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SAP Treasury and Risk Management

Solution Overview

Department, Board Area or Team Date

Agenda

1. Market Trends and Value Proposition 2. Solution Offering


2.1. Overview 2.2. Transaction Management 2.3. Exposure Management 2.4. Hedge Management 2.5. Risk Analyzers

3. Summary

SAP AG 2009. All rights reserved. / Page 4

The Evolving Role of Corporate Treasury

Today

Future

Management / Guidance

Management / Guidance

Decisions regarding strategy of financing and asset allocation Governance Risk and Compliance activities

Value increasing activities

Value increasing activities

Business Impact Liquidity Management Management of Financial risks Bank Relationship Management Asset und Pension Management

Transaction based activities

Transaction based activities Strategic partner of the CFO

supporting transactional activities Payment transactions Money market, FX and Derivative deals

Source: Der Finanzbereich im Umbruch (Dr. Michael Kieninger, Horvth AG, SAP Infotage 2007)
SAP AG 2009. All rights reserved. / Page 5

Does this Scenario Look Familiar?


CFO
Is our current approach process and risk effective and how do we benchmark ourselves against best in class treasuries?

Treasury Risk Controller


How much of our fx portfolio is hedged and are these hedges effective according to our hedge accounting policy

SALARIES

Group Treasurer
Im not sure if our forecast allows us to fund the upcoming acquisitions without external loans from our banks?

Trader
I cannot simulate risk scenarios and I am not able to generate ad-hoc overviews on key risk indicators. Furthermore I have to capture our deals manually three times in different systems

Cash Manager
Is this organization prepared to:
Increase process efficiency? Reduce finance operating costs? Optimize the global banking structure?
It takes weeks to reconcile account data across multiple banks to determine our company cash position

Inhouse Bank Mgr


My intercompany reconciliation and netting process is not integrated, not transparent and contains often errors. We never can build a payment factory on this fundament

AP/AR Manager
I dont have an integrated bank connectivity and this turns out to be a compliance issue. We need a higher degree of automation to be scalable

Banks
SAP AG 2009. All rights reserved. / Page 6

Subsidiaries

Challenges: Typical Barriers to Effective and Compliant Treasury Management

Lack of coordination across entities and departments Multiple payment locations and disbursement accounts Multiple charts of accounts in various locations Poor insight into overall company risk picture Poor insight into sources and uses of cash and their timing Incomplete insight into global cash positions

Fragmented and inefficient payment and cash management Paper-based and laborintensive Lack of standardization Fragmented, stand-alone systems Limited bank communications integration Weak integration with GL and AR systems

High Cost of Finance Operations Risk Awareness

Non-transparent Processes

SAP AG 2009. All rights reserved. / Page 7

What Our Customers Expect


Financial Excellence in Treasury Operations! Treasury Requirements
Transparency

Accurate, auditable accounting

Transparency
Compliance

Reliable, credible treasury reports


Global cash visibility

Segregation of duties

Efficiency

Accounting standards
Compliant reporting

Compliance

Efficiency

Streamline processes
Automate systems Integrated communications

SAP AG 2009. All rights reserved. / Page 8

Overcome Your Treasury Barriers with SAP

Insight & Control

Pinpoint risks and mitigate them Gain better insight into liquidity requirements Manage cash and improve returns

Efficiency

Create central payment factories Real straight-through processing for financial transactions Capture financial risk exposures from operational systems

Compliance

Establish greater control over outgoing payments Manage FX, interest rate and commodity risk and comply to regulatory standards Automation of internal controls (SOX)

IT Systems

End-to-end ERP-based treasury integration into purchase, sales, production and finance Reduce number of bank integrations and support costs through open standards

SAP AG 2009. All rights reserved. / Page 9

SAP Streamlines Finance Processes and Treasury Operations


CFO

Treasury Risk Manager


All lights are green. Our FX exposure is hedged and our sales revenue safe

I believe my treasury department is doing a great job!

Group Treasurer
Our liquidity is excellent - we can fund our next merger without external borrowings

SALARIES

Trader
Great reports and one single deal entry screen are supporting my day-to-day work efficiently

Inhouse Bank Manager


Our central payment factory is up and running and all processes are highly automated !

