Before you enter FX transactions in the system, you must perform certain operations referred to as Beginning of Day operations. The following are the Beginning of Day operations that you must perform:
You can maintain the exchange rates for a currency, daily, in the currency table. The forward and discounting rates for a currency are maintained in the Forward Rates and Discounting Rates Maintenance tables respectively. Forward and Discount rates are maintained daily or monthly. That is, they are maintained as often as you revalue foreign exchange contracts using the Rebate method.
To liquidate and rollover contracts marked for automatic liquidation and rollover, you must invoke the respective procedures from the Application Browser.
This chapter contains the following sections:
When you revalue a forward FX contract using the rebate method, you will use an exchange rate (for the currencies involved) referred to as a ‘Forward rate’. The forward rate for a currency (for a specific period) is computed using the spot rate and the prevailing interest rate.
The forward exchange rates for currency pairs are maintained in the ‘FX Forward Rate Maintenance’ screen. These forward rates will be used when contracts in different currencies are revalued using the Rebate Revaluation method.
The procedure to maintain forward rates is explained in the FX Module Specific Tables Maintenance chapter.
Discount rates are used to compute the net present value of an outstanding FX contract.
The discounting rate for a currency is maintained in the ‘FX Discounting Rate Maintenance’ screen. These discounting rates will be used when contracts in different currencies are revalued using the Rebate (with NPV) method of Revaluation.
You can maintain discounting rates (for a currency) for different tenors.
The procedure to maintain discounting rates is explained in the FX Module Specific Tables Maintenance chapter.
You must run the automatic liquidation function, to liquidate contracts marked for liquidation, at the Beginning of Day.
The validations
When you run the auto liquidation process at the Beginning of Day, a contract will be liquidated if:
In case a holiday precedes the next working day, those contracts that mature on the holiday will also be liquidated. That is, when you run this function, all contracts with a Value Date between today and the next working day will be liquidated.
However, if the holiday spans a month-end, contracts (to be settled on the holiday, falling in the next month), will be liquidated when you run this process during the Beginning of Day on the first working day after the holiday.
Specify the following details.
Split Value Dates
In case the bought and sold value dates for a contract are different, the system will liquidate each leg on its value date.
If a contract that is specified for partial rollover is liquidated, the system performs the following functions. It
In case of auto rollover:
While entering the contract if you indicated that it should be revalued using the straight line method, the system calculates the amortizable amount as follows:
The system invokes the tax service to pass the accounting entries for tax and passes the liquidation entries to the specified settlement accounts. In case of contracts specified for partial rollover, only the accounting entries for the liquidated amount will be posted to the account.
The contract status is updated as liquidated and auto authorized.
Each leg of a contract involving a product combination will be liquidated individually.
Retrieving information
The Contract Activity report for the day will provide details of contracts that were liquidated automatically during the day. If a contract that had to be liquidated was not liquidated for some reason, it will be reported in the Exception Report for the day. The reason for the contract not being liquidated will also be reported in the Exception Report.
If so required by your bank, you can setup this function as an End of Day process.
All contracts that have been specified for automatic rollover will be rolled over when you run the Automatic Rollover process. The auto rollover process is invoked when you run the auto liquidation process.
The validations
When you run the auto rollover process at the Beginning of Day, a contract will be rolled over if:
In case a holiday precedes the next working day, those contracts that mature on the holiday (and marked for rollover) will also be rolled over. That is, when you run this function, all contracts with a Value Date between today and the next working day will be rolled over.
Since the new contract (after rollover) is initiated automatically, it will be authorized automatically. The Maker and Authorizer fields of the new contract will display SYSTEM.
The original and rolled over details will be maintained as different versions of the same contract.
The restrictions that you specify for the product will apply to all rolled over contracts linked to it. Also, the settlement instructions that you entered for the original contract will apply to the rolled over contract. This means that the accounting entries that are generated will be passed to the accounts that you specified for the original contract.
This section contains the following topics:
All the accounting entries that are applicable for contract liquidation and initiation - defined for the product (including maturity, initiation, brokerage and tax entries) - will be passed during rollover.
All the advices that are applicable for contract liquidation and initiation (including the Contract Liquidation Advice, Debit or Credit Advice) will be generated when the contract is rolled over.
The contract details will be passed on to the Brokerage module to compute brokerage for the rolled over contract.
The Contract Activity report for the day will report the details of contracts that were rolled over automatically during the day. If a contract that had to be rolled over was not rolled over for some reason, it will be reported in the Exception Report for the day. The reason for the contract not being rolled over will also be reported in the Exception Report.