6 Annexure 2 - Cross Currency Enhancements

This topic describes about the information on Cross Currency Enhancements.

The behaviour of the Enterprise Limits and Collateral Management system for various scenarios is explained in detail in this chapter.
  • When Use Head Office Exchange Rates in STDCRBRN is checked at branch level, the rate pickup will refer the new flag and return the appropriate rate.
    • If the Use Head Office Exchange Rates flag in STDCRBRN is enabled at branch level, the exchange rate will be picked from the Head office branch.
    • If the Use Head Office Exchange Rates flag in STDCRBRN is not enabled at branch level, the exchange rate will be picked from the current branch in which the transaction is posted.
  • When Spreads are maintained in CYDSPRDF and CYDRATEE, the system will behave as follows if a facility has FX setting linked to it:
    • Fixed Rate - System will not consider the rates in CYDRATEE and perform the cross currency conversion in the Fixed rate provided at Facility level FX.
    • Derived Rate - System will consider the Spread maintained at CYDRATEE from Head office / Branch level as applicable for calculating the Buy / Sell rate.

In case of FX, the system will not consider OFFSET behaviour. Only the FX Rate Type provided in Facility will be considered, even if an indirect pair is provided. For example: If USD-EUR Pair is maintained and the transaction is made in EUR, the OFFSET becomes Y. In this scenario, if the user has provided FX Rate type as SELL, the system will consider only SELL for deriving the rate and not consider BUY which is usually followed when OFFSET is Y.

  • When Direct Spread flag at the Currency Pair level is Y in case of through currency, the system will behave as follows:
    • Rate pick up will refer the new flag and if it is YES, the system will use through currency to calculate mid rate and apply independently maintained spread to derive buy / sell rate.
    • If the new flag defined is set to NO, the system follows the current functionality.

Scenario 1:

When DIRECT SPREAD is set as Y and FX is not linked to Facility, the system will compute only Mid-rate with the Through Currency and Buy / Sell Spread maintained for FCY-FCY is applied to get the final value.

Sample Calculation:

The sample calculation is explained with the values in the following table:

Table 6-1 Sample Calculation:

CCY1 CCY2 MIDRATE BUY SPREAD SELL SPREAD BUY RATE SALE RATE
BHD JPY 3.54 0.36 0.46 3.527256 3.556284
EUR JPY 2.34 0.56 0.76 2.326896 2.357784
BHD EUR - 0.67 0.98 - -
For a Direct currency pair, the system performs the calculation with the provided Currency and Spread as shown below:
  • STEP 1: Divides 1 by JPY-EUR Mid-rate
1/2.34 = 0.427350427
  • STEP 2: Multiplies the Mid-rate of BHD-JPY with the above calculated value
3.54*0.427350427 = 1.51282051158
  • STEP 3: Subtracts BUY Spread from the rate derived at STEP 2 above value, if BUY is maintained at GEDPARAM

Or

  • STEP 3: Adds SELL Spread to the rate derived at STEP 2, if SELL is maintained at GEDPARAM
  • STEP 4: Calculates the Final Amount by multiplying the Utilization Amount with the rate derived at STEP 3 (Final amount = utilization amount * Rate derived at step 3)
For an Indirect currency pair, the system performs the calculation with the provided Currency and Spread as shown below:
  • STEP 1: Divides 1 by JPY-EUR Mid-rate
1/2.34 = 0.427350427
  • STEP 2: Multiplies the Mid-rate of BHD-JPY with the above calculated value
3.54*0.427350427 = 1.51282051158
  • STEP 3: Adds SELL Spread to the rate derived at STEP 2, if BUY is maintained at GEDPARAM

Or

  • STEP 3: Subtracts BUY Spread from the rate derived at STEP 2, if SELL is maintained at GEDPARAM
  • STEP 4: Calculates the Final Amount by multiplying the Utilization Amount with the rate derived at STEP 3 (Final amount = utilization amount * Rate derived at step 3)

Scenario 2:

When DIRECT SPREAD is set as Y and FX is linked to the Facility, the system will compute Mid / Buy / Sell rates from CYDRATEE with the Through Currency as specified in the FX linked to the Facility and will not consider Spread maintained for FCY-FCY in CYDSPRDF.