Timely cash and liquidity Forecasts Greater control over payments Reliable global cash management data Electronic bank integration Standardization and automation Integrated systems and processes

Cash Manager
We reconcile our account data across multiple banks to determine our company cash position in minutes

AP/AR Manager
Our payment process is transparent due to seamless integration from our ERP system into our banking software

Banks

Subsidiaries

SAP AG 2009. All rights reserved. / Page 10

Agenda

1. Market Trends and Value Proposition 2. Solution Offering


2.1. Overview 2.2. Transaction Management 2.3. Exposure Management 2.4. Hedge Management 2.5. Risk Analyzers

3. Summary

SAP AG 2009. All rights reserved. / Page 11

Treasury Applications from SAP Where we Came from

In-House Cash

SAP Business Suite

Liquidity Planner SAP ERP

Market Risk Management

Portfolio Analyzer

Money Market, Forex, Derivatives

Credit Risk Analyzer

R/3 Enterprise

IS-IS/DARWIN Project Market release for Loans, Securities, Real Estate Audit R/3 Launch 1996 1994 1993 1992

2001 2000 Today

R/2 Treasury
Cash Management Money Market, Forex, Loans

SAP AG 2009. All rights reserved. / Page 12

Financial Excellence with Treasury Applications from SAP


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 13

SAP Bank Communication Management

SAP Treasury and Risk Management


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 Object Xcelsius and Dashboards 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

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

Data export: Excel, Flat files, BI

SAP AG 2009. All rights reserved. / Page 14

Agenda

1. Market Trends and Value Proposition 2. Solution Offering


2.1. Overview 2.2. Transaction Management 2.3. Exposure Management 2.4. Hedge Management 2.5. Risk Analyzers

3. Summary

SAP AG 2009. All rights reserved. / Page 15

Instrument Support
Foreign Exchange

Money Market

Debt Management

Interest & Equity Derivatives

Securities (Investments)

Commodities

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 Delayed Delivery 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

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

Futures Forwards Traded Options

Transaction Manager Market Risk Analyzer Credit Risk Analyzer Portfolio Analyzer Reporting
SAP AG 2009. All rights reserved. / Page 16

Process Overview

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

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

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Transaction Manager Fully Integrated

Automatic posting

Valuation (parallel)

Automatic creation of correspondence

Automatic accrual/ deferral

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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, IAS39)


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)
SAP AG 2009. All rights reserved. / Page 19

write-up

no write-up

9800

9000

9000

IAS / US GAAP

German GAAP (HGB)

Gain Efficiency with Correspondence Monitor


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

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

SAP AG 2009. All rights reserved. / Page 20

Process of Incoming and Outgoing Messages Using SWIFT Integration Package from SAP
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

SWIFT Integration Package is a PI box and the SWIFT gateway is another separate box.
SAP AG 2009. All rights reserved. / Page 21

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

SAP AG 2009. All rights reserved. / Page 22

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)

SAP AG 2009. All rights reserved. / Page 23

Agenda

1. Market Trends and Value Proposition 2. Solution Offering


2.1. Overview 2.2. Transaction Management 2.3. Exposure Management 2.4. Hedge Management 2.5. Risk Analyzers

3. Summary

SAP AG 2009. All rights reserved. / Page 24

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


SAP AG 2009. All rights reserved. / Page 25

Financial Risk Management Process Using Exposure Management

Risk identification

Build exposure positions

Lifecycle of Exposure Position

Deal request

Hedge Management

NPV /VaR calculation

Risk Dashboard

Gathering Data from from various source systems

Classify Exposure as forecasted transaction firm commitment and link to different risk factors like commodity price or foreign exchange risk (EUR-USD)

Storage and update of the lifecycle of the Exposure positions

Possibility to generate deal requests out of the Exposure position and send it to marketplace or front office system

Calculated exposures are available as hedged item in hedge management

Possibility to calculate various risk key figures like Net Present Value and Value at Risk on Exposure positions as well as financial transaction

Risk dashboard combining operational and financial Exposures

SAP AG 2009. All rights reserved. / Page 26

Agenda

1. Market Trends and Value Proposition 2. Solution Offering


2.1. Overview 2.2. Transaction Management 2.3. Exposure Management 2.4. Hedge Management 2.5. Risk Analyzers

3. Summary

SAP AG 2009. All rights reserved. / Page 27

Hedge Management
Hedging Item (Exposure) Hedging Instrument (Derivative)

