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Function documentationNon-Deliverable Forward (NDF)

 

Non-deliverable forwards (NDFs) are non-listed, short-term forward exchange transactions between a rarely traded or non-convertible currency and a readily convertible currency (typically USD) for which a cash settlement is always made on the due date (value date).

Unlike "ordinary" forward exchange transactions, NDFs apply not only a value date but also a fixing date for which the current market price is fixed. After the current exchange rate has been fixed, the difference between the agreed forward rate and the resulting settlement amount is calculated. The settlement amount is paid on the value date.

Note Note

You can use this function once you have activated the business function TRM, Hedge and Exposure Management, New Financial Instrument (FIN_TRM_LR_FI_AN_2) and implemented either Support Package 09 for ERP Enhancement Package 4 or Support Package 04 for SAP ERP 6.0 Enhancement Package 5.

End of the note.

Integration

The system checks the following authorization object when processing NDFs:

Authorization Object

Activities

Comments

T_DEAL_PD Authorization for Product Types / Transaction Types

01 Create or Generate

02 Change

03 Display

06 Delete

16 (Execute)

38 Execute

43 Release

48 Simulate

83 Counterconfirm

85 Cancel

AB Settle

KI Knock In

KO Knock Out

KU Give Notice

PR Edit Correspondence

PS Edit Correspondence - Special

VF Expired

You use this authorization object to specify the functions and activities that users can perform for a product type or a transaction type within a company code.

Usage in the Functions

All transactions for transaction management (trading and back office) in the Transaction Manager (FSCM-TRM-TM) that create or edit financial transactions (including BAPIs)

Prerequisites

  • Customizing for Transaction Management

    • In Customizing for SAP Treasury and Risk Management under Start of the navigation path Transaction Manager Next navigation step Foreign Exchange Next navigation step Transaction Management End of the navigation path, you start by creating a new product type for non-deliverable forwards for the product type 600 Foreign Exchange. In the Settlement field, choose Non-Deliverable Forward.

    • Under Define Transaction Types,, create a transaction type for this product type. In the transaction type, assign a number range for the transactions. In the Processing Category field, assign one of the following processing categories:

      • Processing category 121 with the activity chain: Order - Contract - Settlement - Fixing Settlement

      • Processing category 120 with the activity chain Order-Contract-Fixing

      Set the Automatic Posting Release indicator and/or Automatic Settlement for Counterconfirmation indicator if you want to. You can also assign a limit group and a status profile.

    • Assign Flow Types to Transaction Type

      You need to create flow types for purchase, sale, and cash settlement and assign these flow types to transaction rates.

      Example

      • 1000 Purchase (flow type 10 Principal Increase)

      • 1031 Cash settlement (flow type 31 Cash Settlement)

      • 2000 Sale (flow type 10 Principal Increase)

      • 0010 Charges (flow type 90 Other Flow/Condition) [optional]

    • Define Update Types and Assign Usages

      You also need to define update types that correspond to the transaction flow types already defined in the activity Define Flow Types. This reason for this is that, in the Transaction Manager, postings to Financial Accounting as well as position management use update types.

      Example

      • FX1000+ Purchase Foreign Exchange

      • FX2000– Sale Foreign Exchange

      • FX1031+ Cash Settlement

      • FX1031– Cash Settlement

      • FX0010+ Charge Foreign Exchange Transaction [optional]

      • FX0010+ Charge Foreign Exchange Transaction [optional]

      Furthermore, update types are also required for open/close flows:

      Example

      • OTC001 Open OTC Transaction

      • OTC002 Close OTC Transaction

      You assign the update types to the Transaction Management application.

    • Assign Flow Types to Update Types

      In this IMG activity, you assign the corresponding update types to the transaction flow types.

    • Assign Update Types for Position Update

      In this IMG activity, you assign per product type and transaction type an update type for the open flow and an update type for the close flow.

    • In the IMG activity Define Non-Deliverable Currencies under Start of the navigation path Transaction Manager Next navigation step General Settings Next navigation step Transaction Management Next navigation step Currencies End of the navigation path, specify which currencies are non-deliverable. When transactions are entered for non-deliverable forwards (NDFs), the system checks in this activity which currency among those used is the non-deliverable currency and proposes the other currency as the settlement currency. You can change the settlement currency proposed. However, settlement has to use one of the currencies involved. Settlement is not possible in a third currency.

      Note Note

      Exception: If the non-deliverable currency is the local currency, the system proposes it as the settlement currency.

      End of the note.

    • Correspondence

      • You can use the Correspondence Framework [available with the business function TRM, Correspondence Framework (FIN_TRM_CORR_FW)].

      • If you do not use the new correspondence framework, the existing correspondence functions are available. See also: Correspondence

      Make the necessary settings in Customizing.

  • Customizing for Accounting

    Make the following settings under Start of the navigation path Transaction Manager Next navigation step General Settings Next navigation step Accounting Next navigation step Settings for Position Management End of the navigation path:

    • In the activity Set the Effects of the Update Types on the Position Components, you define the value Indirect Position Change for the purchase, sale, and cash settlement update types of the NDF and the value No Position Changes for the open/close update types.

