7.1.5.4 Manual Adjustments
Manual adjustments method allows users to specify the percentages by which assets and/or liabilities are to be increased or decreased in order to adjust the balance sheet. The application provides a pre-configured sample rule named “LRM - Manual Balance Adjustment – Forecast” to achieve this. When the ‘manual adjustments’ option is selected as part of the balance sheet adjustment method selection in the contractual Run.
This rule appears for selection of the adjustment of the balance sheet position can be specified based on certain dimensional combination as part of this rule. The most granular combination of dimensions equals the download dimensions for forward date liquidity calculations. Users can modify this rule as per their specific adjustment criteria or create a new rule to specify these criteria. The adjustment percentage specified by the user is applied to the difference in the assets and liabilities side to compute the adjusted balance sheet. The various ways of specifying the manual adjustment criteria are illustrated below:
Illustration 1: Asset Adjustment Only
In this case, the manual adjustment is specified in such a manner that only the asset position changes. The adjustment percentages to be applied differ based on the condition.
Table 6-21 Adjustment percentages
| Condition | Asset | Currency | Adjustment Percentage |
|---|---|---|---|
| Assets > Liabilities | Asset 2 | US Dollar | - 20% |
| Asset 3 | Euro | -30% | |
| Cash | US Dollar | -50% | |
| Assets < Liabilities | Cash | US Dollar | 70% |
| Asset 2 | US Dollar | 30% |
Illustration 2: Asset or Liability Adjustment
In this case, either asset position or liability position is changed depending on the condition.
Table 6-22 Asset position or liability
| Condition | Asset | Currency | Adjustment Percentage |
|---|---|---|---|
| Assets > Liabilities | Liability 1 | US Dollar | 55% |
| Liability 1 | Euro | 45% | |
| Assets < Liabilities | Cash | US Dollar | 70% |
| Asset 2 | US Dollar | 30% |
Illustration 3: Liability Adjustment Only
In this case, only liability position is changed depending on the condition.
Table 6-23 Liability position
| Condition | Asset | Currency | Adjustment Percentage |
|---|---|---|---|
| Assets > Liabilities | Liability 1 | US Dollar | 55% |
| Liability 1 | Euro | 45% | |
| Assets < Liabilities | Liability 1 | US Dollar | -70% |
| Liability 1 | US Dollar | -30% |
Illustration 4: Asset and Liability Adjustment
In this case, both asset and liability positions are adjusted depending on the condition.
Table 6-24 Asset and liability positions
| Condition | Asset | Adjustment Percentage |
|---|---|---|
| Assets > Liabilities | Asset 2 | -55% |
| Liability 1 | 45% | |
| Assets < Liabilities | Asset 2 | 70% |
| Liability 1 | -30% |
Suppose the balance sheet position after forward balance calculation is as follows:
Total Assets = 1000
Total Liabilities plus Equity = 1200
Here, the assets side is lower than the liabilities side by 200 (1200-1000). As per the criteria specified in illustration 4, this meets condition 2 i.e. Assets < Liabilities. The difference on the assets side is adjusted as follows:
Asset 2 = 200 * 70% = 140
Liability 1 = 200 * -30% = -60
Total Adjusted Assets = 1000 + 140 = 1140
Total Adjusted Liabilities plus Equity = 1200 – 60 = 1140