and specify the risk category Exchange Rate Risk .
3. Create a new exposure on the Exposure tab page. Specify the nominal amount. Choose the transaction category Financial Asset or Financial Liability
and the transaction activity Net Investment .
4. Create a new hedged item of the Hedged Item tab page using the exposure you created previously. Choose the hedge category Cash Flow Hedge . Save
your entries.
5. Specify your hedging instrument as the money market transaction that you have already created on the Hedging Relationship tab page. Choose hedge
strategy 100 CF Spot Rate Period/Period or another shortcut strategy.

Selecting the Hedge Strategy


Spot Method:
We recommend that you use the hedge strategy 100 ( CF Spot Rate Period/Period ) with calculation type 100 that are defined as standard in Customizing.
If you decide to use a different hedge strategy, it must use a calculation type based on calculation category 003 Cash Flow Differences Acc. to Spot Rate, and
on Cash Flow Determination Method 1 ( FAS133) . To create a hedge strategy, in Customizing for the Transaction Manager , choose
General Settings
Hedge Accounting for Exposures
Effectiveness Test Define Hedge Strategies.

Forward Method:
If you use the forward method, and the critical terms do not match (see FAS 133 Derivatives Implementation Group Implementation Issue No. H8 ) you need to
use a hypothetical derivative to map the hedging relationship.

Customizing Settings
In Customizing for the Transaction Manager , you need to define product type 55C ( Interest Rate Instrument, Hedging Instr., Hedge Acc .). To do this,
choose
Money Market Transaction Management Product Types
Define Product Types
.
Product type 55C must be assigned to position management procedure 3003 ( Money Market Transactions Used as Hedging Instr., Hedge Acc. ). This
setting is made in Customizing for the Transaction Manager under
Accounting Settings for Position Management Assign Position Management
Procedure
. For fixed-term deposits and Commercial Paper, you can define individual product types and assign position management procedure 3003 in
the same way.
See also:
Hypothetical (Perfect) Derivative
Net Investment Hedge (NIH) in a Foreign Operation

1.1.9.2 NIH: Forward Exchange Transaction Used As a Hedging


Transaction
Valuation and Effectiveness Test
Spot Method:
As part of the effectiveness test, on the valuation key date the system translates the nominal values for the defined hedging transactions and the corresponding
exposures at the spot rate. It then compares these values.
For the valuation of the forward exchange transaction, the system takes into account the foreign currency effect and the interest rate effect. Only the foreign
exchange effect is considered, however, in the effectiveness test.
If the hedging relationship is 100% effective, the system posts the foreign currency effect to equity (OCI) without affecting net income. The interest rate effect,
however, is recorded in the income statement.
If an effective hedging relationship is not 100% effective, the system differentiates between the following two posting scenarios:
If the change in value of the hedging transaction is greater than the change in value of the hedged item, the foreign currency effect is posted proportionately
to the profit and loss account.
If the change in value of the hedging transaction is less than the change in value of the hedged item, the hedging transaction value is posted to equity and

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 24 of 43

not recognized in profit and loss.

Forward Method:
If you use US GAAP, and the critical terms of the underlying transaction match those of the hedging transaction (see FAS 133 Derivatives Implementation
Group Implementation Issue No. H8 ), you can post the foreign currency and interest rate effects to equity without running the effectiveness test beforehand. If the
critical terms are different, you need to use a hypothetical derivative for this method.

Creating a Hedging Relationship


You have two options when creating a hedging relationship:

Option A:
You create the forward exchange transaction at the same time as the exposure, hedging relationship, and corresponding hedging instrument.
1. On the SAP Easy Access screen, choose
Treasury and Risk Management Transaction Manager Foreign Exchange Trading Create
Financial Transaction
(FTR_CREATE).You use this transaction to create the forward exchange transaction and exposure as well as the hedging
relationship with the hedging instrument.
2. Create a forward exchange transaction. Choose product type 60B Foreign Exchange (FX) Hedge Accounting with transaction type 102 Foreign
Exchange (FX) Hedge Accounting Forward Transaction . On the Structure tab page, enter the required transaction conditions.
3. On the Hedge Management tab page, specify the transaction category Financial Asset . The system automatically uses the Net Investment activity
category.
4. Choose hedge strategy 100 CF Spot Rate Period/Period or a shortcut method.

Option B:
You have already created the forward exchange transaction and now want to create a hedging relationship.
1. On the SAP Easy Access screen, choose
Treasury and Risk Management Transaction Manager Hedge Accounting for Exposures
Hedging
Relationships
Hedge Plan
(THMEX) .
2. Specify the risk category Exchange Rate Risk and the required date for the new hedge plan. Choose Net Investment as the transaction activity.
3. Choose the Hedged Item tab page and select the relevant exposure.
4. Specify the transaction category Financial Asset or Financial Liability. Choose the hedge category Cash Flow Hedge .
5. On the Hedging Relationship tab page, specify the hedging instrument using one of your foreign exchange transactions with a freely-defined derivative
volume. Choose hedge strategy 100 CF Spot Rate Period/Period or a shortcut method.

Selecting the Hedge Strategy


Spot Method:
We recommend that you use the hedge strategy 100 ( CF Spot Rate Period/Period ) with calculation type 100 that are defined as standard in Customizing.
If you decide to use a different hedge strategy, it must use a calculation type based on calculation category 003 Cash Flow Differences Acc. to Spot Rate, and
on Cash Flow Determination Method 1 ( FAS133) .

Forward Method:
If you use the forward method but the critical terms do not match, you need to use a hypothetical derivative to map the hedging relationship.

Customizing Settings
In the Foreign Exchange area, there is no corresponding product type available in the standard system in Customizing for the Transaction Manager. To
define a forward exchange transaction as a hedging transaction, in Customizing for the Transaction Manager, choose
Foreign Exchange Transaction
Management Product Types
Define Product Types. You then copy product type 60B Foreign Exchange (FX) Hedge Accounting as your new
product type.
Assign this product type to position management procedure 3004 Money Market Transactions as Hedging Instruments, Hedge Acc . To do this, in
Customizing for the Transaction Manager, choose
General Settings
Accounting Settings for Position Management Assign Position Management
Procedure
.
You also need to make the necessary settings in Customizing for the Transaction Manager under
General Settings
Hedge Accounting for Exposures
Effectiveness Test.
See also:
Hypothetical (Perfect) Derivative
Net Investment Hedge (NIH) in a Foreign Operation

1.1.9.3 NIH: Option on a Forward Exchange Transaction Used as


a Hedging Transaction
Valuation and Effectiveness Test
Spot Method:
As part of the effectiveness test and on the valuation key date, the system translates the nominal values of the forward exchange transaction (underlying)
and the exposure at the spot rate and then compares them.
During the option valuation for the forward exchange transaction, the system takes into account the foreign currency effect and interest rate effect as well as
the time value of the option.

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 25 of 43

If the hedging relationship is effective, the foreign currency effect of the forward exchange transaction is posted to equity (OCI) without affecting profit and
loss. The time value of the option and the interest rate effect of the forward exchange transaction are posted to profit and loss.

