Currency Hedge (SAP Library - European Monetary Union: Euro (CA-EUR))

Currency Hedge

Use

If FI documents in foreign currency that are affected by the local currency changeover are linked to foreign exchange transactions, these currency hedges also need to be converted to the euro.

The system performs the conversion automatically using report program SEUVTBSI, which is started automatically by the central conversion tool.

After conversion, the references for the currency hedge determine the hedge rate of the FI documents again. Since foreign exchange transactions are not converted (both currencies count as transaction currency!), the exchange rate notation for the currency hedge no longer corresponds to the notation for the foreign exchange transaction.

Despite this, the currency hedge is still valid, since the fixed rate of the new local currency (euro) against the old local currency still eliminates the foreign currency risk.

You have a customer invoice in a foreign currency (for example, USD) and want to hedge against the exposure of the local currency (for example, DEM). To do this, you conclude a forward exchange transaction to sell the expected incoming payment in USD at a fixed rate (transaction rate).

Before the local currency changeover and the transaction currency changeover (local currency = DEM):

Customer invoice

1,000 USD + (document currency = foreign currency)

(1,800 DEM local currency)

1.800 USD/DEM (hedge rate, FC/LC)

Currency hedge (= links foreign currency transaction and invoice)

1,000 USD - (transaction currency)

(1,800 DEM + (base currency)

1.800 USD/DEM (hedge rate, in TR notation)

Foreign exchange transaction

1,000 USD - (sale)

(1,800 DEM + (purchase)

at 1.800 USD/DEM (transaction rate, in TR notation)

After the local currency changeover (from DEM to EUR. 1 EUR = 2 DEM):

Customer invoice

1,000 USD + (document currency, unchanged)

900 EUR (new local currency)

0.900 USD/EUR (new hedge rate, FC/new LC)

Currency hedge

1,000 USD - (transaction currency, unchanged)

900 EUR + (new base currency)

1.111 EUR/USD (new hedge rate, in TR notation)

Foreign exchange transaction

1,000 USD - (sale, unchanged)

1,800 DEM + (purchase, unchanged)

at 1.800 USD/DEM (transaction rate, unchanged)