Hedging Relationship

Effectiveness test /valuation

Hedge Accounting
SAP AG 2009. All rights reserved. / Page 28

Scope of SAPs Hedge Management Fair Value Hedge


Hedging Instruments

FX swap, FX forward FRA Interest rate swap Cross currency interest rate swap Commodity Futures and Forwards (EhP4) Other Product Types (e.g. Commodity Swaps) are in planning status

Effectiveness Calculation Methods


Net Present Value Method / Dollar offset Method Hypothetical Derivative Method Benchmark Method Regression Analysis (EhP 4)

SAP AG 2009. All rights reserved. / Page 29

Scope of SAPs Hedge Management Cash Flow Hedge


Hedging Instruments

FX swap, FX forward, FX options (plain vanilla and average rate), Collar FRA, CAP, FLOOR Interest rate swap Cross currency interest rate swap Commodity Futures and Forwards (EhP4) Other Product Types (e.g. Commodity Swaps) are in planning status

Effectiveness Calculation Methods


Net Present Value Method / Dollar offset Method Cash Flow Method Hypothetical Derivative Method Regression Analysis (EhP 4)

SAP AG 2009. All rights reserved. / Page 30

Scope of SAPs Hedge Management Hedge of a Net Investment


Hedging Instruments

Money Market Instruments Forward Exchange Transactions FX and Cross Currency Swaps (note 967104 for ERP2004/ERP2005) FX Options (note 967104 for ERP2004/ERP2005)

Effectiveness Calculation Methods


Net Present Value Method Cash Flow Method Spot Method Forward Method / All critical Terms match (note 967104 for ERP2004/ERP2005)

SAP AG 2009. All rights reserved. / Page 31

Hedged Items

Hedged Items are Exposures


From a manual entry Upload from Money Market Instruments Upload from Risk Objects Upload from FX-Exposure Management Upload from Exposure Management 2.0 Generation from FX Forwards (or from a rollover or premature settlement of an FX-Forward)

SAP AG 2009. All rights reserved. / Page 32

Effectiveness Testing - Process

Start date of the Hedging Relationship


Is the Hedging Relationship expected to be highly effective in the future?
1 1.

Balance sheet date


time

Was the Hedging Relationship highly effective in the past?

Is the Hedging Relationship expected to be highly effective in the future?


4 4.

Run the prospective effective assessment to prove if the hedging relationship is expected to be highly effective.

2 2.

Run the retrospective effective assessment to prove the past effectiveness of the hedging relationship. If the assessment has shown an effective hedging relationship, run the Effective Measurement to determine the exact amount to be posted to OCI/Equity or P/L.

3 3.

Run the prospective effective assessment to prove if the hedging relationship is expected to continue to be highly effective.

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Effectiveness Test - Regression Analysis Report

Regression report contains Data used for analysis, Regression basic statistics, ANOVA and Confidence interval and range
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Integration into Accounting

Classification of the valuation results


Effective portion Ineffective portion Free standing portion Time value

Reclassification when exposure hits earning


Manual reclassification Automatic distribution over a user defined time interval Partial reclassification (if exposure changes or is overhedged)

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Valuation Posting Logic with FAS133/IAS39


1 2 3 4

Determine derivatives fair value Determine value of any free-standing portion of the derivative Determine OCI/Equity target balance and amount to be posted to OCI/Equity Post remainder of clearing OCI/Equity distribution account to P/L (ineffective portion of the hedge)

Distribution

FX - Balance Sheet Account


1 Delta NPV
2

OCI/Equity - Distribution Account


Free-standing portion Effective portion Ineffective portion [ Delta time value ] 0,00 0,00

1 Delta NPV

3
4 5

P/L
2 4 5
SAP AG 2009. All rights reserved. / Page 36

OCI/Equity
Free-standing portion Ineffective portion [ Delta time value ] 3 Effective portion

Expiration and Reclassification

When?

Hedge accounting ceases prospectively when any of the following occurs: hedge fails an effectiveness test the hedged item is sold or settled the hedging instrument is sold, terminated or exercised management decides to revoke the designation for a hedge of a forecasted transaction, the forecasted transaction is no longer highly probable. In customizing you can define, what should happen with the hedge relationship in the case of infectivity to dissolve or to dedesignate

How?