Forward Method:
If the critical terms of the underlying transaction do not match those of the hedging transaction (nominal values and currencies, for example) you can post
the foreign currency effect and interest rate effect to equity without having to run the effectiveness test first.
If some of the critical terms are different, you need to use a hypothetical derivative to map the hedging relationship.

Creating a Hedging Relationship


You have already created the forward exchange transaction and now want to map a hedging relationship. To do this, proceed as follows:
1. On the SAP Easy Access screen, choose
Treasury and Risk Management Transaction Manager Hedge Accounting for Exposures
Hedging
Relationships
Hedge Plan
(THMEX).
2. Specify the risk category Exchange Rate Risk and the required data for the new hedge plan. Choose Net Investment as the transaction activity.
3. Choose the Hedged Item tab page and select the relevant exposure. Specify the transaction category Financial Asset or Financial Liability.
4. On the Hedging Relationship tab page, specify the option on the forward exchange transaction that you created as the hedging instrument.
5. Choose hedge strategy 405 Option Intrinsic Value, Spot Rate or a shortcut strategy.

Selecting the Hedge Strategy


Spot Method:
If you use the spot method, we recommend that you choose the hedge strategy defined in the sample Customizing settings: 405 Option: Intrinsic Value, Spot
Rate .
( )
If hedge strategy 405 is not available in your system, in Customizing for the Transaction Manager, choose
General Settings
Effectiveness Test Define
Calculation Types
. Copy calculation type 400 and change the ID to 405. Enter the description Option: Intrinsic Value, Spot Rate and select calculation
category 11 Option: Intrinsic Value, Spot Rate .
In Customizing for the Transaction Manager , choose
General Settings
Effectiveness Test Define Hedge Strategies
. Create a copy of hedge strategy
400 with ID 405. Change the description to Option: Intrinsic Value, Spot Rate and enter 405 under Assmt Calc Type and Measmt CalcType.

Forward Method:
If you use the forward method but the critical terms of the underlying transaction do not match those of the hedging transaction (see FAS 133 Derivatives
Implementation Group Implementation Issue No. H8 ) we recommend that you use a shortcut strategy.

Customizing Settings
In the OTC Derivatives area, you can use product type 76X ( OTC Forex Option, Hedge Acc .) which is available in the sample Customizing settings.
This product type is assigned to position management procedure 3000 ( Derivatives : Hedging Instr., Hedge Acc. ).
You also need to make the necessary settings in Customizing for the Transaction Manager under
General Settings
Hedge Accounting for Exposures
Effectiveness Test Define Calculation Types
and Define Hedging Relationships.
You need to assign the appropriate update types to enable the time value to be posted to equity when you use a shortcut strategy. To do this, in
Customizing for the Transaction Manager, choose
General Settings
Accounting Hedge Accounting
. Under Treatment of Time Value, choose B
No Classification of Time Value for position management procedure 3000.
See also:
Hypothetical (Perfect) Derivative
Net Investment Hedge (NIH) in a Foreign Operation

1.1.9.4 NIH: Cross-Currency Interest Rate Swap Used as a


Hedging Transaction
Valuation and Effectiveness Test
Spot Method:
As part of the effectiveness test and on the valuation key date, the system translates the nominal values of the cross-currency interest rate swap and the
corresponding exposure at the spot rate and then compares them. All the interest flows associated with the cross-currency interest rate swap are ignored.
To value the cross-currency interest rate swap, the system runs a foreign currency valuation and security valuation.
If the hedging relationship is 100% effective, the foreign currency effect is posted to equity (OCI) without affecting profit and loss. The interest rate effect,
however, is always recorded on the profit and loss statement.
If an effective hedging relationship is not 100% effective, the system differentiates between the following two scenarios:
If the change in value of the hedging transaction is greater than the change in value of the hedged item, the foreign currency effect is posted proportionately
to the profit and loss account.
If the change in value of the hedging transaction is less than the change in value of the hedged item, the hedging transaction value is posted to equity and
not recognized in profit and loss.

Forward Method:
If you use US GAAP, and the critical terms of the underlying transaction match those of the hedging transaction (see FAS 133 Derivatives Implementation
Group Implementation Issue No. H8 ), you can post the foreign currency and interest rate effects to equity without running the effectiveness test beforehand. If the

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 26 of 43

critical terms are different, you need to use a hypothetical derivative.

Creating a Hedging Relationship


To create a hedging relationship with a cross-currency interest rate swap used as a hedging instrument, proceed as follows:
1. On the SAP Easy Access screen, choose
Treasury and Risk Management Transaction Manager Hedge Accounting for Exposures
Hedging
Relationships
Hedge Plan
(THMEX) .
2. Choose the risk category Exchange Rate Risk for the hedge plan.
3. Enter the required exposure data. Choose the transaction category Financial Asset or Financial Liability. Specify Net Investment as the transaction
activity.
4. On the Hedged Items tab page, choose the exposures to be hedged. Specify the hedge category Cash Flow Hedge .
5. On the Hedging Relationships tab page, assign a cross-currency interest rate swap as the hedging instrument or create a corresponding hedging
transaction. Choose hedge strategy 100 CF Spot Rate Period/Period or any shortcut strategy.

Selecting the Hedge Strategy


Spot Method:
If you use the spot method, you should also use the standard hedge strategy 100 ( CF Spot Rate Period/Period ). To determine the cash flow, use method 1 FAS133 . If you decide to use a different hedge strategy, it must use a calculation type based on calculation category 001 Cash Flow Differences Acc. to Spot
Rate, and on Cash Flow Determination Method 1.

Forward Method:
If you use the forward method and the critical terms match, we recommend that you use a shortcut strategy.

Customizing Settings
In the Listed Derivatives area, you can use the standard product type 62D ( Cross-Currency Interest Rate Swap, Hedge Acc .). The standard procedure
assigned to this product type is position management procedure 3000 ( Derivatives: Hedging Inst. Hedge Acc .). You can make these settings in
Customizing for the Transaction Manager by choosing
OTC Derivatives
Transaction Management Product Types
Define Product Types.You
can also chooseGeneral Settings
Accounting Settings for Position Management Assign Position Management Procedure.
You also need to make the necessary settings in Customizing for the Transaction Manager under
General Settings
Hedge Accounting for Exposures
Effectiveness Test.
See also:
Hypothetical (Perfect) Derivative
Net Investment Hedge (NIH) in a Foreign Operation

1.1.10 Hypothetical (Perfect) Derivative


If the critical terms of a hedged underlying transaction (such as interest rate adjustment dates or the interest rate reference) do not match those of the hedging
transaction, you can use a hypothetical derivative to test the effectiveness of the hedging relationship.(See
http://www.fasb.org/derivatives/issueg7.shtmlDerivatives Implementation Group, Statement 133, Implementation Issue No. G7 ).
The hypothetical derivative represents a perfect hedge transaction and is a modified version of the real hedge transaction that would completely cover the risk
involved.
To use the hypothetical derivative in a hedge strategy, you need to use a suitable calculation type and hedge strategy.To do this, in Customizing for the
Transaction Manager, choose Hedge Accounting for Exposures Effectiveness Test Define Calculation Types , and set the Hypothetical Perfect
indicator. You can make the required hedge strategy settings under Define Hedge Strategy .