Sample Calculation

The sample calculation is explained with the values in the following table:

Table 6-2 Sample Calculation

CCY1 CCY2 MIDRATE BUY SPREAD SELL SPREAD BUY RATE SALE RATE
BHD JPY 3.71 0.38 0.48 3.695902 3.727808
EUR JPY 2.72 0.55 0.76 2.70504 2.740672
For a Direct currency pair with Rate Type as BUY in FX, the system performs the calculation with the provided Currency and Spread as shown below:
  • STEP 1: Divides 1 by JPY-EUR Buy Rate
1/2.70504 = 0.3696803
  • STEP 2: Multiplies the Buy Rate of BHD-JPY with the above calculated value
3.695902*0.3696803 = 1.3663021601306
  • STEP 3: Calculates the Final Amount by multiplying the Utilization Amount with the rate derived at STEP 2 (Final Amount = Utilization Amount * Rate derived at STEP 2)
For an Indirect currency pair, the system performs the calculation with the provided Currency and Spread as shown below:
  • STEP 1: Divides 1 by JPY-BHD Buy Rate
1/3.695902 = 0.270569945
  • STEP 2: Multiplies the Buy Rate of EUR-JPY with the above calculated value
2.70504*0.270569945 = 0.7319025240228
  • STEP 3: Calculates the Final Amount by multiplying the Utilization Amount with the rate derived at STEP 2 (Final Amount = Utilization Amount * Rate derived at STEP 2)

Scenario 3:

When DIRECT SPREAD is set as N, SELL is maintained at GEDPARAM, and FX is not linked to the Facility, the system will compute the Buy / Sell Rates using the Buy or Sell Rate with the Through Currency in CYDRATEE.

Sample Calculation:

The sample calculation is explained with the values in the following table:

Table 6-3 Sample Calculation:

CCY1 CCY2 MIDRATE BUY SPREAD SELL SPREAD BUY RATE SALE RATE
EUR JPY 2.71 0.55 0.76 2.695095 2.730596
GBP JPY 1.91 0.65 0.86 1.897585 1.926426
EUR GBP - - - - -
For a Direct currency pair, the system performs the calculation with the provided Currency and Spread as shown below:
  • STEP 1: Divides 1 by JPY-GBP Buy Rate
1/1.897585 = 0.526985616
  • STEP 2: Multiplies the Sell Rate of EUR-JPY with the above calculated value
2.730596*0.526985616 = 1.438984815107136
  • STEP 3: Calculates the Final Amount by multiplying the Utilization Amount with the rate derived at STEP 2 (Final Amount = Utilization Amount * Rate derived at STEP 2)
For an Indirect currency pair, the system performs the calculation with the provided Currency and Spread as shown below:
  • STEP 1: Divides 1 by JPY-EUR Buy rate
1/2.695095 = 0.371044434
  • STEP 2: Multiplies the Sell Rate of GBP-JPY with the above calculated value
1.926426*0.371044434 = 0.714789644812884
  • STEP 3: Calculates the Final Amount by multiplying the Utilization Amount with the rate derived at STEP 2 (Final Amount = Utilization Amount * Rate derived at STEP 2)

Scenario 4:

When DIRECT SPREAD is set as N and the FX is linked to Facility, the system will compute Mid / Buy / Sell rates with the Through Currency as specified in the FX linked to the Facility and will not consider the Spread maintained for FCY-FCY.

Sample Calculation:

The sample calculation is explained with the values in the following table:

Table 6-4 Sample Calculation:

CCY1 CCY2 MIDRATE BUY SPREAD SELL SPREAD BUY RATE SALE RATE
EUR JPY 2.72 0.55 0.76 2.70504 2.740672
GBP JPY 1.95 0.65 0.86 1.937325 1.96677
For a Direct currency pair with Rate Type as MID in FX, the system performs the calculation with the provided Currency and Spread as shown below:
  • STEP 1: Divides 1 by JPY-GBP Mid Rate
1/1.95 = 0.512820513
  • STEP 2: Multiplies the Mid Rate of EUR-JPY with the above calculated value
2.72*0.512820513 = 1.39487179536
  • STEP 3: Calculates the Final Amount by multiplying the Utilization Amount with the rate derived at STEP 2 (Final Amount = Utilization Amount * Rate derived at STEP 2)
For an Indirect currency pair with Rate Type as BUY in FX, the system performs the calculation with the provided Currency and Spread as shown below:
  • STEP 1: Divides 1 by JPY-EUR Buy Rate
1/2.70504 = 0.3696803
  • STEP 2: Multiplies the Buy Rate of GBP-JPY with the above calculated value
1.937325*0.3696803 = 0.7161908871975
  • STEP 3: Calculates the Final Amount by multiplying the Utilization Amount with the rate derived at STEP 2 (Final Amount = Utilization Amount * Rate derived at STEP 2)