In general, exposures that take the form of planned purchases or sales are not managed in R/3 by the corporate treasury department. They may even be decentralized and managed by the operational units. Often, the hedge manager processes the planning data using an external tool, such as Excel. However, to take advantage of hedge accounting, these exposures and the subsequent hedging instruments must be entered in the R/3 system.

To simplify this process, exposures managed outside the Hedge Management application can be imported into a central repository (risk object) using the external data transfer (EDT) function. This repository is the source of exposure information for hedge management, and the data no longer has to be entered manually.

The function for importing external exposure data to the risk object repository is designed to work with aggregated period-based figures, such as monthly forecasted purchases or sales. Once the forecasted figures have been created in Hedge Management, they need to be adjusted upwards or downwards as forecasts are modified. This is done by updating the external exposure data in the risk object repository. You can define any date in the future as the due date for extending or rolling over a financial contract.

The first step is to upload the exposures to the risk object repository using the external data transfer function.

The settings for external data transfer involve three activities:

1. Data preparation
2. Customizing
3. Application settings for the external data transfer run

The external data transfer program uses an import (receiver) structure called a transfer category to map external data to risk objects. The external exposure upload program recognizes the transfer category 040. You can use this transfer category to upload external data to the risk object repository using the direct input functionality of the Business Data Toolset (BDT).

The master data structure of the risk object contains the global risk object data, such as the activity category, external number, and status. The external number of the risk object must begin with '&HM', followed by the external risk object ID, such as ‘&HM1234567’. Leading and trailing zeros are significant. If the risk object ID does not follow this naming convention, the external upload function (transaction THMRO) will not function correctly.

The basic transactions are grouped together in a hierarchy within the risk object. Level 1 of the risk object item structure (basic transaction structure) contains the basic transactions and, where relevant, optional information for each basic transaction. Level 2 of the risk object item structure (flow data structure) contains the cash flows for individual basic transactions.

The risk object hierarchy allows several basic transactions to be created for each risk object ID. The dates for the start and end of term can differ for each basic transaction. However, the hedge management application ignores any differences in the term start and end dates and sets one term start date and one term end date for the hedging relationship, encompassing all the start/end dates for the different transaction terms.

The Hedge Management application views the hierarchy as a grouping of cash flows without a specific parent-child relationship.

The external exposure upload creates and updates hedge management data by capturing all the risk object exposures uploaded in step 1. Using these risk object exposures, the system automatically creates a hedge plan and subsequent hedge management exposure data for the Hedge Management application. In the Hedge Management application, you can then link the exposures to hedging instruments manually.

The original data is stored in the risk object master data repository. Consequently, periodic updates of the hedge management exposure data created from risk object exposures must be carried out using the external exposure upload (THMRO). Only hedge management exposure data created via the risk object will be affected by the update.

Risk object exposures with the same currency and due date are automatically aggregated for the upload to Hedge Management.

You can use the external exposure to create the hedge management data, and then to update it later on. These two steps and the corresponding data entries are described below:

To create hedge management exposures from risk object exposures, you run the external exposure upload program. The following selection options are available:

General Selections:

• Enter a company code (mandatory).
• Enter an external risk object number to restrict the selection (optional).

Hedge Management:

• Choose Create. The system then creates hedge management exposure data based on the risk object exposures.

Risk Object ID Linked to / Cash Flows Linked to:

• Single Plan: If you choose this option, the system creates a separate hedge plan for each risk object. This hedge plan contains all the cash flows for a single risk object.
• Multiple Plans: If you choose this alternative, you have an additional option. You can create a hedge plan containing all the cash flows for a single risk object, or a hedge plan containing all the cash flows from several risk objects. In addition, the menu bar contains an extra function that allows you to add all the cash flows of a risk object to an existing hedge plan, rather than creating a new one.

When you execute the external exposure upload, the system displays a validated list of the hedge plan/exposures from an external source. This validation ensures that the exposures that are going to be created do not already exist in Hedge Management.

For each risk object, you can change the descriptive Plan Text and Transaction Text.

The system creates the hedge plan ID and the transaction/exposure ID in the background upon saving. The system determines the hedge management transaction activity on the basis of the hedge management transaction category (for example, "forecasted transaction") in conjunction with the risk object cash flow type (for example, "sale").

Once hedge management exposures have been created from risk object exposures, you perform subsequent updates using the update function of the external exposure upload. The following selection options are available:

General Selections:

• Enter a company code (mandatory).
• Enter an external risk object number (optional).

Hedge Management:

• To update hedge management exposure data, choose Update. The system then updates the hedge management data based on the risk object exposures.

Plans Valid After:

• If you enter a date in this section (optional), the system only selects hedge plans that expire after the specified date.

When you execute the external exposure upload, the system displays a validated list of the hedge plan/exposures from an external source. This validation ensures that the exposures that are going to be updated already exist in Hedge Management.

The list display assigns the exposure amounts and due dates of the risk objects to the corresponding hedge management exposures. Any financial contracts with "rollover" status that are linked to the hedge management exposure are checked before display. Therefore, all financial contracts linked to hedge management exposures that are subject to rollover must be rolled over before you run the external exposure upload.

The risk object information is used to update hedge management.

If there has been a key date valuation for the hedging relationship, the following applies:

1. If the new exposure amount is zero, the exposure is assumed to be improbable. As a consequence, the hedging relationship is dissolved and all OCI balances are reclassified.
2. If the new exposure amount falls below the designated hedge amount, but is greater than zero, the designated amount in the hedging relationship is adjusted to the new, lower amount. The difference between the old and new designated amounts determines any OCI reclassifications.

If there has been no key date valuation for the hedging relationship, the following applies:

1. If the new exposure amount is zero, the existing hedging relationship is deleted.
2. If the new exposure amount falls below the designated hedge amount, but is greater than zero, the designated amount in the hedging relationship is adjusted to the new, lower amount.