Hypothetical derivatives are simply a means for the system to make calculations if no valuations or postings have been made.For this reason, hypothetical
derivatives are not displayed as real transactions. We therefore strongly recommend that you use separate product types for the hypothetical derivative.

Effectiveness Test and Posting


The system compares the changes in value of the real hedging transactions (either cumulatively or for selected periods) with the changes in value of the
hypothetical derivative.

Since the hedging transaction and hypothetical derivative involve hedging instruments, the changes in value do not offset each other.
The hedging relationship is effective if the ratio between the change in value of the real hedging transaction and the change in value of the hypothetical derivative
is within the determined effectiveness range.

1.2 Expiration of Risks


PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 27 of 43

Process Flow
For more information, see:
Exposure Expiration
Reverse Exposure Expiration
Hedge Plan Expiration
Hedging Relationship Dedesignation
Reverse Hedging Relationship Dedesignation

1.2.1 Exposure Expiration


Use
This report enables you to monitor the expiration of the exposure you have selected. It dissolves all the hedging relationships that are assigned to expired
exposures (this includes reclassification of OCI in cash flow hedges). The only exception is for forecasted purchases in cash flow hedges. In this case, the
corresponding hedging relationships are dedesignated, not dissolved. This is because OCI should only be reclassified at the time the underlying exposure
actually affects net income (for example, a finished product is made from a purchased product tied to a hedging relationship; OCI is reclassified only when the
receivable for the finished product is posted).

Activities
Choose Hedge Accounting for Exposures Expiration of Risks Exposure Expiration
The Exposure Expiration screen appears.
Enter your selection criteria in the following entry fields:
Company Code
Up to and Including Due Date
Hedge Plan
Hedge Item ID
Hedge Category
Transaction Category
Transaction Activity
You can simulate the exposure expiration by selecting the Test Run field.
In the test run the system displays the data without making changes to the database. If you do not set this indicator, the system saves the values to the database
and dissolves or dedesignates the hedging relationship.
Choose Program Execute

1.2.2 Reverse Exposure Expiration


Use
This function determines dissolved and dedesignated hedging relationships processed by the function Exposure Expiration. It only considers dedesignated
hedging relationships that are assigned to cash flow hedges with planned purchases. Dissolved hedging relationships belong to cash flow hedges with planned
sales, for example.

Features
If you carry out a test run, the system merely displays the list of selected hedging relationships. If you carry out an update run, it reverses all the selected hedging
relationships and reverts to the previous version.

Activities
1. Enter your selection criteria in the following entry fields:
2.
1. Company code
2. Transaction date
3. Hedge plan ID
4. Hedge item ID
5. Transaction activity
3. You can simulate the reversal by setting the Test run indicator. In this case, the system displays the data, but no changes are made to the database. If
you do not set this indicator, the system actually reverses the exposure expiration.

1.2.3 Hedge Plan Expiration


PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 28 of 43

Use
This report shows all hedging relationships of hedge plans expiring on a certain date, and dissolves them. It thus ensures that all hedging relationships of a hedge
plan are dissolved at the latest upon hedge plan expiration. For plans containing forecasted purchases, the expiration date may be the date when the underlying
exposure(s) affect earnings.

Activities
Choose Hedge Accounting for Exposures Expiration of Risks Hedge Plan Expiration
The Hedge Plan Expiration screen appears.
Enter your selection criteria in the following entry fields:
Company code
Up to & including expiration date
Hedge plan ID
Hedge item ID
Hedge category
Transaction category
Transaction activity
If you flag the test run field, you can also run the hedge plan expiration as a simulation. In this test run, data will be displayed only without any database changes
being carried out. If it is not flagged values are stored on the database and the appropriate action is triggered (dedesignation or dissolve).
Choose Program Execute .

1.2.4 Hedging Relationship Dedesignation


Use
This report allows the user to manually dedesignate single hedging relationships as of a certain date, or groups of hedging relationships, for example, all hedging
relationships of a derivative.
Hedging Relationship Dedesignations cannot be performed for a date (as-of date) that is earlier than a prior valuation.

Activities
Choose Hedge Accounting for Exposures Application Hedging Relationship Dedesignation .
The Hedging Relationship Dedesignation screen appears.
Enter your selection criteria in the following entry fields:
Company code
As of date (effective date of the dedesignation)
Hedge item ID
Transaction
Product type
Choose Program Execute .

1.2.5 Reverse Hedging Relationship Dedesignation


Use
You can use this report to reverse the dedesignation of individual or also multiple hedging relationships, such as hedging relationships of a derivative.
Prerequisites
You have to dedesignate the hedging relationships by selecting Hedging Relationship Dedesignation before you can use this function.
Activities
1. Choose
Hedge Accounting for Exposures
Risks Expiration Reverse Hedging Relationship Dedesignation.
2. The Reverse Hedging Relationship Dedesignation screen appears.
3. Enter your selection criteria in the following entry fields:
Company Code
Valuation Area
Key Date (of dedesignation)
Hedge Item ID
Transaction
Product Type
4. Choose
Program Execute
.

1.3 Closing Operations in Hedge Accounting for Exposures


PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 29 of 43

1.3 Closing Operations in Hedge Accounting for Exposures


The menu section Period-End Closing contains all the programs that are necessary for preparing a valuation (key date valuation or the calculation of realized
gains and losses). You need to perform valuation before you can execute the transactions in the Accounting section of the menu.

Process
1. Closing
2. Accounting

1.3.1 Closing
Use
Execute the following reports so that you can then carry out a valuation (key date valuation or realized gains/losses):
Calculating and Saving Net Present Values
Define Net Present Values on Inception Date
Define Net Present Values of OTC Transactions
Interest Rate Adjustment for Exposures

1.3.1.1 Storing Net Present Values


Use
This report program calculates net present values for transactions/loans with positions in parallel valuation areas. The net present values are calculated by the
Market Risk Analyzer and saved to table VTVBAR (view V_VTVBAR). These values can then be used by the parallel valuation function.

Prerequisites
Each transaction should have a corresponding finance object that includes the analysis component. If this is not the case, the transactions are still valued,
but no valuation rule can be taken into account. The Analysis active indicator only applies in connection with evaluations using portfolio hierarchies.
The transactions are not selected using portfolio hierarchies, but instead using the standard selector for the parallel valuation areas. The system only values
those transactions that have been updated in at least one of the parallel valuation areas.
You must make the Market Risk Analyzer settings in Customizing, this means, define rates, yield curves, volatilities. For more information, read the
documentation in the Implementation Guide of the Market Risk Analyzer.

