Banking Back-Office
Processing
Foreign Exchange and
Money Market
Administration
Guide
NO WARRANTIES OF ANY NATURE ARE EXTENDED BY THIS DOCUMENT.
Any product and related material disclosed herein are only furnished pursuant and subject to the terms and conditions of a duly executed Program Product License or Agreement to purchase or lease equipment. The only warranties made by Unisys, if any, with respect to the products described in this document are set forth in such License or Agreement. Unisys cannot accept any financial or other responsibility that may be the result of your use of the information in this document or software material, including direct, indirect, special or
consequential damages.
You should be very careful to ensure that the use of this information and/or software material complies with the laws, rules, and regulations of the jurisdictions with respect to which it is used.
The information contained herein is subject to change without notice. Revisions may be issued to advise of such changes and/or additions.
Correspondence regarding this publication should be forwarded to Unisys Corporation, Bakers Court, Bakers Road, Uxbridge, Middlesex, UB8 1RG, United Kingdom.
Purpose
This guide describes the Foreign Exchange and Money Market functions offered by the Unisys
e-@ction Banking Back-Office Processing product.
The information contained in this guide is also available as online help.
Scope
This guide describes the Foreign Exchange and Money Market modules and associated data entry
screens. Examples of the screens are shown and instructions on their use are given.
Audience
This guide is intended for personnel preparing information for Foreign Exchange and Money
Market data entry.
Prerequisites
Any person using this guide should be familiar with the user documentation and understand the
banking terminology associated with Foreign Exchange and Money Market. Users of this guide
should have read the Starter’s Guide that provides instruction in the use of the screens.
About Urbis
The usage of the product name Urbis is due to be phased out as part of the Unisys re-branding
exercise. The replacement will be the generic term "Banking Back-Office Processing" solution or
"Banking Back-Office" for short. To provide continuity with existing product documentation, the
name Urbis is used within this document, but is synonymous with Banking Back-Office
Processing.
Organisation
This guide consists of five sections and one appendix.
Section 1. Foreign Exchange Contracts
This section describes the contracts processed by the Foreign Exchange module, how Foreign
Exchange profit is handled and Nostro and Agent combinations for settlement of Foreign
Exchange deals.
Section 2. Foreign Exchange Screens
This section describes the screens associated with entering Foreign Exchange transactions. A
short description and an illustration of each of the associated data entry screens is provided.
Section 3. Money Market Contracts
This section describes the contracts processed by the Money Market module, automatic rollover
facility, penalty charges and composite rate tax. This section also describes Nostro and Agent
combinations for settlement of Money Market deals.
Section 4. Money Market Screens
This section describes the screens associated with entering Money Market transactions. A short
description and an illustration of each of the associated data entry screens is provided.
Section 5. Definition of Field Names
This section provides definitions of the field names on the Foreign Exchange and Money Market
data entry screens.
Appendix A. Calculations
This appendix provides the formulas used for calculations associated with the processing of
Foreign Exchange and Money Market transactions.
Related Product Information
Product Overview (3937 0234)
This document describes the capabilities and benefits of the modules of the Banking Back-Office
Processing system. It consists of an overview of the system, and a description of each of the
modules and interfaces available. It is intended for use by senior management.
Operations Reference Card (3937 0986)
This document is a single card that provides a list of screen names and their mnemonics. The list
is organised according to the menu structure of the Graphical User Interface. The card also
describes how to log on and off the system, enter data, make inquiries and print reports. These
instructions are relevant to the Graphical User Interface only.
Starter’s Guide (3937 0531)
This guide describes how to enter data and make online inquiries. It also includes a description
and example of commonly used data entry and inquiry screens. This guide is intended for all new
and inexperienced personnel who need to enter data and make inquiries.
Guide to Setting Up (3937 0945)
This guide describes how to set up parameters that govern the operating environment of the
system. It describes the procedures for setting up the business and operational tables, and setting
up usercodes and access security. The procedures for setting up blueprint parameters are provided
with a description of each parameter. It should be used by all persons involved in installation,
implementation and maintenance of these system parameters.
Core Functions and Inquiries Guide (3937 0952)
This guide describes the kernel functions that are used regularly for the maintenance of
information utilised by a number of modules. It describes the procedures for setting up and
maintaining data, such as market rates and dealers. It also describes inquiries that are common to
all contracts. This guide is relevant to all users.
Settlements Guide (3937 0366)
This guide describes the processes associated with settlements and customer transfers. It details
how to administer the settlement queues. This guide also describes how to use the Straight
Through Processing and Netting functions. It should be used by personnel managing the
settlements department.
General Ledger Administration Guide (3937 0457)
This guide describes the data entry screens associated with General Ledger transactions. This
should be used by personnel preparing information for data entry.
Risk Management Administration Guide (3937 0358)
This guide describes the data entry screens associated with setting up limits and exposures. The
guide also describes the screens associated with portfolios. The amounts that represent book and
market values are listed by module in an appendix. This guide is intended for personnel preparing
information for data entry and those concerned with controlling risk.
Commercial Loans Administration Guide (3937 0150)
This guide describes the data entry screens associated with Commercial Loan transactions. This
includes entry of commitments, various types of drawdown and contract schedules. An appendix
gives the calculations used in the processing of Commercial Loan transactions. This guide is
intended for personnel preparing information for data entry.
Forward Rate Agreements and Interest Rate Swaps Administration Guide (3937 0168)
This guide describes the data entry screens and some related inquiries associated with Forward
Rate Agreement and Interest Rate Swaps transactions. An appendix gives the calculations used in
the processing of Forward Rate Agreement and Interest Rate Swap transactions. This guide is
intended for personnel preparing information for data entry.
