Skip to Content

When you exercise the option with cash settlement, the settlement amount is calculated on the basis of the difference between the strike and market price.

Case 1, OTC Currency Option is a purchase deal, the flow with leading currency in FX deal has sign “-“.

/wp-content/uploads/2015/06/1_717802.png

System will check the underlying transaction, which is the leading currency.

/wp-content/uploads/2015/06/2_717851.png

Here the leading currency is EUR , following currency is USD (see Table TCURL). The flow for EUR has sign “-“ as the FX deal is Buy USD and Sale
EUR.

FTR_EDIT, press Exercise button (or Tcode TI86), the current exchange rate (1,318) with the system date will be filled automatically – table TCURR. The payment currency for cash settlement would be the following currency, in this example it is USD. Cash settlement amount will be calculated as below.

First, the difference between Strike and Market price is calculated:

Difference = Strike – Price: 1,350 – 1,318 = 0,032

Cash settlement amount = amount of leading currency flow * difference

                                       = 10.000.000,00 * 0,032
                                       = 320.000,00

This means you have underlying for sale 10.000.000,00 EUR, you can get 13.500.000,00- USD.

On Exercise date, for the sale 10.000.000,00 EUR, only 13.180.000,00 USD will be received. You purchased the Currency option, so you can get cash of the difference 320.000,00 USD in this case.

/wp-content/uploads/2015/06/3_717852.png

If you change the Price field (VTIZBMF71A-PRKKURS) manually, the payment amount will be recalculated.

If the manually entered price (e.g. 1,360) is larger than strike price (1,350):

Difference = Strike – Price = 1,350 – 1,360 = -0,010

When the difference is less than 0, the payment amount of cash settlement will be cleared. There is no cash settlement in the sense of the Word (as it should refer to a loss).

/wp-content/uploads/2015/06/4_717853.png

Case 2, OTC Currency Option is a purchase deal, the flow with leading currency in FX deal has sign “+“.6.PNG

The underlying:

/wp-content/uploads/2015/06/7_717865.png

FTR_EDIT, press Exercise button, the current exchange rate (1,318) with the system date will be filled automatically.  To calculate the cash settlement amount with following currency, system checks the difference of strike price and current price:

Difference = Price – Strike: 1,318 – 1,350 = – 0,032

As it is less than 0, you will not get cash settlement amount. This means you have underlying for buy 10.000.000,00 EUR, you would like to pay 13.500.000,00- USD.

On Exercise date, for the buy amount, only 13.180.000,00 USD is needed, you cannot get any cash in this case./wp-content/uploads/2015/06/8_717869.png

If you change the Price to be larger than Strike, e.g. 1,360:

Difference = Price – Strike: 1,360 – 1,350 = 0,010

Cash settlement amount = amount of leading currency flow * difference                                        
                                        = 10.000.000,00 * 0,010
                                        = 10.000,00

This means on Exercise date, for the buy amount, 13.600.000,00 USD is needed, then you get cash of the difference 10.000,00 USD.

/wp-content/uploads/2015/06/9_717870.png

Case 3, OTC Currency Option is a sale deal, the flow with leading currency in FX deal has sign “+“.

Difference = Strike – Price

Cash settlement amount = amount of leading currency flow * difference

Case 4, OTC Currency Option is a sale deal, the flow with leading currency in FX deal has sign “-“.

Difference = Price – Strike

Cash settlement amount = amount of leading currency flow * difference

Related coding:

Program SAPMF73E,  MODULE (PBO) PREPARE_CASH_SETTLEMENT

Program SAPMF73E,  FORM CHANGE_CASH_SETTL

To report this post you need to login first.

Be the first to leave a comment

You must be Logged on to comment or reply to a post.

Leave a Reply