1.3.1.2 Define Net Present Values on Inception Date


Use
You can use this function to define the net present values of derivative financial instruments on the inception date.
If you use the market data in the system to calculate the value at the inception date, this value will differ slightly from the value an external business receives.
Forward exchange transactions and interest rate swaps should have a value of 0 and currency options should be valued at the money.
The program selects all the derivative transactions for a derivative category and enters the value on the inception date in the NPV table. However, if a value has
already been entered and saved in the NPV table, it is not overwritten. In the case of currency options, the system calculates a premium for the transactions and
saves this only as a current market value. If this does not meet your requirements, you will have to alter the value later or exclude it from the beginning.
All values are saved in company code currency using the rate type that you entered in the selection screen.

Activities
1. Choose
Hedge Accounting for Exposures
Period-End Activities
Closing Define Net Present Values on Inception Date
(transactionTHM30).
2. The Define Net Present Values on Inception Date screen appears.
3. Enter your selection criteria in the following fields:
Company Code
Term Start
Transaction
Product Type
Contract Type
Price/NPV Type
FX-Forward Transactions
FX-Options
OTC-Interest Rate Instruments
4. If you select Test Run , you can run Define Net Present Values on Inception Date as a simulation.
In the test run, the system displays data without making changes to the database. If you do not select the field, the values will be saved on the database.

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 30 of 43

5.

ChooseProgram

Execute

Define Net Present Values of OTC Transactions


Documentation in preparation.

1.3.1.4 Interest Rate Adjustment for Exposures


Use
This function fixes the interest rates for variable rate interest exposures. At a specific, predefined date, the variable interest rate of the exposure is set to the actual
rate for that date. This information is needed in the exposure in order to calculate the value of the hedged item accurately.
( )
Do not use this function with exposures that are tied to a money market instrument. The Financial Transaction field in the hedge plan indicates if the exposures
were created from a money market instrument. These should always be updated with the Exposure Upload from Money Market or Loansfunction. In this case, first
fix the interest flows as usual for a money market instrument, then run the exposure upload report in update mode. This fixes the exposure interest flows within
Hedge Management.

Prerequisites
Before this report can be run, a valid reference interest rate value must exist for the requested date.These values can be uploaded on a regular basis using a
standard datafeed.

Activities
After uploading the market data for the required reference interest rates, you can run the Interest Rate Adjustment for Exposures .
Entry fields:
Adjustment per (date): Mandatory field. Exposures that have a fixing date up to and including this date are adjusted.
Company code : Optional selection field We recommend filling this field to optimize performance.
Hedge Plan ID : Optional selection field that can be used if you want to adjust the exposures for a single hedge plan.
Test Run (checkbox): Leave the box checked to run in test mode to see the actual rates and any errors that may occur. Remove the check in order to
perform the update.
Any processing errors (for example, no rate found on the fixing date) are displayed in the resulting tree structure. The highest error level is displayed at the root
level, so that you can see at a glance if all records have been successfully updated.
When the Test Run checkbox is deactivated, the program updates all selected exposures and their underlying transactions with the applicable fixed value for
the reference interest rate.

1.3.2 Accounting
Use
After you have completed closing, you can carry out the accounting tasks for the effectiveness measurement .
For more information, see:
Transfer of Prospective Effectiveness Assessment
Reverse Transfer of Prospective Effectiveness Assessment
Retrospective Effectiveness Assessment
Dissolve Ineffective Hedging Relationships
Reverse Dissolution of Ineffective Hedging Relationships
Manual EC Reclassification
Reverse Manual EC Reclassification
Automatic EC Reclassification
Reverse Automatic EC Reclassification
Fair Value Changes to be Posted
Reverse Fair Value Changes to be Posted
( ) Hedge Accounting for exposures supports parallel valuation areas.
You make the valuation area-dependent settings for Hedge Accounting for Exposures in the relevant IMG activity.

1.3.2.1 Transfer of Prospective Effectiveness Assessment


Use
You carry out the prospective effectiveness assessment for a hedging relationship as an effectiveness measurement with a market data scenario or in an external
system.

Note
You can use this function in Hedge Accounting for Exposures to transfer the result of this test.

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 31 of 43

If you double-click the Effective column in the report, the green icon changes to red and the corresponding hedging relationship is marked as ineffective in the
future.
When you save your data, the hedging relationship that was marked as ineffective in the future is either dedesignated or dissolved. This depends on the
Customizing settings you have made for the corresponding valuation area. However, nothing happens as a result of the transfer if the hedging relationship is
indicated as effective.
Activities
1. Choose Hedge Accounting for Exposures Closing Operations Accounting Prospective Effectiveness Assessment.
The Prospective Effectiveness Assessment screen appears.
1. Enter your selection criteria in the following entry fields:
2.
1. Company Code
2. Valuation Area
3. Hedge Plan ID
4. Hedge Item ID
5. Hedging Relationship Number
6. Financial Transaction
7. Product Type
8. Key Date
3. Choose Program Execute .

1.3.2.2 Reverse Transfer of Prospective Effectiveness


Assessment
Use
You can use this report to reverse prospective effectiveness assessments for the hedging relationships that match your selection criteria. It lists all the data
records for which prospective effectiveness assessments exist. To reverse a prospective effectiveness assessment, select the data record and choose
Reversal .
If the assessment was positive, the table of prospective effectiveness assessments contains a corresponding entry. When you reverse the assessment, the
system removes this table entry and refreshes the ALV display.
If the assessment was negative, the hedging relationship will have either been dissolved or dedesignated, depending on the Customizing settings. When you
reverse the assessment, the system sets the hedging relationship back to its former status, removes the entry from the prospective effectiveness assessment
table and refreshes the ALV display.

1.3.2.3 Retrospective Effectiveness Assessment


Use
The calculation categories provide basic methods for verifying and valuating the effectiveness of hedging relationships.
( )
Note that for each effectiveness test, the value that was calculated for the last valuation key date is subtracted from the value for the current key date. If valuation
has not previously taken place, the value calculated on the start date of the hedging relationship is deducted.

Features
You can carry out the following calculations:
001 = Cash Flow Differences: Spot Value
In the case of exchange rate risks, the cash flow(s) of the derivative and the hedged item (assigned exposure volumes) is (are) calculated separately at the spot
rate on the valuation key date. The respective cash flows of the derivative and the hedged item are then added. The due dates are not taken into account. In the
case of interest rate risks, the interest for all interest periods is derived from the reference interest rate effective on the valuation key date. The same interest rate is
used for all cash flows within a time period. It is irrelevant when the cash flows were generated. Example: In the case of a hedging instrument with three-month
coupons and reference interest rate LIB_USD_03, the interest rate effective on the valuation key date for LIB_USD_03 is used to calculate the interest of all future
coupons.
002 = Cash Flow Differences: Forward Rate
In the case of exchange rate risks, the cash flow(s) of the derivative and the hedged item (assigned exposure volumes) is (are) calculated separately at the
forward rate of the corresponding due date. The respective cash flows of the derivative and the hedged item are then added. In the case of interest rate risks, the
yield curve on the valuation key date is used to derive the effective forward interest for the respective interest period. The forward interest is used to calculate the
anticipated interest. The interest amount calculated is not discounted. Example (simplified): A three-month coupon that starts in three years. The yield curve shows
a three-year and four-year interest rate. You derive the interest rate that is effective in three years for three months from the start of term..
003 = Cash Flow Differences: Forward Rate Discounted
In the case of exchange rate risks, the respective cash flows of the derivate and the hedged item (assigned exposure volumes) are discounted using the effective
currency yield curve on the valuation key date. They are then translated into the local currency at the spot rate effective on the valuation key date. The respective
cash flows of the derivative and the hedged item are then added. For interest risk, the procedure described in calculation category 002 is used. The resulting
interest is then discounted for the respective dates (last valuation date / start date of the hedging relationship and current valuation key date) according to the yield
curve effective on the valuation key date.
004 = Cash Flow-Differences: Spot Rate (With Interest Accrual)
This calculation category corresponds to category 001 in which the accrued interest is subtracted. In other words, the accrued interest is determined automatically
when calculating cash flow differences.

