Conditions

Definition
Condition

A condition is a contractually agreed element of a financial transaction or financial instrument. It

describes the periodical and amount structure of the transaction / instrument (interest,
repayment, etc.).

Condition type

Conditions are defined via condition types. You assign flow types to condition types in
Customizing under Define condition types. These flow types display changes to the payment
flows and are part of the cash flow. You assign the flow categories and calculation categories
which are predefined in the system to the flow types you define in Customizing. The flow
category controls how the flow is processed in accounting, and the calculation category controls
how the flow is processed in the cash flow.

SAP delivers flow types for the most common business transactions, which you
do not need to change.

In Customizing via Assign condition types to transaction type, you define which condition types
are required for the different financial transactions.

Use
The conditions include all relevant data for creating flows in the cash flow. The different entries
for the individual condition types determine exactly how the flows are calculated.

Conditions in Money Market, Foreign Exchange and Derivatives are so-called individual
conditions. This means that a condition cannot exist independently of a class.

Structure
Entering conditions in Money Market

Conditions in Money Market are entered when entering transactions.

The Basic data screen is split up into three entry areas:

1. Investment

Enter the transaction amount.

2. Term

You enter the dates for the start and the end of the term here.
3. Interest structure:

You enter the basic data for interest payment here.

a) Enter the Percentage rate and the Interest calculation method.

In Customizing via Define product types, you can define the default values for
the interest calculation method.

b) The ‘Frequency’ field is preassigned the update rule ‘End of interest period
corresponds to end of term’.

However, you can choose another frequency. If you choose Monthly frequency
or Daily frequency, you must fill the All...days/months field.

If you do not require periodical update of the interest period end and the due
date, you can choose another update rule in Conditions Details: Interest.

c) If you set the Capitalize interest flag, the interest until the end of the interest period
for the amount is increased and included in the subsequent period for fixed-term
deposits and deposits at notice.

d) In the Transaction day due date and Transaction day calculation fields, you specify
whether the due date and the calculation date should be put back if they do not fall on a
working day. Provided that you do not make another entry in Conditions detail, the
calendar of the country in whose currency the transaction was concluded is used.

e) In the Rollover field, you specify what happens with interest in the case of a rollover.
You can choose between the following methods:

i) Payment, i.e.the interest due up to the rollover is paid.

ii) Capitalization, i.e. the interest due up to the rollover on the investment
amount is increased and charged.

iii) Deferral, i.e. the payment of the interest due is put back until the end of the
rollover period.

This entry is, however, not binding, i.e. you can choose another procedure
when rolling over.

f) Establish the start and end of the calculation period. You can choose between the
following two variants:

i) Start inclusive ( = start inclusive and end exclusive )

ii) End inclusive ( = start exclusive and end inclusive )

These entries relate to the whole term of the transaction and cannot be
overidden by the Inclusive field in Detail View: Interest.
 g) Specify which rounding rule is to be used when calculating interest.

Entries made here are transferred to Conditions detail: Interest. If necessary,

you can change/complete the entries there.

Conditions entry for derivatives

Conditions entry for derivatives takes place in transaction entry. The entry screen offers the
corresponding entry possibilities for the condition types belonging to a transaction depending on
the transaction.

Refer to the following units for transaction entry:

Entry of Options

Entry of Interest Rate Instruments

Conditions overview:

You branch to the conditions overview using the Conditions button at the top of the screen.

In this list, you will find the conditions entered by yourself from transaction entry as well as the
automatically generated condition flows for the financial transaction. When creating a fixed-term
deposit, for example, the entries for nominal interest as well as the automatically generated
repayment flow from the due date are displayed.

You can take the following data for the condition positions from the list:

 Condition category
 Effective from date
 Condition type
 Description

Condition details screens

There are condition details screens for the condition types, nominal interest, interest rate
adjustment and option premium where you can refine the entries for the condition positions.

 Conditions Detail: Interest

From the conditions overview, you can branch to the details screen for the interest
position via double-click on an interest position or via Edit  Condition. Via double-click
in the Interest structure area, you can access Conditions detail: Interest from the Basic
data of the transaction.

You find the entries from the Basic Data screen here again and you can refine the
interest entries.

See also: Conditions Details: Interest

Notes for Processing

 If different conditions are valid during the term of a transaction, you can add further
conditions by choosing Edit  Copy condition. Here, you firstly have to enter the start of
the new validity. The original condition is copied to a second conditions detail screen.
You then enter the new conditions by overwriting the default values.

By choosing the Previous condition or Next condition functions (arrows on the
standard toolbar), you can switch between the individual detail screens.

 Conditions Detail: Interest rate adjustment

Interest rate adjustment is a condition type used to represent variable interest rates.
You define here which frequency is used to determine the variable interest and on what
day the value of the reference interest rate is to be established for the determination of
the new variable interest rate.

The interest rate adjustment method PANF ( = at start of period ) is set as a default. If
you do not wish to use this method, then change to the other interest rate adjustment
method via Goto  Interest Rate Adjustment  Other Interest Rate Adjustment and
specify the required method in the details screen for interest rate adjustment.

