The main goal of Treasury - Market Risk Management is to analyze and valuate the interest rate and currency risks of an enterprise. The evaluation takes operative cash flows from SAP's Cash Management into account, as well as financial transactions created in Treasury Management.

Operative cash flows (e.g. transactions in materials management or from sales and distribution) are accessed in MRM reports directly via Cash Management using a special hierarchy. All of the data which flows into daily financial status or liquidity estimate are accessible by MRM.

NPV determination for these operative cash flows is based on the same methods as for financial transactions (see, for example, forward currency transactions): For each value date, cash flows are discounted to the horizon using zero bond discounting factors.

Financial transactions can be closed and created in Treasury Management for liquidity control, financing, or risk transformation. Financial information created in Treasury Management is always available in MRM (exceptions: transactions created as orders, and undisbursed loans).

You can valuate the following financial instruments in MRM:

• Forward exchange transactions
• Currency options (European, American, barrier)
• Bonds (fixed-interest, floating rate, zero bonds) with price info or using yield curves
• Loans (fixed-interest, floating rate)
• Cash transactions (besides deposits at notice)
• Forward rate agreements (FRAs)
• Interest rate guarantees (European)
• Interest rate swaps/cross currency interest rate swaps (also exotic structures such as rollercoasters)
• Swaptions (European)
• Caps, floors
• OTC bond options (European)

Note that formula-based conditions (e.g. 2 x LIBOR - x%) can not currently be valuated in Market Risk Management. Spreads on reference interest rates are taken into account in determining NPV. You can determine the market value for securities which are not bonds (i.e. not product category 040 - things such as warrant bonds, convertible bonds, stocks, warrants, certificates of investment) using mark-to-market valuation.

When calculating NPVs and derived key figures, the system can use both real data (market database and actual position) and simulated data (scenarios and fictitious transactions). The way in which the price calculator calculated prices is not influenced by this.