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 32 of 43

005 = Cash Flow-Differences: Forward Rate (With Interest Accrual)


This calculation category corresponds to category 002 in which the accrued interest is subtracted. In other words, the accrued interest is determined automatically
when calculating cash flow differences.
006 = Cash Flow-Differences: Forward Rate Discounted (With Interest Accrual)
This calculation category corresponds to category 003 in which the accrued interest is subtracted. In other words, the accrued interest is determined automatically
when calculating cash flow differences.
011 = Options: Intrinsic Value Spot Rate
This calculation category is only valid for forex options. It corresponds to calculation category 001 (cash flow differences: spot rate). The intrinsic value of the option
is calculated at the spot rate on the valuation key date. If the intrinsic value is less than zero, it is set to zero. (There is no negative option value). The cash flows of
the hedged item are calculated at the spot rate on the valuation key date, in the same way as calculation category 001.
012 = Options: Intrinsic Value Forward Rate
This calculation category is only valid for forex options. It corresponds to calculation category 002 (cash flow differences: forward rate). The intrinsic value of the
option is calculated at the forward rate that is effective on the settlement date of the underlying forex transaction (or in the case of American-style options, at the
forward rate that is effective on the next possible exercise date after valuation). If the calculated intrinsic value is below zero, it is set to zero. The cash flows of the
hedged item are valued at the forward rate of their respective due dates, according to the procedure used for calculation category 002.
013 = Options: Minimum Value (Intrinsic Value Forward Rate Discounted)
This calculation category is only valid for forex options. It corresponds to calculation category 003 (cash flow differences: forward rate discounted). The intrinsic
value of the option is calculated by discounting the relevant cash flow based on the currency yield curve effective on the valuation key date. The discounted cash
flow is then translated into the local currency at the spot rate effective on the valuation key date. If the intrinsic value is below zero, it is set to zero. The exposure
cash flows are discounted using the currency yield curve effective on the key date. They are then translated using the spot rate effective on the key date,
according to the procedure presented in category 003.
021 = Hypothetical Derivative
This calculation category is only valid for interest rate swaps (including cross-currency interest rate swaps) and forex options for cash flow hedge items.
A derivative is created according to the hedged item (i.e. the exposure) and is assigned to the hedging relationship along with the hedging instrument. This
dummy, or hypothetical derivative, is then used instead of the hedged item to determine its value in hedge accounting. The hypothetical derivative must fulfill the
same critical requirements as the underlying exposures: same reference interest rate, same caps and floors, and zero market value at the start of the hedging
relationship.
The hypothetical derivative may or may not be valued at the clean price. This is shown by the Clean Price indicator in the calculation category definition.
031 = Correlation
This calculation category is only valid for interest rate swaps (including cross-currency interest rate swaps) and forex options for cash flow hedge items.
The correlation method retrieves historical correlation data (uploaded regularly to the system) and uses this data to determine the effectiveness of a hedging
relationship.
100 = Net Present Value
The net present value of a derivative is calculated according to the TR-MRM method. In the case of exchange rate risks, the cash flows of the exposure are
discounted using the currency yield curve effective on the valuation key date. They are then translated at the spot rate effective on the valuation key date and
added. For interest rate risks, the forward rates for the interest period are calculated according to the method presented in calculation category 002 (cash flow
differences forward rate). That means that the yield curve effective on the valuation key date is used to derive the forward interest effective for the individual interest
periods. This interest rate is used to calculate the anticipated interest. The calculated interest amounts are then discounted according to the yield curve effective on
the valuation key date.
150 = Clean Price (Net Present Value With Interest Accrual)
The clean price is the net present value minus the interest accrued for the current period up to the valuation key date. The procedure is the same as for the net
present value (category 100). However, in the case of the interest rate risk, the accrued interest is subtracted from the net present value calculated.
200 = Interest Rate Instrument: Benchmark
You can use this category to carry out calculations based on the benchmark reference interest rate, according to FAS 138. The reference interest rate effective on
the valuation key date is used either as the par rate or the risk-free rate, depending on the definition of the reference interest rate. The markup (spread) of the
underlying exposure on the reference interest rate effective on the valuation key date is calculated by deducting the reference interest rate from the effective
interest rate (see below) on the start date (see below). This markup is added to the reference interest rate effective on the valuation key date and the result
determines the discount factor for all future cash flows. (The same procedure is also used at the start of the period in which the reference interest rate effective at
that time is used and discounted at the start of the period.) The swap valuation for this calculation category is carried out in the same way as for category 003.
Several prerequisites must be fulfilled before using this category: - The hedged item must not have variable cash flows. - The Effective Interest Rate field must
be filled for the hedged item. - The hedging relationship must have reference interest rates either on the start date of the hedged item or on the start date of the
hedging relationship. (If the dates are different you can decide which one to choose. However, the reference interest rate at the start must never exceed the
effective interest rate).
201 = Interest Rate Instrument: Benchmark With Interest Accrual
This category corresponds to category 200 but also subtracts the accrued interest.

Activities
For more information, see:
Dissolve Ineffective Hedging Relationships
Reverse Dissolution of Ineffective Hedging Relationships

1.3.2.3.1 Dissolve Ineffective Hedging Relationships


Use
PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 33 of 43

With this report you can select hedging relationships that have proved ineffective over the most recent assessment period and dissolve them.

Activities
Choose Hedge Accounting for Exposures Hedge Accounting Period-End Activities Retrospective Effectiveness Assessment
The Retrospective Effectiveness Assessment screen appears.
Enter your selection criteria in the following entry fields:
Company Code
Hedge Plan ID
Hedge Item
Hedge Category
Transaction
Product Type
Valuation Key Date
Choose Program Execute

1.3.2.3.2 Reverse Dissolution of Ineffective Hedging


Relationships
Use
This function reverses the dissolution of ineffective hedging relationships carried out using the function Retrospective Effectiveness Assessment: Dissolve
Ineffective Hedging Relationships. It lists all the hedging relationships that correspond to your selection criteria. If you select a data record and choose Reverse ,
the system reverts to the version of the hedging relationship that existed before the dissolution.

1.3.2.4 Manual Equity Capital (EC) Reclassification


Use
This report allows the user to manually reclassify all or parts of the equity capital balances of the selected hedging relationship(s).

