Commercial Paper 

Use

Commercial Paper transactions are transactions on which no interest payments are made during the term of the transaction. Instead, two business partners agree on a repayment amount to be repaid to the investor by the borrower at the end of the life of the contract.

A company requires 1 million for three months. The amount is discounted using a pre-defined yield. The company receives the discounted amount, 980,000 from an investor. At the end of the term, the company repays the full amount of 1 million.

Activities

You specify the nominal amount and the yield that you are looking to achieve. The system calculates the payment amount the investor must pay to the creditor at the start of the term by discounting. Alternatively, you can specify your own interest calculation on the basis of a given rate. In the cash flow, the system displays the principal increase (based on the nominal amount and the discounting amount) at the start of the term and the repayment of the nominal value at the end of the term.

Alternatively, you can display the discounted principal increase at the start of the term and the repayment of the NPV and the interest flow at the end of the term. You have to set this up in Customizing when you define the transaction types.

Prerequisites

Before you can use the Money Market component, you have to maintain master data. You have to

·        You have to create your Business Partners, assign the corresponding roles to these partners and maintain the transaction authorizations.

·        You have to set up the Standing Instructions (correspondence, payment details) and release the business partner.

You also have to make the following settings in Customizing:

·        Define the Product Type (if you do not want to use one of the standard product types delivered with the system, you can define your own product types). You create financial transactions and manage positions on the basis of product types. Commercial Paper is one example of a product type in the Money Market area

·        Define the Transaction Type. Transaction types determine the type of transactions that can be concluded with a particular product type. They also control the transaction and position management process. An example of this is the Investment or Borrowing of Commercial Paper.

·        Define the condition type. This setting controls which structural characteristics are displayed when you create transactions. Example: Nominal interest

·        Define the Flow Type. These describe the various changes to the cash flows. Example: Increase in the nominal amount

For more information, see the relevant section in the Implementation Guide.

You can then define Money Market transactions in the SAP R/3 System.

Features

For more detailed information, see Processing Commercial Paper and Creating Commercial Paper.

You can also use the Net Present Value to help you determine the payment amount.