CFH: Fixed Term Deposits, Commercial Paper, or Interest Rate Instruments Used in a Hedging Transaction

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 (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.

Note Note

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

End of the note.

Creating a Hedging Relationship

You have already created a money market transaction using the transaction Create Financial Transaction (FTR_CREATE). To create a hedging relationship, proceed as follows:

On the SAP Easy Access screen, choose Treasury and Risk Management Hedge Management and Accounting 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 of 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. Select the 100 - CF Spot Rate Period/Period hedge strategy.

Prerequisites

Customizing Settings

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 001 Cash Flow Differences Acc. to Spot Rate and on Cash Flow Determination Method 1 (FAS133). To create a hedge strategy, go to Customizing for the Transaction Manager and choose Start of the navigation path General Settings Next navigation step Hedge Accounting for Exposures Effectiveness Test Define Hedge Strategies End of the navigation path .

Product Types

In Customizing for the Transaction Manager you can use product type 55C (Interest Rate Transaction: Hedging Instr. Hedge Acc.) under Start of the navigation path Money Market Next navigation step Transaction Management Product Types Define Product Types End of the navigation path .

Product type 55C is 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 Start of the navigation path Accounting Next navigation step Settings for Position Management Assign Position Management Procedure End of the navigation path .

For fixed-term deposits and commercial papers, you can define individual product types and assign position management procedure 3003.