Futures Administration Guide (3937 0176)
This guide describes the data entry screens associated with Futures transactions and some related
inquiries. An appendix gives the calculations used in the processing of Futures transactions. This
guide is intended for personnel preparing information for data entry.
Options Administration Guide (3937 0184)
This guide describes the data entry screens associated with Options transactions. An appendix
gives the calculations used in the processing of Options transactions. This guide is intended for
personnel preparing information for data entry.
Securities Administration Guide (3937 0341)
This guide describes the data entry screens associated with Interest Bearing Securities,
Discounted Securities and Repurchase Agreements transactions and some related inquiries. An
appendix gives the calculations used in the processing of Securities transactions. This guide is
intended for personnel preparing information for data entry.
Trade Finance Administration Guide (3937 0119)
This guide describes the data entry screens used by the Trade Finance department. This guide is
intended for personnel preparing information for data entry.
Generalised Fees Administration Guide (3937 0374)
This guide describes the data entry screens associated with Fee transactions and supporting
business table. This guide is intended for personnel preparing information for data entry.
Core On-Demand Reports (3937 0853)
This guide describes how to run online reports that are provided in the core of the system and
which will be relevant to most implementations of the system. Any options available when
producing a report are detailed as well as any specific calculations.
On-Demand Reports Guide (3937 0937)
This guide describes on-demand reports in alphabetical order. Any options available when
producing a report are detailed as well as any specific calculations. Note: core reports are
described in the Core Demand Reports Guide; retail reports are described in the Retail
On-Demand Reports Guide.
Overnight Reports (3937 0861)
This guide describes how to run offline reports. This includes an overview of overnight
processing. Instructions on how to initiate reports are given. This guide should be used by all
personnel who need to understand the reports and the overnight process.
Order Transport Management System (3937 1018)
This guide describes how to enter stock exchange securities contracts using the Order Transport
and Management System. The screens in this guide allow users to add, maintain and inquire on
deals, convert deals into stock exchange securities contracts, and liaise with brokers to complete
settlement of a deal. This guide is intended for personnel preparing information for data entry.
Portfolio Management (3937 1026)
This guide describes how to create portfolios for the clients and agents who will be trading stock
exchange securities with your institution. A large array of inquiry screens for managing these
portfolios is also described. This guide is intended for personnel preparing information for data
entry.
Stock Exchange and Securities Management (3937 1000)
This guide describes how to set up and maintain the securities master file, allowing you to record
details of stock exchange securities. This guide also describes how to create, maintain and inquire
on contracts based on stock exchange securities, including the necessary static data.
Loan Administration System Guide (3937 0994)
This guide describes the data entry screens associated with Syndicated Loans. It includes entry of
facilities, and contracts such as drawdowns, guarantees and acceptances and their schedules. The
screens in this guide allow users to enter data using workflows. This guide is intended for
personnel preparing information for data entry.
Static Database Reports Guide (3937 0085)
This guide provides examples of the master data information used in the establishment and
production of the static database. It should be used by persons who are familiarising themselves
with the systems functionality.
Static Database Transaction Input Guide (3937 0093)
This guide, in conjunction with the static database, enables users to evaluate the functions and
features of many of the modules. It should be used by persons who are familiarising themselves
with the systems functionality.
Section 1
Foreign Exchange Contracts
Contract Types
...
1–1
Outline Deal Input ...
1–1
All Foreign Exchange Contracts ...
1–2
Foreign Exchange Outrights ...
1–3
Market Foreign Exchange Commercial Deals ...
1–3
Foreign Exchange Swaps ...
1–4
Foreign Exchange Divided Swaps ...
1–4
Inter-Accounting Centre Loans and Deposits ...
1–4
Inter-Accounting Centre Deals through Foreign
Exchange Accounting Centre ...
1–5
Foreign Exchange Profits
...
1–6
Traditional Liquidation Method ...
1–6
Accrual Methods ...
1–6
Taking Profit into the Books ...
1–10
Exchange Rates
...
1–11
Exchange Rate Width Bands ...
1–11
Confirmation and Payment Advices
...
1–12
Nostro and Agent Combinations for Foreign Exchange
...
1–13
Foreign Exchange Positions
...
1–17
Entering Opening Positions
...
1–18
Setting Up Foreign Exchange Spot Positions ...
1–19
Setting Up Foreign Exchange Profit Positions ...
1–20
Statistics
...
1–21
Euro Related Information
...
1–21
Section 2
Foreign Exchange Screens
Introduction to Foreign Exchange
...
2–1
Creating a Foreign Exchange Contract
...
2–2
Straight Through Processing (STP) ...
2–3
Foreign Exchange Swap Contract Screens
...
2–15
Foreign Exchange Swap Add (FXSWA) ...
2–16
Foreign Exchange Swap Change (FXSWC) ...
2–18
Foreign Exchange Swap Inquire/Delete (FXSWI) ....
2–19
Foreign Exchange Inter-Accounting Centre Loan/Deposit
Contract Screens
...
2–20
Foreign Exchange Inter-Accounting Centre
Loan/Deposit Add (FXLDA) ...
2–21
Foreign Exchange Inter-Accounting Centre
Loan/Deposit Change (FXLDC) ...
2–23
Foreign Exchange Inter-Accounting Centre
Loan/Deposit Inquire/Delete (FXLDI) ...
2–24
Foreign Exchange Inter-Accounting Centre Contract
Screens
...
2–25
Foreign Exchange Inter-Accounting Centre Add
(FXIDA) ...
2–26
Foreign Exchange Inter-Accounting Centre Change
(FXIDC) ...
2–27
Foreign Exchange Inter-Accounting Centre
Inquire/Delete (FXIDI) ...
2–27
Contract Diary Narratives
...
2–28
FX Positions Summary (FXPSI)
...