Manually by reclassifying all or parts of the equity capital balances at once or one-off the part of it or Automatically by reclassifying over multiple periods on a linear basis

What happens with the hedging instrument?

As in IAS 39: All future fair value changes in a derivative hedging instrument are recognized in the income statement. Future changes in the fair value of any non-derivative hedging instrument are accounted for as they would be without hedge accounting.

What happens with the hedged item?

Future changes in the fair value of the hedged item are accounted for as they would be without hedge accounting

SAP AG 2009. All rights reserved. / Page 37

Agenda

1. Market Trends and Value Proposition 2. Solution Offering


2.1. Overview 2.2. Transaction Management 2.3. Exposure Management 2.4. Hedge Management 2.5. Risk Analyzers
2.5.1. Introduction 2.5.2. Credit Risk Analyzer 2.5.3. Market Risk Analyzer 2.5.4. Portfolio Analyzer

3. Summary

SAP AG 2009. All rights reserved. / Page 38

Risk Analyzers Risk Analytics

Risk analytics is clever maths, but the hard slog is the integration.
Risk Magazine

Value-at-risk Net present value Exposures Multidimensional limit management Portfolio Returns

What-if analysis Back-Testing Sensitivity analysis Market data shifts and scenarios Portfolio Benchmarking

SAP AG 2009. All rights reserved. / Page 39

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
SAP AG 2009. All rights reserved. / Page 40

General Ledger

Agenda

1. Market Trends and Value Proposition 2. Solution Offering


2.1. Overview 2.2. Transaction Management 2.3. Exposure Management 2.4. Hedge Management 2.5. Risk Analyzers
2.5.1. Introduction 2.5.2. Credit Risk Analyzer 2.5.3. Market Risk Analyzer 2.5.4. Portfolio Analyzer

3. Summary

SAP AG 2009. All rights reserved. / Page 41

Process in Credit Risk Management


End-of-Day Processing

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

Request

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

t
SAP AG 2009. All rights reserved. / Page 42

Start of workflow, when limit is Breached

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 43

Agenda

1. Market Trends and Value Proposition 2. Solution Offering


2.1. Overview 2.2. Transaction Management 2.3. Exposure Management 2.4. Hedge Management 2.5. Risk Analyzers
2.5.1. Introduction 2.5.2. Credit Risk Analyzer 2.5.3. Market Risk Analyzer 2.5.4. Portfolio Analyzer

3. Summary

SAP AG 2009. All rights reserved. / Page 44

Market Risk Analyzer Risk Controlling


SAP

EDT
CM CML TM

Datapool
NON SAP External

Market data

Results
NPV, VaR, Exposures

Analysis/Reporting/Planning

Online data feed Simulated Shifts Scenarios

Pricing Engine NPV, VaR ...

SAP AG 2009. All rights reserved. / Page 45

Risk Hierarchy
Defining the risk hierarchy and evaluation structure
Consolidation LEVEL Risk factors Consolidation LEVEL 1 Money market EUR
Interest EUR

Consolidation LEVEL 2

...

3-month
6-month

FIBOR
FIBOR

EUR
EUR EUR

12-month FIBOR 1-year 3-year SAP USD GBP FIBOR FIBOR Stock Spot Spot

EUR EUR

Capital market EUR Stocks

Currencies
GBP GBP

Currency

3-month LIBOR 6-month LIBOR

Interest GBP Interest Swap USD

1-year
1-year

Swap
Swap

USD
USD

SAP AG 2009. All rights reserved. / Page 46

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)

SAP AG 2009. All rights reserved. / Page 47

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)

SAP AG 2009. All rights reserved. / Page 48

Market Risk Analytics Net Present Value (NPV) Calculation


Net Present Value Calculation

Linear Instruments

Non-Linear Instruments

Fixed cash flows


Discounting with zero bond discounting factors of the relevant yield curves

Variable cash flows


1.Calculation of forward rates using the assigned yield curve 2.Calculation of future cash flows 3.Discounting Swaps, FRAs Straight bonds, Fixed-rate loans, Money market

