SAP Treasury and Risk Management

An Introduction

September 2011

Treasury Applications from SAP Financial Excellence

Treasury applications from SAP SAP Treasury and Risk Management
Risk Analyzers

Manage Global Financial Risks Optimize Debt and Investment Strategies

Credit Risk Analyzer

Market Risk Analyzer

Portfolio Analyzer

Exposure Management
Money Market Foreign Exchange Derivatives

Hedge Management
Debt Mgmt Securities Commodities

Transaction Manager

Manage Cash and Liquidity

SAP Cash and Liquidity Management

Cash Management Liquidity Planning

SAP In-House Cash Optimize Payments and Bank Communication

SAP AG 2009. All rights reserved. / Page 2

SAP Bank Communication Management

The SAP Treasury Solution Suite

Cash Management

2
3

Liquidity Forecast

Internal Banking

Bank Communication Management

5 6

Treasury Management

Risk Analyzers

Managing Treasury and Risk Management at a glance

Risk Analyzers
Credit Risk Analyzer
Utilization: Formulas, Credit risk, Settlement risk Limit management: Limits freely definable, Multidimensional limits

Reporting
Portfolio Analyzer
Yield calculations: Money weighted, Time weighted, Modified Dietz method Benchmarking: Performance Indicators xxxxxxxxxxxxxxxxxxxxxxxx Ad-hoc reporting: Point & click, Unified databases, Position, P&L, Period, Cash Flow

Market Risk Analyzer

Price calculator: NPV, Prices, Sensitivities Value at risk: Variance/covariance, Historic, Monte Carlo Simulation Simulate rates: What-if scenario, Relative, Absolute

Exposure Management
Centralized Database to gather group and version data and transfer to Hedge Management

Hedge Management
Administration of hedge plans, exposures, hedge items and hedging relationships

Reporting tools: SAP Query, ABAP List, Other 3rd-party providers, BI, Business Objects Dashboards and Xcelsius Results database: Portfolio Hierarchy, Drill-down, Historic results

Transaction Manager
Front office: Position and deal reporting, Deal capture, Exercise, Dealer slip, Valuation tools,
Online limit check

Back office: Standing instructions, Correspondence Monitor, Netting, Settlement, Rate fixing
(interest, FX), References, Corporate actions, Process monitors

Management reports: Positions, Performance, Ratios, Compliance

Accounting: Flexible accounting determination, Accounting according to many international

accounting standards
Money Market

Foreign Exchange

Derivatives

Debt Mgmt

Securities

Commodities

Middle office: Risk exposure, Controlling, Compliance Data export: Excel, Flat files, BI

Fixed term deposits Commercial Paper Repo

Spot Forward Swaps Options Futures

Cap Floor FRA Swaps Options Futures

Bonds Bank loans Commercial Paper Facilities

Bonds Warrants Stocks Certificates Repo Sec. lending

Futures Forwards Traded Options Swaps OTC-Options

Transaction and Position Management Process

Front Office

Mid Office

Back Office

Accounting

Reporting

Exposure analysis Decision support Comfortable deal entry Standing instructions On-line limit check Position reporting

Instrument pricing Risk analysis Sensitivity analysis

Flexible process definition Settlement Correspondence Interest rate adjustments Payments Alert monitor

Posting of Treasury flows to the G/L Valuation according to several GAAPs in parallel areas Support for IAS 39 / US-GAAP and Hedge Accounting

Standard reporting Ad-hock reporting Controlling Limit reporting Management reporting

Selection of Product Types

Money Market

Foreign Exchange

Debt Management

Interest & Equity Derivatives

Securities (Investments)

Commodities
Futures Forwards Traded Options Swaps OTC-Options

Fixed-term deposits (e.g., overnight deposits at notice) Commercial paper Repo Floating rate Any cash flows

Spot Forward Swap Vanilla options Barrier options (single and double) Compound options Average rate options Basked options Exchange-traded options

Issued bonds Fixed/ floating/ zero interest, Bullet repayment/ with repayment/ ABS structures Fixed rate loans Floating rate loans Annuity loans Commercial Paper Facilities (bilateral or syndicated)

Cap Floor FRA Swaps Payer/Receiver, Fixed/Basis, Exotics (e.g., roller coaster) OTC options Security, Swaption, IRG Futures Exchange traded options Total Return Swap

Bonds ABS /MBS /CMO Index-linked bonds Dual currency bonds Drawable bonds Warrant Bonds Stocks Shareholdings Subscription rights Investment certificates Repo/ Reverse Repo Security lending