      Example

      FX1000+ Purchase Foreign Exchange – 1006 Indirect Position Change

      FX1031+ Cash Settlement – 1006 Indirect Position Change

      FX1031- Cash Settlement – 1006 Indirect Position Change

      FX2000- Sale Foreign Exchange – 1006 Indirect Position Change

      OTC001 Open OTC Transaction – 1000 No Position Change

      OTC002 Close OTC Transaction – 1000 No Position Change

    • In the activity Key Date Valuation, you can create a special valuation procedure for NDFs.

    • Define a position management procedure for Non-Deliverable Forwards and assign to it the procedure that you have defined above. The assign the position management procedure to the NDF positions.

      Note Note

      You can also assign an existing position management procedure to NDF positions.

      End of the note.

    • Make the settings for the derived business transactions.

      For example, you need a separate update type for posting an exchange rate gain/loss equivalent to the amount of the cash settlement at the end of the forward transaction (such as DBT_B013 Forward Exchange Transaction Gain (Standard) and DBT_B014 Forward Exchange Transaction Loss (Standard)), which you assign on the Rate Gains/Losses tab page in the activity Assign Update Types for Derived Business Transactions.

      Note Note

      If you use NDFs in hedging relationships, the settings that you need to make for their valuation and for the derived business transactions are more complex than those described here.

      End of the note.

    • Connection to Other Accounting Components

      Independently of the valuation area, you use account determination to specify the accounts to which the posting-relevant update types are posted in Financial Accounting. For this, you need to set up account determination for the update types used in transaction management as well as for the posting-relevant update types of the derived business transactions.

      In the context of an NDF, the posting-relevant update types are those for cash settlements, additional flows, and exchange rate gains/losses.

      Example

      • FX1031+ Cash Settlement – 1006 Indirect Position Change

      • FX1031- Cash Settlement – 1006 Indirect Position Change

      • Additional Flows

      • DBT_B013 Forward Exchange Transaction Gain (Standard)

      • DBT_B014 Forward Exchange Transaction Loss (Standard)

  • Master Data

    • Business Partner

      To portray forward exchange transactions, you have to assign the role Counterparty to your business partners.

  • Master Data for Currencies

    • Before you can enter currency exchange rates, you need to make the following settings in Customizing under Start of the navigation path Basic Functions Next navigation step Market Data Management Next navigation step Master Data Next navigation step Currencies End of the navigation path:

      • Check Currency Codes

        Define the required currency keys

      • Check Decimal Places for Currencies

      • Check Exchange Rate Types

        Define the exchange rate types for your exchange rates.

      • Check Rate Spreads

      • Check Rounding Rules for Currencies

      • Define Translation Ratios for Currency Translation

    • In the activity under Start of the navigation path Transaction Manager Next navigation step General Settings Next navigation step Transaction Management Next navigation step Currencies End of the navigation path, you have to specify which factory calendars are valid for the different currencies and specify which currency is the leading currency for the currency pairs. This setting is important for the determination of the quotation of an exchange rate when transactions are entered.

    See also: The documentation on the IMG activities.

  • Enter Market Data

    You can use the following options for entering market data in the system (in the case of NDFs, you need the exchange rates of the relevant currencies as well as the swap rates):

Features

  • Process Flow for a Non-Deliverable Forward (NDF)

  • Correspondence

    In the case of NDFs, confirmation letters are generally issued (for example, via SWIFT with MT300 format) when the contract is concluded and when fixing occurs.

    • You can use the Correspondence Framework [available with the business function TRM, Correspondence Framework (FIN_TRM_CORR_FW) and TRM, Correspondence Framework 2 (FIN_TRM_CORR_FW_2)].

      The fields SHERKUNFT and Fixing Date have been added to the correspondence objects of the correspondence framework.

    • If you do not use the new correspondence framework, the existing correspondence functions are available. See also: Correspondence

      Note Note

      You need to add the fields Fixing Date and Settlement Currency to the forms used for forward exchange transactions.

      End of the note.

  • NDFs are integrated in transaction and position management in Transaction Manager. You can use them as hedging instruments in Hedge Management. You can valuate them using key date valuation and edit them using the functions available for OTC transactions.

  • The net present value of non-deliverable forwards is calculated in the Market Risk Analyzer in the same way as the net present value of ordinary forward exchange transactions. Once fixing has occurred, however, the net present value of the NDF is the same as the settlement amount discounted to the key date.

    See also: Net Present Value Calculation of a Forward Exchange Transaction

  • You can analyze your NDFs using the standard reports for transaction and position management, such as the following:

    Furthermore, you can define queries for your NDF financial transactions using the logical database FTI_LDB_DEALS.

  • BAPIs

    The BAPIs available for BUS5600 Foreign Exchange for creating and editing foreign exchange transactions have been enhanced so that they can also be used for NDFs.

    For fixing, you can use the method NDFFixing Fixing of an NDF Transaction.

    See also: BAPIs for the Transaction Manager

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