2–29
Section 3
Money Market Contracts
Contract Types
...
3–1
All Money Market Contracts
...
3–2
Interest Accrual
...
3–2
Automatic Rollover Facility
...
3–3
Automatic Rollover of Money Market Fixed Rate
and Index Rate Loans and Deposits ...
3–3
Automatic Rollover of Money Market Base Rate
Deposits ...
3–4
Payments
...
3–5
Fixed Rate Loans and Deposits
...
3–5
Index Rate Loans and Deposits
...
3–5
Base Rate Loans and Deposits
...
3–5
Discounted Loans
...
3–6
Fiduciary Contracts
...
3–6
Money Market Schedule Events
...
3–7
Fixed Rate Loan or Deposit Schedule Events ...
3–7
Index Rate Loan or Deposit Schedule Events ...
3–7
Base Rate Loan or Deposit Schedule Events ...
3–7
Mark to Market Valuation
...
3–8
Penalty Charges
...
3–8
Withholding Tax
...
3–9
Interest Accrual After Due Date
...
3–9
Cost of Funds
...
3–10
Confirmation and Payment Advices
...
3–10
Section 4
Money Market Screens
Introduction to Money Market Screens
...
4–1
Creating a Money Market Contract
...
4–2
Creating a Fiduciary Contract
...
4–3
Straight Through Processing (STP) ...
4–5
Money Market Default Maintenance (MMDFM)
...
4–5
Money Market Outline Deal Input (MMDEA)
...
4–7
Money Market Fixed Rate Loan/Deposit Screens
...
4–9
Money Market Loan/Deposit Add (MMLDA) ...
4–9
Money Market Loan/Deposit Change (MMLDC) ...
4–11
Money Market Loan/Deposit Inquire/Delete
(MMLDI) ...
4–12
Money Market Fixed Rate Loan/Deposit Schedule
Screens
...
4–13
Money Market Loan/Deposit Schedule Add
(MMLSA) ...
4–13
Money Market Loan/Deposit Schedule Change
(MMLSC) ...
4–15
Money Market Loan/Deposit Schedule
Inquire/Delete (MMLSI) ...
4–16
Money Market Base Rate Loan/Deposit Screens
...
4–17
Money Market Base Rate Loan/Deposit Add
(MMBRA) ...
4–17
Money Market Base Rate Loan/Deposit Change
(MMBRC) ...
4–19
Money Market Base Rate Loan/Deposit
Inquire/Delete (MMBRI) ...
4–21
Money Market Base Rate Loan/Deposit Schedule
Screens
...
4–22
Money Market Base Rate Schedule Add
(MMBSA) ...
4–22
Money Market Base Rate Schedule Change
(MMBSC) ...
4–24
Money Market Base Rate Schedule Inquire/Delete
(MMBSI) ...
4–25
Money Market Index Rate Loan/Deposit Screens
...
4–26
Money Market Index Rate Loan/Deposit Add
(MMIRA) ...
4–26
Money Market Index Rate Loan/Deposit Change
(MMIRC) ...
4–28
Money Market Index Rate Loan/Deposit
Money Market Discounted Loan Screens
...
4–36
Money Market Discounted Loan Add (MMDLA) ...
4–36
Money Market Discounted Loan Change
(MMDLC) ...
4–38
Money Market Discounted Loan Inquire/Delete
(MMDLI) ...
4–40
Fiduciary Contract Screens
...
4–41
Fiduciary Loan/Deposit Maintenance (FILDM) ...
4–41
Fiduciary Loan Inquiry (FILNI) ...
4–44
Contract Diary Narratives
...
4–46
Section 5
Definition of Field Names
Introduction
...
5–1
Appendix A Calculations
Introduction
...
A–1
Interest
...
A–1
Foreign Exchange Calculations
...
A–1
Mark to Market Calculations ...
A–2
Profit Currency Determination ...
A–3
Profit/Loss Determination ...
A–3
Total Profit on Foreign Exchange Deal ...
A–4
Position Rate Change by Currency ...
A–5
Interpolation of Market Interest Rates ...
A–6
Money Market Calculations
...
A–7
Brokerage ...
A–7
Interest Paid ...
A–7
Book Value ...
A–7
Yield Rate ...
A–7
1–1
FX Position Installation Change screen ...
1–19
1–2
FX Profit Installation Change screen ...
1–20
2–1
Flow of Foreign Exchange Contract Creation Screens ...
2–2
2–2
Foreign Exchange Default Maintenance screen ...
2–4
2–3
Foreign Exchange Outline Deal Input screen for Foreign Exchange
Market Contracts ...
2–6
2–4
Foreign Exchange Market Add screen ...
2–9
2–5
Foreign Exchange Market Change screen ...
2–10
2–6
Foreign Exchange Takeup Add screen ...
2–13
2–7
Foreign Exchange Swap Add screen ...
2–17
2–8
Foreign Exchange Swap Change screen ...
2–19
2–9
Inter-Accounting Centre Loan/Deposit Add screen ...
2–22
2–10 Foreign Exchange Inter-Accounting Centre Loan/Deposit Change
screen
...
2–23
2–11 Foreign Exchange Inter-Accounting Centre Add screen ...
2–26
2–12 Foreign Exchange Inter-Accounting Centre Change screen ...
2–27
2–13 Foreign Exchange Positions Summary screen ...
2–29
4–1
Flow of Money Market Contract Creation Screens ...
4–2
4–2
Flow of Fiduciary Contract Creation Screens ...
4–4
4–3
Money Market Default Maintenance screen ...
4–6
4–4
Money Market Outline Deal Input screen ...
4–8
4–5
Money Market Loan/Deposit Add screen ...
4–10
4–6
Money Market Loan/Deposit Change screen ...
4–12
4–7
Money Market Loan/Deposit Schedule Add screen ...
4–14
4–8
Money Market Loan/Deposit Schedule Change screen ...
4–15
4–9
Money Market Loan/Deposit Schedule Inquire/Delete screen ...
4–16
4–10 Money Market Base Rate Loan/Deposit Add screen ...
4–18
4–11 Money Market Base Rate Loan/Deposit Change screen ...
4–20
4–12 Money Market Base Rate Schedule Add screen ...
4–23
4–13 Money Market Base Rate Schedule Change screen ...
4–24
4–14 Money Market Base Rate Schedule Inquire/Delete screen ...
4–25
4–15 Money Market Index Rate Loan/Deposit Add screen ...
4–27
4–16 Money Market Index Rate Loan/Deposit Change screen ...
4–29
1–1
Entries in Nostro and Agent Fields - Foreign Exchange ...
1–14
3–1
Entries in Nostro and Agent Fields - Money Market ...
3–12
5–1
Definition of Field Names ...
5–1
Contract Types
The Foreign Exchange module processes the following types of contract:
•
Foreign Exchange Outrights
•
Market Foreign Exchange Commercial Deals
•
Foreign Exchange Swaps
•
Foreign Exchange Divided Swaps
•
Inter-Accounting Centre Loans and Deposits
•
Inter-Accounting Centre Deals through Foreign Exchange Accounting Centre
Outline Deal Input
The outline deal input facility, see 'Entering an Outline Deal' in the
Starter's Guide
for full details,
can be used to enter:
•
Foreign Exchange Outrights
•
Market Foreign Exchange Commercial Deals
•
Foreign Exchange Swaps
•
Foreign Exchange Divided Swaps
However, outline deals are not relevant to:
•
Inter-Accounting Centre Loans and Deposits
All Foreign Exchange Contracts
Each contract is linked to a General Ledger Master and an accounting centre. A default can be set
up for the General Ledger Master and Accounting Centre. The General Ledger Master determines
the ledger category for the contract, see the
General Ledger Administration Guide
for further
information on General Ledger Masters.
If a contract is arranged through a broker, the brokerage payable can be either entered as an
amount or calculated from the Brokerage Tables. When brokerage is calculated the contract
exchange rate is used if the brokerage currency is one of the deal currencies; the mid market
exchange rate is used if the brokerage currency is neither of the deal currencies.
Back-valued Foreign Exchange contracts can be entered. They are matured as they are entered.
All necessary accounting entries are processed and the Foreign Exchange profits are adjusted as
required.
For each Foreign Exchange contract, you can enter narrative events that are used for reporting
purposes. Each contract can have any number of associated narrative events, provided that each
event has a different value date.
Foreign Exchange Outrights
Outrights are the single exchange of two currencies at a specified exchange rate and on a specified
date.
Split Value Date
Foreign Exchange contracts have a split value date where the purchase and sale events of the two
currencies involved are settled on two different maturity dates, the bought maturity date and the
sold maturity date. This functionality is available only for Foreign Exchange Outright deals.
Market Foreign Exchange Commercial Deals
Commercial Foreign Exchange deals are exchanges of currency on which commission can be
charged. Spot, forward and option deals can be entered.
Spot deals are those that mature on or before the spot date (normally two business days forward).
Commission and charges on the deal are entered when the contract is entered.
Forward deals are those that mature on a specific date beyond the spot date. Commission and
charges can be entered for the maturity of the contract at any time before the maturity date.
Option deals are those for which the initial rate and amount are set at the start date but which may
be settled at any time in the future between two specific dates agreed by the counterparties. The
client can exercise the option in a number of take-ups. Up to 999 take-ups can be made on a
commercial option deal, any number of which can be made on one day.
Take-ups can be made from the option date up to the day before the contract matures. Back or
forward valued take-ups can be entered in which case the accounting entries and profits will be
updated accordingly, on the value date of the forward take-up and on the input date for
backvalued entries.
The deal currency on a takeup is identified when the option deal is entered. All takeups are
calculated on the basis of the current exchange rate, as defined by the system, for that currency.
If the nostro or agent is not entered, the original (parent) contract details are used.
Commission and charges, which can be in any currency, are entered for each takeup. If the
currency is the same as the bought or sold currency, the commission and charges are added to or
subtracted from the exchange amount.
Foreign Exchange Swaps
A Foreign Exchange Swap involves the spot purchase, or sale, of one currency and the reverse
sale, or purchase, of the same amount of that currency against a second currency on a future date.
Foreign Exchange Swaps differ from Divided Swaps in that the counterparty is the same at both
ends of the deal. The two ends of the Foreign Exchange Swap take place at specified near and far
dates.
The deal is treated as one contract. For accounting purposes, the Foreign Exchange Swap is
treated as an outright after the near end has been reached, but the contract is reported as a swap.
Foreign Exchange Divided Swaps
Divided Swaps are the near and forward exchange of a common amount in common currencies
where the counterparty differs at each end of the deal. Divided Swaps are entered using two
market Foreign Exchange contract screens, one for the near end of the deal and one for the far end
of the deal. An indicator field is used to identify the contract as a Divided Swap and the contract
to which it relates is identified by a unique reference number.
Inter-Accounting Centre Loans and Deposits
These are internal loans and deposits between two accounting centres in the same or different
sectors of your bank, made via the Foreign Exchange accounting centre.
The inter-accounting centre loan and deposit deal enables an accounting centre that is short of
funds in one currency to borrow from an accounting centre that is long on funds in a different (or
in the same) currency, at internal rates of interest.