See also: Condition Details: Interest Rate Adjustment

 Conditions Detail: Premium

From the conditions overview, you can branch to the details screen for the option
premium via double-click on the premium or via Edit  Choose condition.

Via double-click in the option premium area, you access Conditions detail: Premium
from the basic data of the transaction.

See also: Condition Details: Option Premium

 Condition Details: Interest
Use
On the details screen, you can make more detailed entries for the interest calculation that you
already entered on the basic screen.

Procedure
1. By choosing the conditions pushbutton or by choosing Goto  Conditions, the
conditions overview appears.
2. The Conditions Detail: Interest screen appears when you double-click the interest item
on the conditions overview screen or when you choose the Detail View: Interest
Condition pushbutton.
3. The details screen comprises the following areas:

a. Structure

The reference interest rate, the interest rate or interest amount, and the interest
calculation methods are all specified here. The system provides many methods for you
to choose from. You can find a more detailed description of the methods in the F1-Help
for this field.

In the case of fixed-term deposits and deposits at notice, you can choose to have the
interest calculated exponentially.

b. Update

Here, you select the method according to which you want the interest period and the
due date to be updated.

The update rules that are provided by the F4 help for selection depend on whether you
selected the standard or the special rule for updating the interest.

In the Money Market area, the system defaults to the Regular method (at end of term).
This means that the first interest period ends at the end of the term. With Derivatives,
the system usually defaults to the Unadjusted rule.

Standard

Regular update:

Both the interest period end and the due date are updated regularly. The update takes
place according to the frequency entered. Both of these dates are independent of each
other, since each of them is determined separately, and one date is not affected by a
shift in the other date.

If one or both dates shift(s) to a working day according to the calendar entered, the
dates before the shift provide the basis for calculating the following dates. In other
words, the following interest period is shortened accordingly.

Term of an interest rate swap: 11/22/2000 to 12/22/2001

 Frequency of the interest payment: Monthly

The interest period end is calculated initially as Friday 12/22/2000 on the basis of the
frequency. This date can be shifted to a working day, provided that a working day check
has been set up for the end of the interest period. In this example, the calendar
specified does not require a shift.

When you use this update method, it does not matter what is in the "Due date +/-" field.

The end of the interest period of the second interest period is one month after the end
of the interest period of the first period before this was shifted. As a result, it first falls on
the 01/22/2001, is then checked by the working day check, and shifted to the next
working day, if required.

Adjusted and unadjusted update methods

(New in Release 4.6)

The due date is updated regularly.

The end of the interest period is calculated in relation to the due date, either

 before (unadjusted) or
 after (adjusted)

the due date is shifted by the working day check.

The interest period end is based on the due date and the number of days entered in the
"Days +/-" field. If the dates are shifted to a working day, the dates before the shift
provide the basis for calculating the following dates. In other words, the interest period
that follows is shortened accordingly.

Term of an interest rate swap: 11/24/2000 - 12/24/2001

Frequency of the interest payment: Monthly

On the basis of the frequency, the due date is initially calculated as Sunday 12/24/2000.
As a result of the working day check, this date is then shifted to the next working day,
which is Wednesday 12/27/2000.

In the next step the interest period end is determined:

Using the "unadjusted" update method, the interest period end (according to the
number of shift days entered in the "Days +/-" field) is one day before the due date
before being shifted, in other words, one day before 12/24/2000. Therefore the end of
the interest period is 12/23/2000.

Using the "adjusted" update method, the interest period end (according to the number
of shift days entered in the "Days +/-" field) is one day before the due date after the due
date has been shifted, in other words, one day before 12/27/2000. Therefore the end of
the interest period is 12/26/2000.

Special
Adjusted (interest rate period) and unadjusted (interest rate period)
update:
(Up to Release 4.5: "adjusted" and "unadjusted")

The interest period end is updated regularly.

The due date is calculated in relation to the end of the interest period, either

– before (unadjusted) or

– after (adjusted)

the interest period end is shifted by the working day check.

The due date is based on the interest period end and the number of days entered in the
"Days +-" field. If the dates are shifted to a working day, the dates before the shift
provide the basis for calculating the following dates. In other words, the interest period
that follows is shortened accordingly.

Term of an interest rate swap: 11/22/2000 - 12/22/2001

Frequency of the interest payment: Monthly

The interest period end is calculated initially as Friday 12/22/2000 on the basis of the
frequency. This date can be shifted to a working day, provided that a working day check
has been set up for the end of the interest period. In this example, the calendar
specified does not require a shift.

In the next step the due date is specified: This is calculated initially as Saturday,
12/23/2000 using the interest period end, 12/22/2000, and the shift of one day that is
set up. The working day check that follows shifts this date to the next possible working
day, which is Wednesday 12/27/2000.

With the "unadjusted" (interest period) update method, the dates that are calculated
remain as they are. This means that interest is only calculated up to 12/22/2000 for the
nominal amounts upon which the interest rate swap is based. However, the interest is
only paid on 12/27/2000.