Activities
Choose Hedge Accounting for Exposures Closing Operations Accounting Manual EC Reclassification.
The Manual EC Reclassification entry screen appears.
Enter your selection criteria in the following entry fields:
Company code
Hedge plan ID
Hedge item ID
Transaction
Product type
Transaction category
Transaction activity
If you flag the Show Items With 0 EC Balance field, items with zero equity capital are included in the hedging relationships shown (no equity capital is available
for reclassification for these hedging relationships, though).
Choose Program Execute .

1.3.2.5 Reverse Manual Equity Capital Reclassification


Use
This function reverses equity capital reclassification postings generated using the Manual Equity Capital Reclassification function.

1.3.2.6 Automatic Equity Capital Reclassification


Use
You can use this report to automatically reclassify the equity capital balances of all or some of the selected hedging relationships.

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 34 of 43

You plan to purchase a raw material in a foreign currency. You want to hedge the foreign currency risk of this transaction with a derivative (forward exchange
transaction or currency option). To do this, in Hedge Accounting you must define a hedging relationship - a cash flow hedge - between the planned transaction
and the derivative. If the hedging relationship is effective, the profit or loss of the derivative is entered in the equity capital balance (according to IAS 39 95). The
raw material purchased is recognized as an asset in the balance sheet. Note:
Cash flow hedges are hedging instruments that are used to hedge cash flow fluctuations.
Effective hedging relationships balance the fluctuations at a fixed amount.
According to IAS 39.95, after the transaction and hedging relationship have been concluded, the following options are available for handling equity capital in
hedging relationships:
You can reclassify gains and losses entered in the equity capital account as expense or revenue. The reclassification occurs in the same period in which the
asset is included in the profit and loss statement.
You can follow gains and losses entered in the equity capital account when you calculate the acquisition costs of the asset item.

SAPprovides the first reclassification option (1.) to help you manage equity from hedge relationships.
Manual and Automatic Equity Capital Reclassification:
If the raw material is used in only one finished product, the asset item is posted to the profit and loss statement in the period in which the finished product is sold.
In this case, use Manual Equity Capital Reclassification
If the raw material is used in more than one finished product, the asset item may be transferred to the profit and loss statement over multiple periods. (Example:
The planned transaction is an exposure (purchase) with the hedging instrument "cash flow hedge"). You determine the period for the hedge item using the
parameters Start of Reclassification and End of Reclassification . Over this period, the automatic equity reclassification function transfers the equity from the
hedging relationship to the profit and loss statement on a linear basis.
Development of Automatic Equity Capital from Hedging Relationship

Activities
Enter the required data for the following:
General Selections
Hedge Accounting for Exposures
Hedging Instrument
Reclassification Parameters (Key Date)
Choose test run or update run.
The system creates a log of the automatic equity capital reclassification, and provides an overview of the linear distribution of the equity capital you want to
reclassify.

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 35 of 43

Manual reclassification is not taken into account during this period.


To reverse reclassification, execute the report program Reversal of Automatic Equity Capital Reclassification (transactionTHM59).

1.3.2.7 Reversal of Automatic Equity Capital Reclassification


This function reverses equity capital reclassification postings generated using the Automatic Equity Capital Reclassification function.

1.3.2.8 Fair Value Changes to Be Posted


Use
This function displays all the fair value changes that have been calculated for the selected hedge items in effective hedging relationships. You can use this
information to determine the necessary postings for the underlying exposures. You can also indicate whether the postings have already been executed. If this is
the case, you can assign an accounting document.

Activities
Choose Hedge Accounting for Exposures Period-End Activities Accounting Fair Value Changes To Be Posted.
The Fair Value Changes to Be Posted screen appears.
Enter your selection criteria in the following entry fields:
Company Code
Valuation Date
Hedge Plan ID
Hedge Item ID
Transaction Category
Transaction Activity
If you set the indicator Only Changes not Transferred , the system does not display hedging relationships for which this function has already been executed for
the same date, and which have been flagged as fair value changes posted to FI. If you do not select the indicator Only Changes not Transferred , the system
displays all the fair value hedging relationships.
Choose Program Execute
To assign an FI posting document, select the relevant hedging relationship and choose Assign Accounting Document.
Enter your selection criteria in the following entry fields:
Accounting document
Fiscal year
Choose Execute .

1.3.2.9 Reverse Fair Value Changes to be Posted


Use
You can use this function to reverse a fair value change that has already been posted.

Activities
In the general ledger, you must first reverse the FI document assigned to the hedging relationship by the function Fair Value Changes to be Posted . You record
this reversal in the hedge management application by entering the reversed G/L account document in the posting line of the hedging relationship.

1.4 Information Systems


The Information Systems section under Hedge Accounting for Exposures contains the following functions:
Effectiveness Test
Account Balances
Hedge Plan Overview
Hedging Relationships per Derivative
Prematurely Reclassified OCI
Hedge Accounting: Change Documents
Hedging Relationship Documentation
To use these functions, on theSAP Easy Access screen, choose
Exposures
Information Systems.
See also:

Treasury and Risk Management

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Transaction Manager

Hedge Accounting for

Page 36 of 43

Archiving Effectiveness Tests

1.4.1 Effectiveness Test


Use
This report program gives you the option of calculating the effectiveness of a hedging relationship at any point during the lifetime of the hedging relationship. Both
variants of the effectiveness test, namely the retrospective effectiveness assessment and the effectiveness measurement , are available.
If you request an effectiveness measurement for an evaluation date on which a key date valuation was already executed or gains and losses realized, the report
displays the saved effectiveness measurement.In all other cases, the report performs a simulation.
You can also use the report to run through various simulations. In this way prospective effectiveness tests can be carried out. To do this, use the Effectiveness
Measurement function and enter a market data scenario.
The retrospective effectiveness assessment report program calculates and displays an assessment result for one or more time periods (from a starting date to
an end date). The result shows the delta amounts and totals for both the financial transaction (derivative) and the hedged item (exposure). In addition, the report
program also lists the determined effectiveness ratio and the decision as to whether the hedging relationship is effective (yes/no).
The effectiveness measurement report program shows the effectiveness of a hedging relationship from the most recent valuation date, or if no previous
effectiveness test was carried out from the inception date of the hedging relationship. The effectiveness measurement represents the basis for value distribution
following a valuation, in accordance with hedge accounting principles.
In Customizing, you can define the calculation type of your choice for both the retrospective effectiveness assessment and the effectiveness measurement,
independent of the calculation types actually used to value the relevant hedging relationships.
A detailed log is available for both types of effectiveness test. It contains information on the calculation and the underlying figures. Once you have carried out an
effectiveness test, however, you cannot create a second detail log for the same day and for the same calculation type.
Effectiveness can be calculated with the dollar-offset method or based on the Regression Analysis .