Transaction Manager Market Risk Analyzer

Credit Risk Analyzer Portfolio Analyzer Reporting
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Managing Commodities and Financial Instruments Risk

All kinds of commodity types and hedging instruments can be managed in SAP

Commodities (examples)

Crude Oil, gas, coal Metals including noble metals Corn, maize, soybean Coffee, cacao, cotton, sugar Orange juice, lemon juice Cattle (cows, pigs) Certificates on emission

Hedging Instruments

Futures and Traded Options Forwards Swaps (planning status) OTC Options (planning status)

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Exposure Management Example for Commodities

Commodity front office system - if needed

Treasury and Risk Management SAP ERP Operations SD, MM or GTM

Exposure Management

Hedge Management

Excel Spreadsheets Market Risk Analyzer Transaction Manager

Other sources of Exposures

SAP ERP Financials

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Transaction Processing - Trading: Convenient Transaction Entry

Automatic calculation of derived flows Automatic determination of payment instructions Automatic cash flow projection

Integrated online limit check

Drill-down to class details and business partner details

Class information retrieved automatically

Pre-defined business calendars and automatic date checks

Display of corresponding market rates and according warnings

Configurable entry screen and customizable default values per field

Automatic transfer to Back Office Integrated effective interest rate calculator

Page 9

Transaction Processing Back Office Processing: Settlement

Settlement is an optional transaction processing step The transaction is reviewed by a back office processor to satisfy the four-eyes
principle (segregation of duties)

Optionally, information not entered by the trader can be supplemented by the back
office processor

Only after the reviewer changes the status of a transaction to settled, it is cleared
for posting and payments.

Page 10

Transaction Manager Efficiency with Correspondence Monitor (new with EhP4)

Real Straight Through Processing from deal capturing via new integrated Correspondence Monitor to parallel accounting with a highly sophisticated authorization concept behind.
Deal capturing Create / send correspondence Receive incoming correspondence Automatic matching Error handling / manual matching

Release process use customer defined channels, mediums and formats Fax, email, print and swift file transfers are preconfigured Predefined format (incoming and outgoing) for MT300, MT320 and free text MT399

Tracking of incoming correspondence use customer defined channels, mediums and formats Fax, email, print and swift file transfers are preconfigured Predefined format (incoming and outgoing) for MT300, MT320 free text MT399

Customizable matching proposal Automatic matching when message is coming in or going out possible Update status of the deal or trigger a automatic settlement of the deal

Correspondence monitor e.g. Navigate in all directions Improved status tracking for the messages Show all correspondence objects assigned to one deal Show matches Manual assignment of correspondence to deals Receive ACK and NACK messages

Transaction Manager Incoming and Outgoing Messages Using SWIFT Integration Package
Data from file adapter uploaded to TRM

SWIFT Integration Package put data on file adapter

Open SWIFT file envelope

Get file from SWIFT alliance gateway

Automatic matching process is triggered automatically whenever a file appears

PI saves file on file adapter

Integration package for SWIFT

Integration package for SWIFT

Create message and send

SWIFT Integration Package picks up data

Create SWIFT file envelope

Send file to SWIFT alliance gateway

Creation of MT message automatically or manually in the correspondence monitor Save message on file server

PI picks up the data from the file server in predefined time intervals

Integration package for SWIFT

Integration package for SWIFT

Transaction Manager Straight-Through Processing for External Deals

Alternative deal capturing by connection to Market Places
Automation

of download of FX transactions made on market places such as 360T, FXall or Currenex Available for FX spot, FX forward and FX options Possible to enter all data for the FX transaction with one interface

Bank A

SAP Treasury and Risk Management

Market Place

Bank B

Bank C

Accounting Straight-Through Processing

Straight-through processing of financial deals is achieved in combination with a highly flexible accounting engine.
Real-Time update of your accounting position
Automatic

posting incl. flexible account determination

Hedge Accounting (e.g. FAS133/138, IFRS 39)

Support of several accounting standards in parallel

Simple Example Purchase of 100 shares at USD 90 per share = USD 9,000
9000 Stock price on valuation key date: USD 98 (market value)
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write-up

no write-up

9800

9000

9000

IAS / US GAAP

German GAAP (HGB)

Transaction Manager Fully integrated

Automatic posting

Valuation (parallel)