With the "adjusted" (interest period) update method, the interest period end is adjusted
again if the due date shifts. If, for example, a shift of one day is entered in the "Days +/-"
field, the interest period end is finally shifted to 12/26/2000.

With both update methods the interest period that follows is shortened accordingly. In
other words, the interest period end of the following period is initially still the 22 nd of the
month.

Regular update methods with variable dates / adjusted and regular

update methods with variable dates / unadjusted
(Up to Release 4.5B: "Fixed-term deposit adjusted" and "Fixed-term deposit
unadjusted")

The interest period end and the due date of the first period are calculated in the same
way as the "unadjusted" update method. The interest period is updated regularly
according to the time frame entered as the frequency.
The due date is based on the interest period end and the shift entered in the "Due date
+/-" field.

In the case of the "Regular with variable dates / unadjusted" update method, these
dates stay as they are. In the case of the "Regular with variable dates / adjusted"
update method, the interest period end can be changed again: If the due date has to be
shifted to a working day according to the calendar entered, the interest period end is
adjusted in line with the due date to ensure that the interval between these two dates is
the same as the number of days entered in the "Days +/-" field.

The difference between the "adjusted (interest rate period)" and the "unadjusted
(interest rate period)" update methods is only apparent when the following dates or the
length of the following periods are calculated. If one or both of these dates shift(s) to a
working day according to the calendar entered, the dates that are found (after the shift)
form the basis for calculating the next interest period. In other words, the dates of the
following interest period are also shifted and the following interest period is not
shortened.

Term of an interest rate swap: 11/22/2000 - 12/22/2001

Frequency of the interest payment: Monthly

The dates for the end of the interest period and for the due date are calculated as
follows:

 For the "Regular with variable dates / unadjusted" update

method, they are calculated in the same way as the
"Unadjusted (interest period end)" update method, that is, the
interest period end falls on the 12/22/2000 and the due date is
the 12/27/2000.
 For the "Regular with variable dates / adjusted" update method,
they are calculated in the same way as the "Adjusted (interest
period end)" update method, that is, the interest period end
falls on the 12/26/2000 and the due date is the 12/27/2000.

The interest period end of the second interest period is one month after the interest
period end of the first interest period after being shifted. Since the interest period end of
the first period is shifted to 12/26/2000 according to the "Regular with variable dates /
adjusted" update method, the interest period end of the following period falls on the
01/26/2001. After undergoing a working day check, this date may then be shifted to the
next working day. Since there was no shift in the case of the "Regular with variable
dates / unadjusted" update method, the interest period end of the following period
continues to be the 22nd of the month.

Single dates / adjusted and single dates / unadjusted update

methods:

You enter the dates for the interest period end and the due dates individually by
choosing Edit => Single dates from the menu. In the case of a term greater than one
year, it is sufficient to enter the dates for the first year. These are then used
automatically as a basis for the following years.

In the case of the "Single dates" method, the dates for the end of the interest periods
and for the due dates are determined independently of each other. With the other two
 update methods, the due date is calculated from the interest period end and the "Days
+/-" field.

For the "Single dates unadjusted" method, these two dates no longer change after this.

According to the "Single dates adjusted" method, on the other hand, the interest period
end can be changed again, provided that the due date is shifted to a working day: The
interest period end is then adjusted in line with the due date to ensure that the interval
between the two dates is the same as the number of days entered in the "Due date +/-"
field.

The table below demonstrates the above-mentioned relationships more clearly:

Calculation date Due date Update methods

Relative to due date before Regular Unadjusted

shift

Relative to due date after Regular Adjusted

shift

Regular Relative to calculation date before Unadjusted (interest

shift period)

Regular Relative to calculation date after Adjusted (interest

shift period)

b. End of interest period

This date is the first interest period end. All subsequent interest period ends are
then calculated according to the update rule selected.

If you select the Month-end field, the interest period ends on the last day of the
month.

If you select the Inclusive field, the interest period end is included in the interest
calculation.

In the Working day field, you specify the rule to be used for shifting the interest
period end if it does not fall on a working day. 5 methods are available and are
described in the F1 Help for this field.

c. Due date

This date is the first due date. All subsequent due dates are calculated
according to the update rule selected.

If you select the Month-end field, the due date is the last day of the month.

In the Working day field, you specify the rule to be used for shifting the interest
period end if it does not fall on a working day. 5 methods are available and are
described in the F1 Help for this field.
 d. Additional update information
e. You fill the fields for the frequency in months and days if you selected a monthly
or daily frequency as your update rule.
f. If you selected an update rule, which shifts the due date in relation to the
interest end period, enter the number of days (+/-) by which the due date shifts
in the Due date field.
g. Additional working day information

Here, you have to specify a calendar if you want the due date and/or the interest period
end to shift to a working day. You can specify up to two calendars.

The system proposes the calendar of the country in whose currency the transaction was
created.

4. To check your entries, you can look at their impact on the cash flow. To do this, you
have to exit the details screen and choose the Cash flow pushbutton on the basic
data screen for transaction entry.

In the Calculation basis view, you can display the dates (payment date ( due date),
calculation date from and to) that result from your entries in addition to the calculation
days per interest period.