Foreign Exchange (FX) transactions involve one party purchasing a quantity of one currency in exchange for paying a quantity of another.
When goods are traded across boundaries, the selling and the buying firms prefer to receive/pay consideration in a currency of their choice. Firms as well as governments borrow foreign currency internationally. When they trade or borrow, multiple currencies come into play. There has to be a market that enables participants to buy and sell currencies in such a way that they can convert the outflow and inflow into the currency of their choice. Such currency trading takes place in an FX market.
The main participants of the FX Markets are central banks, commercial banks, corporate players, speculators (such as investment banks, hedge funds etc) and to a small extent retail customers.
Banks have dealing rooms where FX transactions are done by dealers. The deals may be struck either telephonically or through sophisticated dealing systems such as Reuters Kondor +. Smaller banks may also book FX transactions through brokers.
Once a deal is struck, a deal slip is generated which contains basic details of the deal. These deal slips are then passed on to the treasury back office for processing, accounting, settlement and messaging.
The FX module of Oracle FLEXCUBE is a back office system for the treasury. Using this module, you can upload the forex deals entered into in the dealing room on to Oracle FLEXCUBE for further processing, messaging and accounting. You can also enrich the deals with information relating to settlements, brokerage, tax on brokerage, etc. The upload facility that Oracle FLEXCUBE offers eliminates discrepancies that could creep into the deal information between the dealing room and the back office system.
Further, not only can you download deals stored in Oracle FLEXCUBE to other systems, you can transfer information on Nostro balances etc., to the dealing room system that you use. Oracle FLEXCUBE allows amendment in all fields in a FX contract, including counterparty and currencies.
This chapter contains the following sections:
Before you can process FX deals in Oracle FLEXCUBE, you need to maintain certain data that will be used commonly by many deals. For example, you have to specify the forward and discount rates for currencies, the default settlement instructions for a customer, etc. Such data is maintained in easily accessible static data tables. In the following tables you can maintain the data that is required to process foreign exchange deals:
In Oracle FLEXCUBE, you can classify the different foreign exchange deals that you enter into as ‘products’. For example, if your bank enters into spot deals in GBP against USD, you can classify this deal type as a product. When defining a product, you can define the generic attributes of the deal type, such as:
All deals in GBP-USD, for example, will acquire the generic attributes defined for the GBP-USD product. However, you can allow modification of certain attributes during deal processing.
By creating products, you not only save time, you can easily:
For more details on currency exchange rates refer the ‘Maintaining Exchange Rates’ chapter in the ‘Core Services’ User Manual.
In Oracle FLEXCUBE, you can maintain a list of all the brokers with whom you deal with in the Broker Master Maintenance table. In this table, for each broker, you can specify brokerage details such as the broker’s name and address; a unique code for the broker; the brokerage payable currency; whether you would like to book brokerage in advance or in arrears, etc.
When creating an FX product, you can opt to allow brokerage on deals involving it. When processing a deal (involving a product for which brokerage is allowed), you can specify the broker involved. The brokerage details, defined for the broker involved in the deal, will automatically default to the deal. You can change the default brokerage values.
Just as you can maintain brokerage details, you can define tax details in Oracle FLEXCUBE. Tax is calculated according to the ‘Tax Rules’ that you maintain. A tax rule is built with the logic required to calculate tax. You can define the logic of tax rules to suit your requirement. For each tax rule, you can define the following:
Upto six tax rules can constitute a tax scheme. When a tax scheme is linked to a product, tax will be calculated for deals involving the product according to the tax scheme. Oracle FLEXCUBE’s flexible architecture allows you to waive the tax that is applied by default on a deal.
As part of the customer information maintenance in Oracle FLEXCUBE, you can define liability details for all your customers. You can define a hierarchy for tracking exposure — a customer company, its parent company, etc. For an FX deal, you can track clean and aggregate risks.
The seamless interface with the Settlements module of Oracle FLEXCUBE allows you to settle the foreign exchange deals (processed in Oracle FLEXCUBE) through a funds transfer.
The Settlement Instructions for a foreign exchange deal can be captured through four different screens (please refer the chapter on ‘Settlements’). Through these four screens, you can capture the following information:
During the day, or at the end of the day, you may want to retrieve information relating to foreign exchange deals. This information can be generated in the form of reports.
A report is information retrieved mostly in a printed format. However, you can direct a report to one of the following destinations: