7.13 Currency-Based Gap Modeling

The processing steps depend on the relationship between the gap and cash flow modeling buckets. Because modeling buckets may differ between the cash flow results and the gap results and exchange rate forecasts are defined for cash flow modeling buckets only, additional processing steps are employed when there are bucket differences.

• Compatible (consistent) Gap and Cash Flow Buckets

  If Cash Flow Modeling Buckets and gap buckets are equal, or if multiple gap modeling buckets can even fit into one cash flow modeling bucket, the forecast exchange rates for the cash flow modeling buckets are used.

• Unevenly-Overlapping gap and cash flow buckets

  If Cash Flow Modeling Buckets are smaller than Gap Modeling Buckets or if their respective start and end dates do not coincide, the engine must derive the forecast exchange rates for the gap modeling buckets.

  In this special case, the Cash Flow Engine calculates a time-weighted Exchange Rate Forecast for the gap bucket. Bear in mind that with a time-weighted rate, the consolidated gap results may be different than the consolidated cash flow results, even though they came from the same local balance. For example, a cash flow of $10 at an exchange rate of 1 and cash flow of $20 at an exchange rate of 2 sums up to a translated cash flow of 20 (10 divided by 1, plus 20 divided by 2). If the weighted-average exchange rate is calculated as 1.5, the translated cash flow equals 20 (10 plus 20, divided by 1.5).

  We recommend that consistent modeling and gap buckets be used in multicurrency simulations, to eliminate potential data inconsistency issues.