Gauge a Company's Risk Exposure Using Market Risk Analyzer
- by Mary Loughran, Independent Consultant
- June 19, 2015
Learn how to implement SAP’s Market Risk Analyzer. The analysis reports in Market Risk Analyzer help an organization or, more specifically, a treasury department, to assess and quantify the risks of its financial positions. Once the risks of an organization are analyzed and quantified, they can be more easily controlled. The inputs to Market Risk Analyzer are operational exposures, treasury trades, and ledger positions. With SAP being an integrated system, leveraging the benefits of Market Risk Analyzer is easy.
Reading this article, you will learn:
- What Market Risk Analyzer is
- Why companies might need Market Risk Analyzer and what benefits it offers
- How to configure Market Risk Analyzer
Market Risk Analyzer is a series of analytical reports that allows SAP Treasury and Risk Management users to analyze their financial trade positions and risk exposures. When you are analyzing a company’s financial positions and risk exposures, it is necessary to have up-to-date market data in your SAP system. The inputs to Market Risk Analyzer reports are treasury trades, cash management positions, and market data. Based on the inputs specified, Market Risk Analyzer then yields output as a series of analysis reports.
Within SAP’s Treasury and Risk Management modules are three analyzers: Market Risk Analyzer, Credit Risk Analyzer, and Portfolio Analyzer. In this article, I focus on Market Risk Analyzer.
With Market Risk Analyzer, a company can use analytical reports to determine its financial trade positions and risks. For example, using the FX Exposure report (transaction code AISFSS), a company is able to see its exposure to foreign currencies broken down into predefined time buckets. The grid analysis report (transaction code JBRI) can be used to see how sensitive a portfolio of trades is to changes in the market. For example, this report can be used to show the change in value of a portfolio to within a 5 percent change in US dollar interest rates and a 5 percent drop in the US dollar or euro exchange rates. The financial trades are included in the Transaction Management sub-modules (e.g., Money Market, Foreign Exchange, and Derivatives). The market data pulled into Market Risk Analyzer is used for valuations.
The inputs to Market Risk Analyzer reports are treasury trades, cash management positions, and market data. The market data consists of exchange rates, interest rates, volatilities, and security prices. The output of Market Risk Analyzer reports is an analysis of the inputs. Because market data is a key input to Market Risk Analyzer reports, the different options for importing market data into the SAP system are described. Because Market Risk Analyzer is a reporting module, it makes sense to consider a number of the reports that can be generated.
The functionality described in this article is included in standard SAP ERP Central Component (ECC), although licensing may be required to use the SAP Treasury and Risk Management module. To make full use of the Market Risk Analyzer sub-module, SAP Treasury and Risk Management or Cash Management needs to be implemented.
Before going through the steps to configure Market Risk Analyzer, I recommend that you make sure that you are familiar with the definitions in the “Key Terms” sidebar.
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