Activities
Choose Hedge Accounting for Exposures Information System Effectiveness Test (transactionTHM80).
The Effectiveness Test screen appears.
Enter your selection criteria in the following entry fields:
Evaluation Date
Horizon of Evaluation (optional)
Calculation Type
Display Currency
Company Code
Valuation Area
Hedging Instrument
Hedge Item ID
Effectiveness Measurement
Retrospective Effectiveness Assessment
Start Date
Time Schedule
Choose Program Execute

1.4.1.1 Noise Threshold Value and Transition Speed


Simple Offset Method
To check the effectiveness of a hedging relationship, you can use the simple offset method. As part of this method, the value changes in the hedging transactions
and the underlying transactions of a hedging relationship are compared. The ratio of the two amounts is referred to as the hedge ratio (HR).
The disadvantage of this method is the resulting strong fluctuations for small value changes in the underlying and hedging transaction. This can lead to effective
hedging relationships being classified incorrectly as ineffective relationships.

Enhanced Offset Method and Noise Threshold Value


To limit the impact of small changes in value on the effectiveness test, you can use the enhanced offset method.This method involves entering a noise threshold
value that you use to determine a limit that value fluctuations can reach without affecting the effectiveness valuation.

Note
To determine a noise threshold value, in Customizing for the Transaction Manager, choose
General Settings
Hedge Accounting for Exposures
Effectiveness Test Define Calculation Types. Double-click on the relevant calculation type and specify a percentage rate under Threshold Value .
The system determines the absolute threshold value from the percentage rate and the nominal amount of the underlying transaction. This is either added or
subtracted without changing the plus/minus signs in the numerators and denominators.
If you do not specify a noise threshold value, the system uses the simple offset method set as the default.

Transition Speed

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 37 of 43

In addition to using a noise threshold value, you can also specify a transition speed.This determines the transition of a hedging relationship from being effective to
ineffective. The transition speed influences the transition area between the area where the noise threshold value dominates and the area where it is not influential
and therefore ineffective. The greater the transition speed, the smaller the transition area.
Depiction of the Noise Threshold Value and Transition Speed

1.4.1.2 Regression Analysis


Use
Regression analysis enables you to determine the relationship between a hedged item and the hedging instrument. Regression analysis enables you to test for
retrospective and prospective effectiveness with regard to exposures, hedged items, and hedging instruments. You can calculate the following parameters to
check the effectiveness:
Gradient of the regression lines
Intercept of the regression lines
Coefficient of determination R
t-test
F-test

Integration
The regression analysis is available in the Hedge Accounting for Exposures .

Prerequisites
You need to make the following settings in Customizing for Financial Supply Chain Management under
Manager General Settings
Hedge Accounting for Exposures
Effectiveness Test.

Treasury and Risk Management

Transaction

Define Calculation Types


Create a calculation type for linear regression.
When you define calculation types, select the effectiveness category ( EffTestCat ) 02 Regression Analysis . You also need to specify the Significance
Level .
Define Assessment Types
You set an upper and lower limit for the effectiveness ratio and define a range in which the hedging relationship is effective. The assessment types defined
can be used at a later stage when you define the hedge strategy.
Under Linear Regression , make your regression analysis settings:
Coefficient Determination
Gradient from
Intercept from
T-Stat. of Gradient
Eff. Control
1: Only R-squared taken into account
2: R-squared and gradient taken into account

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 38 of 43

3: R-squared, gradient, and intercept taken into account


4: R-squared, gradient, intercept, and t-test taken into account
Define Hedge Strategies
The hedge strategy comprises several parameters that determine how the effectiveness test is carried out. Apart from the assessment types, these
parameters also include calculation types for the retrospective effectiveness assessment and the effectiveness measurement.
Create a hedge strategy and assign your required calculation types and assessment types.
Effectiveness assessment type
Effectiveness assessment calculation type
Valuation calculation type
Cash flow position
Retrospective effectiveness assessment
Prospective calculation type
You need to make the following settings to determine the data points for the regression analysis:
Enter the number of data points.
Type of time interval
You can use this function to define the data points for the relevant interval.For types "2" and "3," the time is split on the basis of the factory
calendar.To maintain the calendar, choose
SAP Reference IMG
SAP NetWeaver General Settings
Maintain Calendar
(transaction
SCAL).
1 (Split without taking calendar into account)
2 ( Split and adjust based on calendar)
3 ( Split based on working days)
Calendar
Specify the calendar that you want to use.
Type of Public Holiday Shift
Use the Type of Public Holiday Shift to specify how a data point should be moved if the date is not a working day according to the factory calendar
you are using.
Shift forward to next working day
Shift backwards to previous working day
( ) Regression analysis provides better results with at least 30 data points, which is why you are recommended to have this number of
points for analysis.

Features
The following formula is used for the regression lines :

where:
( ) = explained variable
( ) = intercept
( ) = gradient of the regression lines
( ) = explanatory variable
R is calculated as the coefficient of determination and corresponds to the square of the correlation coefficient R in simple regression tests. It is calculated from the
covariance and independent variance.
( )
R is in the interval [0,1].
( ) = mean of exposure values
( ) = mean of hedging instrument values
The t-test is a hypothesis test. In the regression analysis, it tests the distribution of regression coefficients.
The F-Test is a statistical test that is used to determine whether two sample variants are significantly different. It tests whether the coefficient of determination is
zero.
To calculate the values of the slope coefficient and the intercept coefficient for the given data points:
Using the values and X values, you can compute the values of Y.
Calculation of a djusted
( )=

( ) or

( ):

( )

where n is the sample size


Analysis of variance (ANOVA) is the statistical test to analyze the total variability of the data set. The following are required inorder to fill the ANOVA table:
Total sum of squares (SST):
SST measures the total variation in dependent variable. SST is equal to the sum of squared difference between the actual Y values and the mean of Y.
SST =

( )

Regression sum of squares (SSR):


SSR measures the variation in dependent variables. It is the sum of the squared distance between the predicted Y values and the mean of Y.
SSR =

( )

Sum of squared errors (SSE):


SSE measures the unexplained variation in dependent variable. SSE is the sum of squared distance between the actual Y values and the predicted Y values on

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 39 of 43

the regression line.


SSE =

( )

ANOVA table:
Source of variation

Degree of freedom

Sum of squares

Mean sum of squares

Regression (explained)

K =1

SSR

MSR =

( )

Error (unexplained)

n-2

SSE

MSE =

( )

Total

n-1

SST

N umber of degrees of freedom means the total number of observations in the sample ( = n ) less the number of independent (linear) constraints or restrictions
put on them.
The general rule is: df = ( n number of parameters estimated).

1.4.2 Account Balances


Use
This report provides the OCI and P&L balance for derivatives and their hedging relationships as of the selected date.

Activities
Choose Hedge Accounting for Exposures Information System Account Balances.
The OCI per Hedging Relationship entry screen appears.
Enter your selection criteria in the following entry fields:
Company code
Transaction
Product type
Key date
Choose Program Execute .

1.4.3 Hedge Plan Overview


Use
This report provides an overview of all the hedge plans in whatever risk category you choose. The components of the individual hedge plans are shown in a tree
structure. For each plan, all corresponding objects for Hedge Accounting for Exposures are listed: hedged items, exposures, transactions, and the assigned
derivative contracts. At the individual levels, detailed information is shown for each object.

