Cash Flow Transactions
Cash flow transactions include all transactions valued according to their cash flows in Risk Analysis. Examples of cash flow transactions include stocks with dividend payments, bonds, loans, swaps, or forward rate agreements.
When creating cash flow transactions as generic transactions you must describe the transactions’ cash flows precisely.
The following contains examples of cash flow transactions.
Characteristic Cash Flows of Cash Flow Transactions
is a summary of essential data on typical cash flow types in table format (see below).
Examples of Cash Flow Transactions
Stocks
Stocks are only considered cash flow transactions when they include dividend payments. When creating such a stock position as a generic transaction, as well as the header information, you must also enter data for the cash flows. You can do this as follows:
Choose transaction form 10 (Stock) as the transaction form for the elementary transaction.
Enter the following information on the
Header Information
tab page:
Start of term for the relevant business transaction as well as specifying whether it involves a spot or a forward and a purchase or sale transaction.
Identification number of security, the exchange, and the quantity of stock positions. Enter
Direct quotation
for the quotation type (value 2).
Choose the
Cash Flow
tab page and enter the dividend payments as cash flows with the characteristic
Fixed Interest
,
Fixed Currency
(see table below)
Select
Back
and then
save.
Bonds
When you create bonds as a generic transaction you can define cash flows as with stocks. The system uses these cash flows to calculate the accrued interest on the bond. Furthermore, cash flows are relevant if the price of the bond is not available in the market data or in the valuation rule for the bond and the corresponding evaluation type a valuation for the interest curve is provided. In such a case the system uses the cash flows to value the bond. You can do this as follows:
Choose transaction form 21 (Bond) as the transaction form for the elementary transaction.
Choose the
Header Information
tab page
.
Enter the start and end of term for the bond in the
Business Transaction
area of the screen and set the spot/forward indicator as well as the purchase/sale indicator.
Enter the identification number of security, the exchange, and the quotation type. Then enter either the quantity or the nominal amount, and the currency of the bond.
Choose the
Cash Flow
tab page and enter the cash flows for the bond. Use the characteristic cash flows appropriate to the bond, for example,
Fixed Interest, Fixed Currency
or
Variable Interest
(see table below).
If bonds are valued using a rate, you must heed the cash flow characteristic “interest deferral”.
Select
Back
and then
save.
Forward Rate Agreement (FRA)
Typically, for a forward rate agreement you create just one cash flow. You can do this as follows:
Choose transaction form 52 (FRA) as the transaction form for the elementary transaction.
Choose the tab page
Header Information.
Enter the start and end of term for the bond under
Business Transaction
and set the spot/forward indicator as well as the purchase/sale indicator.
Enter the nominal amount and the currency under
Position Definition.
Choose the
Cash Flow
tab page and enter the cash flows for the FRA. To do this, use the characteristic cash flows for the forward rate agreement (see below).
Select
Back
and then
Save
Assigning Cash Flow Transactions to Characteristic Cash Flows
The following table explains which cash flows can be used with which cash flow transactions.
Transaction |
Characteristic Cash Flow |
|---|---|
Fixed loan, fixed-interest securities, zero bonds, fixed-term deposits, deposits at notice, commercial papers, etc. |
Fixed interest, fixed currency (for interest and repayment) |
Variable loan, floater/reverse floater, etc. |
Variable interest (for the interest payments) Fixed interest, fixed currency (for the repayment) |
Swaps |
Fixed interest, fixed currency (for the fixed side) Variable interest (for the variable side) Use the
|
Fixed interest multiple currency bonds |
Variable currency (for the interest payments) Fixed interest, fixed currency (for the repayment) |
Variable interest-bearing multiple currency bonds |
Variable interest (for the interest payments) Variable currency (for the interest payments) |
Characteristic Cash Flows from Cash Flow Transactions
To enter cash flows for a generic transaction carry out the following:
Select the required elementary transaction in the dialog structure (double click).
The system displays the header information for the generic transaction.
Choose the
Cash Flow
tab page
.
Choose
Create Cash Flow
.
Enter the cash flow type and due date. Then select the row with the cash flow and choose
Choose Cash Flow.
The system displays a template in which you can enter all the relevant information regarding the cash flow.
Depending on the transaction form of the elementary transaction the system displays several fields. The elementary transaction
Cash Flow
(transaction form 100) does not allow any reference interest rate for example.
Enter the required information for the cash flow.
You can use the characteristic cash flows listed below as an example.
Choose
Back
and then
save
.
The following tables show the characteristic cash flows of cash flow transactions:
Field |
Meaning |
|---|---|
Due date |
Date from which the cash flow is discounted |
Cash flow amount |
Amount to be discounted (with +/- sign) |
Cash flow currency |
Currency of amount |
Field |
Meaning |
|---|---|
Due date |
Date from which the cash flow is discounted |
Nominal amount |
Nominal amount to which interest rate relates |
Currency |
Currency of nominal amount |
Reference interest rate |
Reference interest rate |
+/- sign |
Sign for the reference interest rate |
Formula |
You have the option of defining the reference interest rate using a formula. |
Interest rate determination |
Interest rate determination date |
Direction |
Inflow and outflow |
Calculation from |
Beginning of the interest calculation period |
Calculation to |
End of the interest calculation period |
If the
Convexity adjustment
is active for a risk analysis evaluation, the field
Number of days
in the
Calculation methods
field group for the cash flow characteristic “Variable interest” has to be filled.
Field |
Meaning |
|---|---|
Due date |
Due date for FRA |
Nominal amount |
Nominal amount of FRA (from the position data in the tab page
|
Currency |
Currency of nominal amount |
Percentage |
Agreed interest rate |
Field |
Meaning |
|---|---|
Due date |
Date from which the cash flow is discounted |
Nominal amount |
Nominal amount in original currency |
Currency |
Currency of nominal amount |
Interest rate |
Interest rate used to generate cash flow in original currency |
Cash flow currency |
Currency into which the cash flow has to be translated |
Fixed rate |
Indicator showing whether a fixed rate is available for the currency translation |
Exchange rate |
Fixed exchange rate |
Field |
Meaning |
|---|---|
Number of days |
Number of days for interest deferral (accrued interest calculation) |
Number of base days |
Number of days in year |
Calculation method |
Interest calculation method for accrued interest |