What is hypothetical derivative in SAP FS-BA-PM-AFP - Accounting for Financial Products?

SAP Term: hypothetical derivative

• Component: FS-BA-PM-AFP

• Component Name: Accounting for Financial Products

• Description: Fictitious hedging instrument that is designed for the fair value effectiveness test for cash flow hedging relationships. The hypothetical derivative is generated individually for all hedging instruments in a cash flow hedging relationship. It takes the form of a swap whose variable side describes the portfolio of the hedged transactions in the hedging relationship: The nominal volume is the same as the nominal volume of the current swap. The variable side is based on the reference interest rate that is stored in the hedging relationship. For those hedging instruments that have not been designated, the reference interest rate is taken from the hypothetical derivative environment. The coupon for the fixed side is calculated so that the NPV of the swap is zero when the hedge is designated.

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• Key Concepts: 
  Hypothetical derivatives are financial instruments that are used to hedge against the risk of a certain asset or liability. They are not traded on any exchange and do not have a market price. Instead, they are valued based on the expected future cash flows of the underlying asset or liability. 
  
  How to use it: 
  The FS-BA-PM-AFP Accounting for Financial Products component of SAP allows users to manage hypothetical derivatives. This includes creating, valuing, and managing the derivatives. It also allows users to track the performance of the derivatives over time and to report on their value. 
  
  Tips & Tricks: 
  When using the FS-BA-PM-AFP Accounting for Financial Products component of SAP, it is important to understand the risks associated with hypothetical derivatives. It is also important to ensure that the derivatives are properly valued and managed in order to minimize losses. 
  
  Related Information: 
  For more information about hypothetical derivatives and how to use them in SAP, please refer to the SAP Help Portal or contact your SAP consultant.