1.4.4 Hedging Relationships per Derivative


Use
This report shows the derivatives and the exposures they are hedging. It is thus possible to report on the derivatives that are hedging/are not hedging exposures,
and where hedge capacities remain.

Activities
Choose Hedge Accounting for Exposures Information System Hedging Relationships per Derivative .
The Hedging Relationships per Derivative screen appears.
Enter your selection criteria in the following entry fields:
1.
2.
3.
4.

Company code
Product type
Financial transaction
Key date
If you flag the field display derivative w/o hedge, derivatives that are not designated to any hedging relationship are also displayed.
Choose Program Execute.

1.4.5 Prematurely Reclassified OCI

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 40 of 43

Use
This report shows all OCI balances that have been reclassified prematurely, that is, before the underlying exposure affected earnings, or was scheduled to affect
earnings. It thus provides the exception reporting required.

Activities
Choose Hedge Accounting for Exposures Information System Prematurely Reclassified OCI .
The Exception Report: OCI Reclassification Prior to Due Date entry screen appears.
Enter your selection criteria in the following entry fields:
Company code
Reclassification date
Hedge plan ID
Hedge item ID
Transaction
Product type
Hedge category
Transaction category
Transaction activity
Choose Program Execute .

1.4.6 E-Hedge Accounting: Change Documents


Features
Change documents are written to document changes on the database. They are available for the following:
Hedged items
Hedging relationships
Hedge plan
FX exposure transactions
Interest rate exposure transactions
Activities
Every new entry and data change in Hedge Accounting for Exposures is logged. You can display the changes using the Change Documents for E-Hedge
Accounting function. The selection can be restricted to specific hedge plans, hedging items, versions of hedging relationships, and exposures.
( ) No change documents are written for the exposures.
The time period and the name of the last person who changed the selection can also be specified.

1.4.7 Hedging Relationship Documentation


Use
You can use this function to print out documentation for hedging relationships.

Prerequisites
To create the documentation, you need to assign PDF forms in Customizing for the Transaction Manager by choosing
General Settings
Hedge Accounting
for Exposures
Documentation Assign Forms to Hedging Relationships. These settings are based on the company code, valuation area, product
category, and product type (of the hedging instrument), risk category , hedging category, and hedge strategy.
The PDF forms are generated using the SAP Interactive Forms by Adobe .
Form TR_F_THA_HR is delivered in the standard system along with the following text modules:
TR_SF_THA_EFFECTIVENESS
to explain how the effectiveness of the hedging relationship in clearing changes in the market value or cash flow is evaluated with regard to the hedged risk.
TR_SF_THA_RISK_CATEGORY
to explain the risk category to be hedged.
TR_SF_THA_RISK_MANAGEMENT
to explain the aims of risk management.
TR_SF_THA_STRATEGY
to explain the hedge strategy.
The text modules are created and maintained using the SMARTFORMS function.

Activities
1. Choose
Transaction Manager Hedge Accounting for Exposures
Information System Hedging Relationship Documentation,or in theHedge
Planfunction, chooseE-Hedge Accounting Print Documentation.
2. Use the General Selections company code and valuation area as well as the Hedge Details to select the documentation to be printed.

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 41 of 43

2. Use the General Selections company code and valuation area as well as the Hedge Details to select the documentation to be printed.
3. Choose Execute .

1.5 BAPIs in Hedge Accounting for Exposures


In Hedge Accounting for Exposures , you can use the the BAPIs listed below.
For more information, see BAPIs for the Transaction Manager.

Features
BAPIs in Hedge Management
Business Object
BUS5104 FTRHedgeMgmtData (Data for Hedge
Management)

BUS5105 THAHedgePlan (Hedge Plan)

Key Fields

Methods

Company Code
Financial Transaction

Creating Data for Hedge Management in a Financial


Transaction
BAPI_FTR_HM_CREATE

Company Code
Hedge Plan

Creation of a Hedge Plan


BAPI_THA_HEDGE_PLAN_CREATE
Making Changes to a Hedge Plan
BAPI_THA_HEDGE_PLAN_CHANGE
Displaying a Hedge Plan
BAPI_THA_HEDGE_PLAN_GETDETAIL
Deleting a Hedge Plan
BAPI_THA_HEDGE_PLAN_DELETE

BUS5106 THATransFX (Foreign Exchange Transaction)

Company Code
Hedge Plan
Transaction ID

Creating an FX Transaction
BAPI_THA_TRANS_FX_CREATE
Making Changes to an FX Transaction
BAPI_THA_ TRANS_FX _CHANGE
Displaying an FX Transaction
BAPI_THA_ TRANS_FX _GETDETAIL
Deleting an FX Transaction
BAPI_THA_ TRANS_FX _DELETE

BUS5107 THATransIR (Interest Rate Instrument)

Company Code
Hedge Plan
Transaction ID

Creating an IR Transaction
BAPI_THA_TRANS_ IR _CREATE
Making Changes to an IR Transaction
BAPI_THA_ TRANS_ IR _CHANGE
Displaying an IR Transaction
BAPI_THA_ TRANS_ IR _GETDETAIL
Deleting an IR Transaction
BAPI_THA_ TRANS_ IR _DELETE

BUS5108 THATransCO (Transaction Relating to a


Commodity)

Company Code
Hedge Plan
Transaction ID

Creating a CO Transaction
BAPI_THA_TRANS_ CO _CREATE
Making Changes to a CO Transaction
BAPI_THA_ TRANS_ CO _CHANGE
Displaying a CO Transaction
BAPI_THA_ TRANS_ CO _GETDETAIL
Deleting a CO Transaction
BAPI_THA_ TRANS_ CO _DELETE

BAPIs in Exposure Management 1.0


Business Object
BUS5115 TEMExposure (Exposure)

Key Fields

Methods

External Exposure ID

Creating an Exposure

Origin of an Exposure
Source System

BAPI_TEM_EXPOS_CREATE
Making Changes to an Exposure
BAPI_ TEM_EXPOS _CHANGE
Displaying an Exposure
BAPI_ TEM_EXPOS _GETDETAIL
Deleting an Exposure
BAPI_ TEM_EXPOS _DELETE
List of Exposures
BAPI_ TEM_EXPOS _GETLIST

Note
With the BAPIs, you can create hedge plans and exposures without user interaction.
BAPIs in Exposure Management 2.0
Business Object
BUS5990 TEXExposure

Key Fields
External Document Reference
Exposure Origin

Methods
Create Raw Exposure
BAPI_TEX_EXPOSURE_CREATE
Change Raw Exposure

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 42 of 43

Logical System

Change Raw Exposure


BAPI_TEX_EXPOSURE_CHANGE
Delete Raw Exposure
BAPI_TEX_EXPOSURE_DELETE
Get Raw Exposure Details
BAPI_TEX_EXPOSURE_GETDETAIL
Start Release Workflow for Raw Exposures
BAPI_TEX_EXPOSURE_STARTRELEASE

PUBLIC
2014 SAP SE or an SAP affiliate company. All rights reserved.

Page 43 of 43