Cash Flow Engine

Purpose

Used in Strategy Analyzer at the beginning of the valuation run in order to prepare the cash flows of the selected transactions and positions and to transfer them to the gap analysis or the NPV analysis. The system calls up several manipulation methods that alter the internal processing structure of transactions and positions for this purpose.

 

Prerequisites

The Cash Flow Engine is defined by the Risk Basis manipulation schema and is provided by SAP as a system setting.

You have to make appropriate settings in Customizing for the use due date scenarios and define cash flows methods. To do so, choose the following in path Customizing for Risk Basis: Bank Analyzer ® General Methods ® Risk Basis ® Manipulation Methods ® Basic Settings for Methods.

The Customizing settings for the Cash Flow Engine are grouped under the Customizing term Method Environment. You assign the settings to a method environment in Customizing for Risk Basis by choosing Bank Analyzer ® General Methods ® Risk Basis ® Manipulation Methods ® Edit Method Environment and Assign Method Field to Curr. Transl. KF and IntCalcMeth.

You assign the Cash Flow Engine method schema to the applications together with the associated method environment and splitting environment. You can, therefore, create several method environments or splitting environments and combine these in the Customizing settings for the applications as required.

 

Process Flow

The system calls up the following manipulation methods in the order in which they appear below:

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      1.      Read Market Data (without any information about the cash flow view and splitting values)

In this step, the system derivates the market data set that is required for evaluating the transactions and positions without any information about the cash flow view and the cash flow splitting.

      2.      Consider the Market Data Scenario

The system creates additional risk objects from the risk object of the current transaction or position depending on the scenario set. A new risk object is created for the current market data set and all market data scenarios that are contained in the transferred scenario set. This new risk object is identical to the original risk object, except for the market data information.

      3.      Fix Variable Cash Flows

The system determines future interest-rate-dependent and currency-dependent cash flows on the basis of the market data and market data scenarios.

      4.      Use Zero Conditions

For loans, the system displays the interest as zero for specific periods. One period lies between the conclusion of the contract and the first interest payment; the second period lies between the last interest payment and the final repayment. You have to call up this manipulation method, since the transactions concerned are represented in the Financial Database (FDB) in a form that is not suitable for Strategy Analyzer evaluations.

      5.      Split Cash Flows

The system carries out cash flow splitting. The system creates new risk objects for the current transaction or position for all the splitting levels that are specified in the splitting environment. The splitting level and splitting value are listed in the risk objects, and the transaction or position cash flows are adapted as required.

You make the necessary settings in Customizing for Risk Basis by choosing Bank Analyzer ® General Methods ® Risk Basis ® Manipulation Methods ® Edit Splitting Environment.

      6.      Distribute the Premium/Discount

The system distributes premiums and discounts to the cash flows of the relevant transactions.

      7.      Consider Interest Capitalization

The system recalculates the cash flows and the nominal amount for loans for which an interest capitalization is agreed instead of an outgoing interest payment. This results in a risk object being created that does not contain any interest cash flows but that takes into account the nominal capital increase.

      8.      Read Market Data (with information about the cash flow view and splitting values)

In this step, the system derives the market data set that is required for evaluating the transactions and positions with information about the cash flow view and the cash flow splitting.

You specify the cash flow views for the valuation run in the cash flow set. You assign the cash flow set in Customizing for Strategy Analyzer by choosing Processes ® Edit Valuation Run Types.

      9.      Use Due Date Scenarios

The system uses the specified due date scenarios for the current position in order to simulate the maturity of account balances.

You make the necessary settings in Customizing for Risk Basis by choosing Bank Analyzer ® General Methods ® Risk Basis ® Manipulation Methods ® Basic Settings for Methods ® Edit Due Date Scenario or Assign Due Date Scenario to Transaction Form.

   10.      Consider the Standard Interest Calculation Method

The system applies one interest calculation method to all transactions.

You define the interest calculation method in Customizing for Risk Basis by choosing Bank Analyzer ® General Methods ® Risk Basis ® Manipulation Methods ® Assign Method Field to Curr. Transl. KF and IntCalcMeth.

   11.      Determine Cash Flows

The system uses an option price model to determine the option parts of financial transactions.

You make the necessary settings for this in Customizing for Risk Basis by choosing Bank Analyzer ® General Methods ® Risk Basis ® Manipulation Methods ® Basic Settings for Methods ® Edit Cash Flow Determination Method and Assign Cash Flow Determination to Transaction Form.

 

The second and fifth methods are not manipulation methods in the strictest sense, since they do not change an existing internal processing structure (risk object) rather they create several risk objects for one transaction or position.

In the same way, one risk object exists for one transaction or position for each cash flow view. Strategy Analyzer receives these risk objects once the data has been selected from the Financial Database (FDB).

 

Result

Once you have called up the Cash Flow Engine, one risk object is available for each transaction or position for each cash flow view and for the market data scenarios and the splitting values. In the risk objects, the cash flows are adapted in such a way that Strategy Analyzer can evaluate the transactions or positions appropriately.