Uncertain cash flows


Option price formulas, for example: Black & Scholes Binomial (C-R-R) Garman/Kolhagen Hull-White Caps/Floors Options Swaptions

Floating rate bond, Variable loans


SAP AG 2009. All rights reserved. / Page 49

Market Risk Analytics Value at Risk


Calculation Alternatives
Value at Risk
Methods and Algorithms

Historical Simulation

Monte Carlo Simulation

VarianceCovariance
(aka Analytical Method)

Full Valuation Delta Approach Delta-Gamma Approach

X X X

X X X X X

Reporting & Backtesting


Analysis of risk factor contributions

SAP AG 2009. All rights reserved. / Page 50

VaR Simulation Approaches


Simulated changes to risk factors Changes to present values of positions Distribution of position changes

USD interest rate

Frequency
Present value

EUR/USD

Confidence interval

Risk

Opportunity

Delta/Gamma DowJones

VaR
1 2 3 4
SAP AG 2009. All rights reserved. / Page 51

Position

Market Risk Analytics Reporting Results Database (RDB)


Analyzer Information System (AIS)

Results Database (RDB)

RDB is used to store calculated key figures for later evaluation Key figures are calculated in an endof-day batch run Stored results remain available and can be archived Key figures are stored for individual transactions as well as aggregated according to desired portfolio hierarchies RDB reports are based on the AIS

02-28-05
Portfolio Hierarchy B Key Figure Set 2

Portfolio Hierarchy B Portfolio Hierarchy B Portfolio Hierarchy A Key Figure Set 1

12-19-05 12-18-05 Key Figure Set 2 Key Figure12-17-05 Set 2

Portfolio Hierarchy B Portfolio Hierarchy B

01-31-05 Key Figure12-31-05 Set 2


Key Figure Set 2

SAP AG 2009. All rights reserved. / Page 52

Results Database Risk Cockpit

SAP AG 2009. All rights reserved. / Page 53

Compliance Reporting IFRS 7 Reporting Categories Market Risks


Standard reports for compliance to IFRS 7 Market risk section. Reports related to exposures for:

Currency risks Interest rate risks

Fair Value Changes reports for risks:


Currency risks Interest rate risks Commodity price risks

Security price risks

SAP AG 2009. All rights reserved. / Page 54

Agenda

1. Market Trends and Value Proposition 2. Solution Offering


2.1. Overview 2.2. Transaction Management 2.3. Exposure Management 2.4. Hedge Management 2.5. Risk Analyzers
2.5.1. Introduction 2.5.2. Credit Risk Analyzer 2.5.3. Market Risk Analyzer 2.5.4. Portfolio Analyzer

3. Summary

SAP AG 2009. All rights reserved. / Page 55

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 56

Performance Analytics Benchmarking Reporting

SAP AG 2009. All rights reserved. / Page 57

Agenda

1. Market Trends and Value Proposition 2. Solution Offering


2.1. Overview 2.2. Transaction Management 2.3. Exposure Management 2.4. Hedge Management 2.5. Risk Analyzers

3. Summary

SAP AG 2009. All rights reserved. / Page 58

Quick Facts SAP Treasury and Risk Management

The SAP Treasury and Risk Management application is part of Treasury applications from SAP
The application helps you make more effective decisions utilizing timely information on current market conditions

It lets you optimize your hedging and risk management processes through exposure management for operational FX and commodity exposures
SAP Treasury and Risk Management increases transparency by having operational and treasury exposures evaluated for market risk It supports standard financial instruments and offers integrated and automated straight-through processing, as well as state of the art risk management capabilities

Furthermore, the application helps to comply with legal regulations and compliance requirements

Further Information

SAP Public Web

http://www.sap.com/treasury
(log-on required)

SAP Service Marketplace

https://service.sap.com/erp-treasury

Documentation on SAP Help Portal

http://help.sap.com
(SAP ERP >> SAP ERP Central Component >> SAP ERP Enhancement Packages)

Training / SAP Education

http://www.sap.com/education

User Groups

http://www.asug.com http://www.dsag.de http://www.sap.com/communities/usergroups.epx for more

Contact

Your SAP Account and Consulting Engagement Manager

SAP AG 2009. All rights reserved. / Page 60

Thank you!

SAP AG 2009. All rights reserved. / Page 61