Within the system an inter-accounting centre loan/deposit is divided into two separate deals:
•
A deal between the lending accounting centre and the Foreign Exchange accounting centre
•
A deal between the borrowing accounting centre and the Foreign Exchange accounting centre
The internal funding can either be in a single currency, or across currencies (interest arbitrage). In
the former case both sides of the deal must have the same interest rate and basis. In the latter case,
the inter-accounting centre loan and deposit deal consists of a deposit of one currency from the
lending accounting centre to the Foreign Exchange accounting centre, and a loan in another
currency to the borrowing accounting centre.
For interest arbitrage, the exchange rate and the two rates of interest charged for the deal are fixed
and determine the allocation of profit between the three accounting centres. The external cash
flows in each accounting centre are balanced by the internal transaction and the exchange risk on
any mismatched interest is identified in the forward currency positions. The exchange risk to both
the principal and interest is included in the Foreign Exchange accounting centre's positions, ladder
and profitability reporting.
Inter-Accounting Centre Deals through Foreign Exchange
Accounting Centre
These are outright Foreign Exchange deals, either spot or forward, between two accounting
centres (one of which must be the Foreign Exchange accounting centre) in the same or different
sectors of your bank.
The inter-accounting centre deal enables accounting centres to cover their customer generated
Foreign Exchange requirements internally. The Foreign Exchange positions of the accounting
centres involved are automatically updated when the transaction is entered and are included in the
maturity ladder. Any profit or loss obtained by the dealers is reported in the accounting centre
profitability figures.
Foreign Exchange Profits
Two methods of reporting Foreign Exchange profits on a daily basis are provided. These are:
•
The traditional liquidation method, which uses the forward market rates
•
The accruals method which uses the swap differential at the time of the deal
Traditional Liquidation Method
Traditional liquidation determines profits by valuing the forward Foreign Exchange book at its
current liquidation value.
This method of calculating profit is refined by enabling you to enter forward (anticipated) market
exchange rates which may then be applied on the maturity date of forward contracts. Such
forward rates cannot be set up for every contract maturity date so, where no rate is available, a
derived rate is applied. This is based on the interpolation between forward rates lying on either
side of the maturity date.
Accrual Methods
When you enter a Foreign Exchange Market deal, you indicate which accrual method you want
the system to use for that deal. When a new contract is set up based on a product, the product's
accrual method will be used by default. However, these defaults can be overwritten when entering
the contract on the add screens except in the cases where the default has been set to None. There
are currently six options available:
•
Spot Revaluation
•
Undiscounted Special
•
Deferred Swap Profits
•
Discounted Standard
•
Undiscounted Standard
•
None
Note:
If you enter a deal with a backvalued near date, the system calculates accruals between
input date and maturity date only.
Spot Revaluation
This accrual method is sensitive to changes in the spot exchange rate over the life of a contract.
For Outright deals it is necessary to specify the deal rate and maturity date. Additionally, for
deals that use the spot revaluation method it is also a requirement to specify a near rate and a near
date. These represent the prevailing spot rate and spot date at the time of deal input.
Spot Revaluation is formed of four elements (all amounts are converted to base currency at
mid-market spot rates):
•
Adjustment back to spot (ABTS).
For Outright deals, ABTS is the difference between the non-profit amount converted using
the near rate, and the deal amount.
For Swaps, ABTS is the difference between the far non-profit amount converted using the
near rate, and the far profit Amount.
For both Outright and Swap deals ABTS is calculated only once and is available for posting
on the first day of input.
•
Amortised Adjustment (AMADJ)
AMADJ is the ABTS amount amortised between the near date and the day before the
maturity date. For example if the ABTS is 100 and there are 20 days between the near and
maturity dates then the daily AMADJ will be 5.
This amount is calculated on a daily basis and is available from the near date until the day
before maturity.
•
Rate Change (RCH)
For Outright deals, RCH is the difference between the non-profit amount converted using the
deal mid market rate, and the profit amount.
For Swap deals, RCH is calculated as follows:
The near leg RCH is the difference between the near non deal amount (converted using the
deal mid market rate) and the deal amount. This ceases after the near leg has passed.
The far leg RCH is the difference between the far non deal amount (converted using the deal
mid market rate) and the deal amount.
The RCH for the Swap is the sum of the near and far leg RCH
This amount is calculated on a daily basis and is available from the second day after input
until maturity.
•
Profit Element of Spot (PEL)
PEL is the Rate Change (RCH) amount on the day of input minus the Amortisation Back to
Spot amount (ABTS).
This amount is only available on the day of input.
The total daily profit for a deal is:
The following calculation is used for each foreign exchange contract that uses the "Undiscounted
Special" accrual method:
1. Using today's spot conversion rates:
•
Add or subtract the buy currency forward points to the buy currency market buy rate to
establish the buy currency forward rate.
•
Add or subtract the sell currency forward points to the sell currency market sell rate to
establish the sell currency forward rate.
2. The "Deal Amount" is converted to the non deal currency using the currency forward rates
calculated above.
3. The difference between today's revaluation and yesterday's revaluation is taken as the profit
or loss. On the input date the non deal amount is used for comparison.
4. This profit or loss is converted to the base currency using the non deal and base currency mid
market (spot) rates and may be posted as required by the user’s accounting model.
For Foreign Exchange Swaps calculation is repeated for both the near and far legs. The profit and
loss from each leg is made available for posting separately.
Revaluation occurs each day from the input date to and including the exchange date.
Deferred Profits
This accrual method applies for foreign exchange swaps and foreign exchange markets used for
investment purposes.
1. Establish the profit currency:
•
If one of the exchange currencies is the base currency, then this is the profit currency
•
If neither of the exchange currencies is the base currency, then the deal currency is the
profit currency.
2. The non profit amount is converted to the profit currency using the
mid market
spot rates
applicable to those currencies.
