Hedge Accounting for Exposures: Improvements for Hedge Management of time buckets
Business Background
Historically the Hedging Relationship in transaction THMEX has always been set up at the level of the Hedged Item and exactly one derivative. At that level effectiveness was tested and accounted for.
Market practice has shown that from a process perspective it is demanded to designate several derivatives including those in opposite direction to better reflect variations in Exposures over time.
- Hedge category: Cash Flow Hedge
- Risk category: FX risk
- Possible derivatives: FX forwards and FX options
Designation of several derivatives
THMEX: Exposure Variation over time

In this example the Exposure varies over time (from 1 M€ to 1,5 M€).
The consequences are:
- Over or Underhedging
- Hedging activities need to be performed
- (Partial) dedesignation or designation of derivatives (evtl. in both directions) is required
- Historically designation of additional derivatives led to new Hedging Relationships
THMEX: Designated instruments with different directions

800.000 USD are designated reducing the risk amount
300.000 USD and 50.000 USD are designated raising the risk amount
As a result 450.000 USD net amount are designated, reaching the desired Hedge Ratio of 30%
Designation of derivatives
Derivatives can be designated using several features:
Manually via transaction
THMEXVia BADI
Via transaction
FTR_CREATE
All these possibilities support the designation of several derivatives into one Hedging Relationship.
THMEX: fields reworked

The fields in the detail area have been reworked and show now a clear structure between Hedged Item and Hedging Instrument
On Hedged Item level:
The Total Amount of the hedged item
The freestanding amount of the hedged item (not yet hedged)
The total designated amount (sum of all designated hedging instruments)
The amount that the selected instrument is designated with
Key Date
Display Date in transaction THMEX

Display Date is set to system date when entering the transaction.
The display date can be changed when clicking the marked button
In this example the hedging relationship expired on 1st of september 2015. So in october no values are shown.
Display Date in transaction THMEX

The display date is now set to the 23rd of january 2015
Two derivatives are designated at that point in time
The third derivative (10562) starts only in march and is therefore not considered in calculation of the amounts.
Effectiveness on Hedged Item level

THM80 has been enhanced.
set the ‘Test on Hedged Item Level’ indicator.
Effectiveness assessment is performed for the selected hedged object and for all designated hedging instruments
Results of the individual hedging instruments are added together, and the effectiveness test is then performed for the total
Documentation on Hedged Item level
Configuration: Documentation on Hedged Item Level
Before you can use this function, you need do the following in Customizing:
Create a new entry for the company code, the valuation area, and the risk category Exchange Rate Risk
Assign the new form
TR_F_THA_HREL
You perform this activity in Customizing for Treasury and Risk Management under
Transaction Manager -> General Settings -> Hedge Accounting for Exposures -> Documentation -> Assign Forms to Hedging Relationships.

If you would like to make changes to the form, you can copy the form and make your changes to the copied version. You can also use the new form for the function Documentation on Hedging Instrument Level.
Note: The fields Product Category, Product Type, Hedge Category, and Hedge Strategy must remain empty.
THM86: Documentation on Hedging Instrument Level
When you select Hedging Instrument as the documentation level, transaction THM86 creates documentation as before. The documentation level is set to Hedging Instrument by default. You can enter the hedge plan, the hedged item ID, the exposure ID, and the transaction on the selection screen:

THM86: Documentation on Hedging Instrument Level – pdf file
In this mode, n pdf files are created, each with hedge plan data, hedged item data, exposure data, and the data for the single hedging instrument.

THM86: Documentation on the Hedged Item Level
If you want to use this new function, you select Hedged Item as the documentation level. You can enter the key date, the hedge plan, and the hedged item ID on the selection screen:

In this mode, one pdf file is created for each selected hedged item. This pdf file consists of hedge plan data, hedged item data, exposure data, and the data for all hedging instruments assigned to that hedged item.
The key date defines which version of the hedging relationship is selected and influences the data reflected in the calculations (e.g. actual ratio).
Documentation on the Hedged Item Level – pdf file

Reduction of Intra-Month Ineffectiveness
Reduction of intra-period ineffectiveness
This function is used to eliminate ineffectiveness that resulted from different valuation dates of the underlying exposure and the hedging instrument.
To avoid this ineffectiveness additional discounting methods have been added which give options to influence the date for discounting of derivative or exposure.

Availability and Prerequisites
The improvements are available with the business function TRM, Enhancements in Hedge Accounting for Exposures (FIN_TRM_LR_FI_AN_5).
Shipped with:
- SAP Enhancement Package 7, SP 08, for SAP ERP 6.0
- SAP Enhancement Package 8 for SAP ERP 6.0
Alternatively, you can use SAP EHP 7, SP 01, for SAP ERP 6.0 and implement SAP Note 2062960, 2132290 and its prerequisite notes.
SAP recommends not using this SAP Note and, instead, directly implementing the highest possible support package.
System versions lower than EHP7 for SAP ERP 6.0 cannot be supported.
Read more -->
Hedge Accounting for Exposures (E-HA)
TRM, Enhancements in Hedge Accounting for Exposures (Reversible)
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