3. Underlying Asset Definition

3.1 Introduction

Derivatives are contracts, which convey the right/obligation to buy or sell a specified asset at a specified price at a specified future date. An underlying asset (or also called Commodity) of the derivative contract is the one that is to be bought or sold on a future date. Existing currencies within Oracle Banking Treasury Management can be identi­fied as underlying assets. For example, U S Dollar (USD), which is recognized as a currency in Oracle Banking Trea­sury Management, would be the underlying asset for a US Dollar option. Similarly, Equities, Bonds and Zero Coupon bonds can also be defined as underlying assets.

This topic details the procedures for defining Commodities (or Underlying Assets) in Oracle Banking Treasury Management.

This topic contains the following sub-topics:

1)Process Underlying Asset Definition

2)List of Glossary - Underlying Asset Definition

3.2 Process Underlying Asset Definition

This topic describes the systematic instruction to process Underlying Asset Definition screen.

Context:   

In Oracle Banking Treasury Management, the underlying assets or commodities can be categorized and maintained through the Underlying Asset Definition screen.

Prerequisite:   

Specify User ID and Password, and login to Homepage.

1.On Homepage, type EDDCOMDF in the text box, and then click next arrow.

The Underlying Asset Definition screen is displayed.

Figure 3.1: Underlying Asset Definition

EDDCOMDF__CVS_MAIN.jpg

2.On Underlying Definition screen, click New.

3.On Underlying Definition screen, specify the fields, and then click Enter Query.

For more information on the fields, refer to the below Field Description table.

Table 3.1: Underlying Definition - Field Description

Field

Description

Underlying Asset

Specify a name for the underlying asset here. This name that you give to an underlying asset identifies the underlying asset throughout the module. Ensure that the name assigned to the underlying asset is unique.

You can follow your convention for naming the commodity. However, the name should not exceed 16 characters.

This field is mandatory.

Underlying Asset Description

You can provide additional details of the underlying asset here. Your description for the underlying asset can be in no more than 255 characters. This description is associated with the underlying asset for information retrieval purposes only.

Asset Type

Type the Asset Type under which your asset should be grouped. Although you can define as many asset types as required, a list of predefined asset types is available in Oracle Banking Treasury Management. This list includes:

•Bond

•Commodity

•Currency

•Derivatives

•Equity

•Index

•Interest rates

Select the appropriate asset type from the adjoining list of options.

note: Individual underlying assets can be mapped to any one of the above asset types. However, while defining currency assets (like US Dollar, Great British Pound, Japanese Yen, to name a few) you have to strictly map them to the Asset Type – Currency. Similarly, while defining indices (such as the BSE Sensex, NYSE, LSE, and so on) you must map them to the Asset Type – Index.

For example, while maintaining USD (U.S Dollar) as a commodity, you must group it under the Asset type – Currency. Similarly, if you create a commodity titled – BSESENSEX, it should be grouped under the asset type – INDEX.

This field is mandatory.

Nature of Asset

Select the nature of the asset under which the underlying asset is categorized. This indicates the basic nature of the underlying asset. The available options are:

•Real

•Contingent

Indicate whether the nature of the underlying asset is Real or Contingent depending on the physical holding of the underlying. Let us assume that you are identifying a particular currency in Oracle Banking Treasury Management as an underlying asset. In this case, the nature of the asset will be Real. However, if you are maintaining an option on a currency swap as an underlying asset, then the underlying asset or commodity is not the currency but the currency swap itself. Therefore the underlying asset becomes a contingent asset.

Pricing Size and Underlying Pricing Unit

You can indicate how the underlying asset is priced in the market by specifying the market price per unit of the underlying. Since every instrument that is processed in the system automatically inherits the characteristics of the underlying asset, the pricing size and the unit will be defaulted to the Instrument.

This field is mandatory.

3.2.1 Examples for Pricing Size and the Pricing Size Unit

This topic describes example for prizing size and prizing unit.

For instance, let us assume you are maintaining the currency DEM (Deutsche Mark) as an underlying asset in Oracle Banking Treasury Management. If DEM is quoted in the market in terms of 1 DEM, then the Pricing Size and the Pricing Size Unit that you specify will be as follows:

Table 3.2: Field Value

Field

Value

Pricing Size

1

Pricing Size Unit

DEM

Similarly, if you are capturing the details of the commodity titled Crude Oil and Crude Oil which are quoted in the Market in terms of 1 barrel, your entries in the respective fields will be:

Table 3.3: Field Value

Field

Value

Pricing Size

1

Pricing Size Unit

Barrel

Below examples explains how to define an underlying asset in Oracle Banking Treasury Management

Let us assume you want to define the following underlyings:

•DEM (Deutsche Mark)

•Crude Oil

While maintaining the details of each underlying your entries in Oracle Banking Treasury Management as follows:

Table 3.4: Scenario 1 – DEM

Field

Value

Underlying Asset

DEM

Asset Type

CURRENCY

Nature of Asset

Real

Pricing Size

1

Pricing Size Unit

DEM

Table 3.5: Scenario 2 - Crude OIL

Field

Value

Commodity

CRUDE

Asset Type

FUEL

Asset Nature

Real

Pricing Size

1

Pricing Size Unit

Barrel

3.3 List of Glossary - Underlying Asset Definition

EDDCOMDF

Underlying Asset Definition - 3.2 Process Underlying Asset Definition (p. 7).