3. The difference between today's revaluation and yesterday's revaluation is regarded as the
profit or loss. This amount is converted to the base currency using the
mid market profit
and
base currency rates
and posted.
When dealing with foreign exchange swaps, the profit or loss for the near leg is revalued and
posted on a daily basis. Far leg revaluation is posted once at maturity. Revaluation occurs each
day from the input date to and including the exchange date.
When dealing with foreign exchange market, the 'Rolled up Profit and Loss’ that is the total
revaluation is made available on the single daily accrual event (DY) which is then posted on the
maturity date of the deal. It is calculated as follows:
•
The non-profit amount is converted to the profit currency at the closing mid market rates on
the maturity date.
Undiscounted Standard
This method revalues the deal daily using the current mid market forward rate applicable to the
deal's maturity date.
1. Using today's spot conversion rates:
•
Add or subtract the buy currency mid market forward points to the buy currency
mid-market rate to establish the buy currency forward rate.
•
Add or subtract the sell currency mid market forward points to the sell currency
mid-market rate to establish the sell currency forward rate.
2. Establish the profit currency:
•
If one of the currencies is the base currency, then this is the profit currency
•
If neither of the currencies is the base currency, then the deal currency is the profit
currency.
3. The non profit amount is converted to the profit currency using the currency forward rates
calculated above.
4. The difference between the buy and sell amounts (both denominated in the profit currency) is
converted to the base currency using the profit and base currency mid-market rates.
5. This figure is compared with yesterday's net revaluation and the difference is posted.
For Foreign Exchange Swaps, this calculation is repeated for both the near and far legs. The profit
and loss from each leg is made available for posting separately.
Revaluation occurs each day from the input date to and including the exchange date.
Discounted Standard
This method uses market forward rates as defined in Undiscounted Standard to revalue into base
currency and then discounts this figure back to the current date using a named base currency
zero-coupon rates table to give the present value.
All the first five points of the Undiscounted Standard method are appropriate when using
Discounted Standard. In addition, once the base currency is established, it is discounted before it
is compared with yesterday's net revaluation.
Present Value =
Mark to Market
Discount Factor
Discount Rate:
The discount rate table is defined in the blueprint parameter BP-ZRO-CPN-RTE-TBL. The
system accesses the rate applicable to the base currency. If the number of days to maturity is
between two rates as defined on the table, a rate will be interpolated.
Note:
The blueprint parameter BP-DISC-ADV may hold a value which defines the number of
working days from the current system date to the “present date” to which the “present
value” relates. The default is zero days ahead that is discounting back to today’s date. If
set to 2, then discounting will be back to the spot date instead.
None
This method may be specified in order to prevent certain Foreign Exchange contracts from being
revalued. As there is no revaluation the positions do not get updated.
Taking Profit into the Books
Both the Traditional Liquidation and Accrual methods of calculating Foreign Exchange profit
produce the same valuation of total contract profit at maturity. The figures calculated from the
Accrual Method are those that are used for passing to the accounting models. The Traditional
Liquidation method is used for reporting purposes only. The passing of Foreign Exchange profit
into the books of your bank is optional.
The net postings are available at maturity so that the sums can be automatically transferred from
unrealised accounts into profit and loss accounts.
Exchange Rates
Exchange rates on Foreign Exchange contracts can be between 0 and 9999 with an accuracy of up
to eight decimal places. When you enter a contract, you need only enter the deal amount and the
exchange rate. It is also possible to enter the amount of the other currency involved in the deal; if
the other amount is not entered it is calculated automatically.
Note:
If the exchange rate entered is close to one, both the deal amount and the non-deal
amount must be entered. The margins allowed for the exchange rates are controlled by
the blueprint parameters (BP-HI-XRATE and BP-LO-XRATE) set up at installation.
Current spot rates are determined from the market-buy and market-sell rates, which are held on
the Exchange Rates Table.
In a multi-sector environment, exchange rates used for validation and profit calculation are
associated with the accounting centre from which the deal originates when it is entered.
For deals that involve an exchange of the base currency, the current spot rate is either the
market-buy or sell rate for the “other” currency, depending on whether it is being bought or sold.
For deals that do not involve the base currency, the current spot rate is calculated as a cross-rate
using the market-sell rate (for the sold currency) and the market-buy rate (for the bought
currency).
For certain Foreign Exchange deals the exchange rate field is invalid with the introduction of the
euro. (See Euro Related Information in the
Core Functions and Inquiries Guide
.)
Exchange Rate Width Bands
When you enter a Foreign Exchange contract, the exchange rate is checked to see whether it falls
within width bands when compared with the current spot rate for the bought and sold currencies.
The width bands for each currency are held on the Currencies (CCYS) table.
These bands work as follows:
1. If the exchange rate is within the first band, it is accepted.
2. If the exchange rate is outside the first band, but within the second band, a wide code must be
entered to accept it.
3. If the exchange rate is outside the second band, a management code must be entered to accept
it.
Confirmation and Payment Advices
Input confirmations are printed (or S.W.I.F.T. messages are generated) when a contract is entered.
Confirmations for subsequent events are produced a number of days in advance of the event (as
set up at installation). These subsequent confirmations are produced during the end-of-day
processing.
Payment advices are printed (or S.W.I.F.T. messages are generated) whenever a movement of
currency is recorded. For inter-accounting centre contracts, no payment advices are printed (nor
S.W.I.F.T. messages generated) since there is no external cash flow. When Foreign Exchange
Swaps are entered, payment advices are produced for both ends of the swap.
For each contract entered, you can specify the priority of the S.W.I.F.T. messages generated for
that contract by making an entry in the 'Message Priority' field. If you do not specify the message
priority, the default value is used.
Nostro and Agent Combinations for Foreign
Exchange
The accounts between which payments are made are automatically identified, on the basis of the
nostros and agents that have been set up for each particular contract giving rise to the notice or
payment. Default nostro and agents may be allocated according to rules set up on the Nostro
Settlement Defaults (NSDFM) and the Agent Settlement Defaults (AGDFM) tables. If
compensating payments are being made through a Nostro, the payments can be netted so that no
actual payment is made.
A nostro account is defined as “our account with another bank” (the correspondent). In order to
correctly reflect any money held with another bank, a copy of the nostro account is maintained in
its own books.
Nostro accounts are set up using the Nostro Details (NSTRO) table. They are identified by a
nostro number and currency or a nostro name and currency.
An agent is defined as a “third party responsible for paying or receiving funds on a contract”.
Agents are set up using the Agent Details (AGNTM) table. They are identified by an agent
nickname.
For details of how to set up nostros and agents, see the
Settlements Guide.
Nostros and Agents are specified when entering certain contracts under the Foreign Exchange
module. In order that instructions for the transfer of funds are correctly generated (using either the
S.W.I.F.T. network, if applicable, or printed messages), the system ensures that only valid
combinations of nostros and agents can be specified for each contract.
Table 1-1 lists and describes valid combinations of entries in the nostro and agent fields. Note the
following:
•
A nostro can be identified by
either
its name
or
number.
•
The use of an Agent does not necessarily indicate that an account relationship exists between
the bank and the agent. For example settlement messages may be sent by the bank to its pay
nostro, with information for onward transmission to the client's agent. Similarly, settlement
messages may be received from the client's agent by the bank's receive nostro, with
information for onward transmission to the bank.
•
Standard settlement instructions can be entered to use the default settings for the nostro and
agent for the contract. These instructions can be applied to the contract by entering ‘SSI’ in
Note:
The default settings for both the agent and the nostro can be entered using other
methods. Entering the number or name for the default agent or nostro will display the
entered detail for the agent or nostro. Leaving the agent or nostro blank will result in the
system applying the default, if available, or ‘T’ (To be advised).
Table 1–1. Entries in Nostro and Agent Fields - Foreign Exchange
Nostro Agent Description
Number/Name Name Your correspondent and the client's agent are different. The agent's nickname is entered in the Agent field.
Number/Name Number/Name The client's agent is one of your correspondents:
1. The nostro number/name in the Nostro field can be different from the nostro number/name in the Agent field. 2. If your correspondent and the client's
agent are the same, the nostro
number/name entered in the Nostro field can refer to the same nostro as that entered in the Agent field.
Number/Name S Your correspondent and the client's agent are the same. (This is equivalent to 2. above).
Number/Name U There is no agent.
Number/Name T Your correspondent is known; the client's agent is to be advised. If a S.W.I.F.T. message would normally have been sent, this combination will result in it not being sent - printed messages will be generated instead.
V Vostro A/C No. Posting is to be made using a vostro. The Agent field identifies the account to be used.
D Name Posting is to be made directly from/to your
bank to/from the client's agent. You can enter either an agent's nickname or a nostro number/name in the agent field.
D U There is no agent. Posting is to be made
directly from your bank to the error suspense account. When the receive account is known, use the batch postings facility to effect the transfer.
D T Posting is to be made directly from your
bank to a client's agent who is to be advised. If a S.W.I.F.T. message would normally have been sent, this combination will result in it
not being sent - printed messages will be generated instead.
Nostro Agent Description
T Name Your correspondent is to be advised; the
client's agent is known. You can enter a nostro number/name in the Agent field. This combination will result in S.W.I.F.T. messages not being sent - printed messages will be generated instead.
T U Your correspondent is to be advised and the
client doesn't have an agent. This combination will result in S.W.I.F.T. messages not being sent - printed messages will be generated instead.
T T Both your correspondent and the client's
agent are to be advised. The settlement message will be sent directly to the nostro, when entered. This nostro/agent
combination should be used with care when payment takes place at the start event. This combination will result in S.W.I.F.T. messages not being sent - printed messages will be generated instead.
C T No payment is to be made, as the payment
amount is to be compensated by a second contract.
SSI SSI The contract is to use the default nostro and agent defined using the Agent Settlement Defaults (AGDFM) screen and the Nostro Settlement Defaults (NSDFM) screen. Number/Name/
SSI/blank
SSI The contract is to use the default agent defined using the Agent Settlement Defaults (AGDFM) screen.
SSI Number/Name/ SSI/Blank
The contract is to use the default nostro defined using the Nostro Settlement Defaults (NSDFM) screen.
Number/Name/ SSI
NSTD Settlement instructions specific to the contract are to be used for the agent. Enter ‘NSTD’ in the “Their Receive Agent” field and clicking “Settlement Instructions” will link to the Non Standard Settlement Instructions (NSTDM) screen.
Only the following formats should be used:
•
@BBBBCCLL
•
@BBBBCCLLXXX
Where:
BBBB = Four alphabetic characters representing the S.W.I.F.T. bank identifier
CC
= Two alphabetic characters representing the S.W.I.F.T. country code
LL
= S.W.I.F.T. location code
XXX
= Three alphabetic/numeric characters representing the S.W.I.F.T. branch code (if
applicable)
Foreign Exchange Positions
The following Foreign Exchange positions are maintained for each currency in which you deal:
•
Spot Position
•
Open Position
•
Forwards Bought (External)
•
Forwards Sold (External)
•
Net of Forwards Bought and Sold (External)
•
Forwards Bought (Internal)
•
Forwards Bought (Internal)
•
Net of Forwards Bought and Sold (Internal)
•
Inter-Accounting Centre Loan/Deposit Principal Position
•
Inter-Accounting Centre Loan/Deposit Forward Interest Bought
•
Inter-Accounting Centre Loan/Deposit Forward Interest Sold
•
Net of Inter-Accounting Centre Loan/Deposit Forward Interest
•
Net Position
These positions are maintained during Overnight processing by the FXBOD - Foreign Exchange
Beginning-of-Day Update report, see the
Overnight Reports Guide
for details.
