The Market Risk Management component (TR-MRM) in the Treasury (TR) area helps treasurers to plan, manage and control the market risks a company is exposed to.

Market risks result from the danger of negative market developments (changes in the money and capital markets), which affect a company’s financial assets. As such, we can distinguish between the risks associated with changes to stock prices, interest rates, and exchange rates.

In order to use the Market Risk Management (TR-MRM) functions, you must first make the necessary Customizing settings (IMG: Treasury ® Market Risk).

Access to all current operative cash flows and to all financial transactions is indispensable for comprehensive risk management. In order to determine and control risks, the information from these two sources needs to be brought to together.

The components Treasury Management (TR-TM) and Cash Management (TR-CM) provide you with a decision-making basis for daily financial planning in the short and medium term, and for long-term financial budgeting.

The Market Risk Management component (TR-MRM) builds on Cash Management (TR-CM), which contains all the payment flows from other operating areas such as Sales and Distribution (SD) or Purchasing (MM-PUR). This means that all cash flows arising from business operations in any division of your company can be accessed for the purposes of risk management.

All financial transactions managed in Treasury Management (TR-TM) can also be selected from Market Risk Management, and evaluated and controlled together with cash flows from operating business.

Market Risk Management allows you to carry out the following functions:

• Create and maintain the market data required to value financial instruments (both real data and fictitious data in scenarios)
• Select financial instruments, including transactions from operating business, according to various criteria
• Value the following transactions on the basis of real and fictitious data:
• Forward exchange transactions
• Currency options
• Bonds
• Loans
• Money market transactions
• Forward rate agreements
• Interest rate guarantees
• Interest rate/cross-currency interest rate swaps
• Swaptions
• Futures
• Bond options
• Options on futures
• Calculate the following key figures:
• Market values and differences to market values
• Future values for any horizon
• Effective prices and effective interest rates
• Currency and interest exposures
• Sensitivities to changes in interest rates, exchange rates and volatilities
• Value at risk
• Cash flows of variable and option instruments
• Analyze the above figures interactively