Automatic creation of correspondence

Automatic accrual/ deferral

SAP AG 2009. All rights

The SAP Treasury Solution Suite

Cash Management

2
3

Liquidity Forecast

Internal Banking

Bank Communication Management

5 6

Treasury Management

Risk Analyzers

SAP Modules in Treasury Analyzers

Market Risk Analyzer Portfolio Analyzer Credit Risk Analyzer
Analyzers

Market Data
FX Rates Yield Curves Indices Volatilities

Transaction Manager
Money Market Securities Derivatives Forex Commodities

REPORTING: Externally maintained transactions

Businesspartner

Cash Managem.
Integration

General Ledger

SAP Market Risk Analyzer Process

SAP

EDT
CM CML TM

Datapool
NON SAP External

Market data Results

NPV, VaR, Exposure, Keyfigures

Analysis/Reporting/Planning

Online data feed Simulated Shifts Scenarios

Pricing Engine NPV VaR Sensitivity

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SAP MRA: Net Present Value Concept

Transaction data

Calculation
Mark-to-market Sensitivities Duration Convexity Exposure Crash/stress tests

Evaluations
Company Portfolio Profit center Product

LEVEL 2 Trading: Interest products

Linear Debts Assets ....

Non-linear Options Caps ....

LEVEL 1 Trading: Bonds

LEVEL 1 Trading: Swaps

Base portfolio Bonds/Frankfurt

Base portfolio Bonds/New York

Market data
10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0

Yield curve 5 (+)

Current. yield curve

Yield curve 6 (long-term)

Risk management

NPV
1M 2Y 4Y 6Y 8Y 10 Y

Saved market prices Real-time market prices Flexible scenarios Rule shifts

Risk

Price calculator
(user exit)

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SAP MRA: Value at Risk

Transaction data

Calculation
Historical simulation Monte Carlo

Evaluations

Bal. sheet Debts Assets ....

Non-linear Options Caps ....

Full valuation Delta method Delta/gamma method

Variance/covariance Backtesting
No.
1 2 3 4 5 6 7 8 9 10 11 12 13

Company Portfolio Profit center Product

LEVEL 2 Trading: Interest products

LEVEL 1 Trading: Bonds

LEVEL 1 Trading: Swaps

Base portfolio Bonds/Frankfurt

Base portfolio Bonds/New York

Historical market parameters

Date
Feb 81 May 81 Mar 80 Feb 90 Feb 80 Feb 74 Jun 82 May 83 Oct 72 Feb 94 May 79 Oct 79 Feb 85

NPV
483.9 524.8 530.6 538.9 543.8 546.8 557.5 559.8 560.5 562.6 564.2 565.5 569.1

Risk
-134.3 -93.3 -87.5 -79.2 -74.3 -71.3 -60.6 -58.3 -57.7 -55.5 -53.9 -52.6 -49.0

Confidence Interval
99.0%

Risk management

97,5%

50 45 40 35

95.0%

30 25 20 15 10 5 0 < 500 <-75 <-45 <-35 <-25 < -95 < -85 < -65 < -55 <-15 < 15 < 25 < 35 < 45 < 55 < 65 < 75 < 85 <-5 <5

Market interest rates Exchange rates Stock prices Volatilities Correlations

Price calculator
(user exit)

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Credit Risk Management Process

T r a n s a c t i o n
M a n a g e
Request

End-of-Day Processing

Limit check

Attributable amount

O.K.
Limit

Deal

Reporting
Exposure Limit Partner 8.5 10.5 Euro Bank 632.3 700.7 United Bank 688.1 716.7 Carlton 12.3 4.8 Brightline Free Limit 2.0 68.4 28.6 -7.5 Util. in % 80.9% 90.3% 96.0% 256.3%

m
e n

Start of workflow, when limit is Breached

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SAP CRA: Relative Limits

Choose Utilization Portfolio

Utilization Key Figure

Choose Reference Portfolio

Reference Key Figure

Define Limits Percentage

Define Limits Absolute

Can choose the Utilization Portfolio and the Reference Portfolio. They can be same or different.

Can compare same key figures from different portfolios or Different key figures from the same portfolio

Limits can be defined as Percentage, Absolute Or Both Percentage and Absolute

SAP AG 2009. All rights reserved. / Page 22

Portfolio Analyzer

Investment strategy
Determination of benchmark Improvement and alignment

Building organizational structures Asset allocation Business transactions

SAP Treasury and Risk Management

Reporting and revision Risk adjustment

Performance measurement
Benchmarking

Portfolio Analyzer
SAP AG 2009. All rights reserved. / Page 23

SAP PA: Performance Analytics Benchmarking Reporting

SAP AG 2009. All rights reserved. / Page 24

SAP Treasury and Risk Management

THANK YOU

September 2011