Entering Opening Positions
Before the system was installed at your bank, you may have been involved in foreign exchange
trading. Foreign exchange positions may therefore already exist. Furthermore, during migration of
data, new contracts will have been entered into. It is therefore important that, before installation is
complete, you are able to verify that the foreign exchange positions with which this system starts
are correct.
The following screens are used to set up your opening foreign exchange positions, to reflect the
correct starting point for the system:
•
Foreign Exchange Position Installation Change (FXPSC)
•
Foreign Exchange Profit Installation Change (FXPFC)
These screens can be set up in any order. They can only be used before installation is complete:
á
The “Installation Complete” indicator on the System Parameters (SPMTR) table must be switched
off
T
The “Installation Complete” indicator on the System Parameters (SPMTR) table must be set to
“N”
Once the installation process is completed, these screens cannot be used.
Setting Up Foreign Exchange Spot Positions
Foreign exchange spot positions are set up on the FX Position Installation Change screen
(FXPSC).
FX Position Installation Change (FXPSC)
This screen is used to set up the foreign exchange spot position for each accounting centre and
currency combination. For each combination, complete the following:
á
Enter the accounting centre and currency mnemonics and click
Inquire
When all the information is displayed, change the spot position to the required amount and click
Change
T
Enter the accounting centre and currency mnemonics and press
Transmit
When all the information is displayed, change the spot position to the required amount and press
Transmit
The system calculates the new net spot and open positions and displays the new positions.
The following figure shows an example of the FX Position Installation Change screen.
Setting Up Foreign Exchange Profit Positions
The foreign exchange untransferred profit to date is set up on the FX Profit Installation Change
screen (FXPFC).
FX Profit Installation Change (FXPFC)
This screen is used to set up the untransferred profit to date for each accounting centre. For each
accounting centre, complete the following steps:
á
Enter the accounting centre mnemonic and click
Inquire
When the information is displayed, enter the untransferred profit to date and click
Change
T
Enter the accounting centre mnemonic and press
Transmit
When the information is displayed, enter the untransferred profit to date and press
Transmit
The following figure shows an example of the FX Profit Installation Change screen.
Statistics
Statistical information is maintained for each contract for the current period and since the contract
was entered.
For outrights, swaps, commercial Foreign Exchange deals and inter-accounting centre deals, the
following statistics are maintained:
•
Total profit on spot element profit accrued
•
Total rate change profit accrued
•
Total amortised adjustment back to spot accrued
For inter-accounting centre loans and deposits, the following statistics are maintained:
•
Total interest revenue accrued
•
Total interest expense accrued
These statistics are maintained during Overnight processing by the FXEOD - Foreign Exchange
End-of-Day Update report, see the
Overnight Reports Guide
for details.
Euro Related Information
Economic and Monetary Union (EMU) is a process by which certain countries in the European
Union are converting their national currencies (also called “in” currencies) into a single European
currency called the Euro.
The system supports this conversion process fully for all currencies and all phases of the
conversion (see "Euro Related Information" in the
Core Functions and Inquiries Guide
for more
information).
Introduction to Foreign Exchange
This section provides a description of each Foreign Exchange screen:
•
Foreign Exchange Default Maintenance (FXDFM)
•
Foreign Exchange Outline Deal Input (FXDEA)
•
FX Market Contract (FXMKA/C/I)
•
FX Takeup (FXTKA/C/I)
•
FX Swap (FXSWA/C/I)
•
FX Inter-Accounting Centre Loan/Deposit (FXLDA/C/I)
•
FX Inter-Accounting Centre Deals (FXIDA/C/I)
•
Contract Diary Narratives (CNARA/M)
•
FX Positions Summary (FXPSI)
Refer to the
Starter's Guide
for a description of how to access and use screens.
For each screen the following is provided:
•
A description of its use
•
An example of the screen
Creating a Foreign Exchange Contract
A foreign exchange contract is created by completing the appropriate screen. The foreign
exchange contract creation process is illustrated in the following flow.
Figure 2–1. Flow of Foreign Exchange Contract Creation Screens
Note: The outline deal screens are only relevant to Foreign Exchange Market and Foreign
Exchange Swap contracts.
In addition to the above screens, there are screens to:
-
change, copy, delete, replace and inquire on individual contracts
-
show the foreign exchange positions for a particular accounting centre
-
perform a debit adjustment on the profit position by crediting a specified general
ledger
account.
Set up the defaults for all foreign exchange contracts
(FXDFM) Foreign Exchange
Defaults Maint
Define foreign exchange contracts
If the foreign exchange market contract is an option
deal, enter the takeup deal when it is needed Foreign Exchange Swap - Add (FXSWA) Foreign Exchange Inter-Accounting Centre Loan/Deposit - Add (FXLDA) Foreign Exchange Inter-Accounting Centre - Add (FXIDA) Foreign Exchange Takeup - Add (FXTKA) Foreign Exchange Market - Add (FXMKA) (CNARA) Contract Diary Narrative - Add
If required, enter diary events for any individual foreign exchange contract (FXDEA)
Foreign Exchange Outline Deal Input
(DEALQ) Outline Deal Queue (DEAL) Outline Deal Add
Enter details of the foreign exchange outline deal Initiate outline deal entry
Select the foreign exchange outline deal for verification
and contract entry (LEAD1) Contract Initiate direct contract entry
