Tasks to be completed when documenting an operation (from creation to publication)

 1. Enter the Title of the operation / page

2. Add the following Labels : 

    • Scope of applicability: ww, country_accounting 

    • Country or group of countries (if applicable): belux, china, france, italy, lam, nam, uk_ie, bulgaria, dach, netherlands, iberia, poland, latvia, australia, india, japan, south_korea, thailand, singapore, new_zealand, emea_transversal, apac_transversal

    • Unit and Domain according to the List of labels to be used in the Finance Service Line space

      • E.g. 1: WW Operation in Financial Accounting under domain "Central Finance Processes & Compliance":
        • Labels to be used: ww, financial_accounting, central_fin_proc_compliance

      • E.g. 2: France Operation in Financial Accounting:
        • Labels to be used: country_accounting, france, financial_accounting
          (for country operations, the Domain is always country_accounting)


3. Fill in all fields as described above

4. Name the title of each section using OPD methodology naming convention - Infinitive verb without the “to”, mainly action verb...something) - " I do something..."

5. Once the description of the operation is completed, ensure it is approved and published by launching the SBS-Finance approval workflow 


Domain: Treasury Accounting

Responsibility area: Ensure monthly activity is performed

Table of contents 

By default the table of contents displays Heading 1 & Heading 2 (other levels can be added)


Scope

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ERP

4. Remove the icon(s) when not applicable

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Frequency

5. Remove the icon(s) when not applicable

Please remove the icon when not applicable.


References

6. Add the link to SAP transaction(s) (when it exists)



Forms

7. Insert the links accordingly and change the link text with the Form name



Attachments

8. Add the link to attachments or external links


 

 

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1. Objective and Scope

1.1. Objective of this Operation

WHY - Describe the objective of the operation

Zero-Cost collar: A zero cost option strategy that places an upper ‘cap’ and a lower ‘floor’ on a future exchange rate for a fixed principal amount. For Solvay's most common use, i.e. hedging long USD exposure against EUR or other currency, it involves buying a Put option on the USD at a particular strike price and selling a Call option on the USD at a lower strike price, thus being assured of a minimum and maximum selling price for the EUR against USD. This option structure is European, with a specific settlement date and time.

In simple words:

Solvay buys PUT e.g. right to sell USD against BRL. 

It is not an obligation but the right if meet the strike FX rate.

For example, if we reach a certain cap FX rate 5.26, we execute.

The bank sell the right to buy.

For example, if we reach a certain floor FX rate 4, the bank execute.

In any case, Solvay Sell USD against BRL.

It is possible to combine 2 opposite options: BUY PUT/SELL CALL.

It is called Zero-Cost Collar.

From IFRS perspective, to buy PUT option along to have an "insurance" and pay a premium has no risk and thus allowed.

In terms of sell option and receive a premium, there is a risk as you should give an "insurance". IFRS does not allow it.

From other side, if we combine Buy + Sell = ZCC, the one offset another, thus Zero Cost. It is allowed by IFRS.

We can apply the hedge accounting and book MTM fluctuations to OCI (Other comprehensive Income) L12820.

It helps to offset volatility in P/L positively impacting gross margin.

Example of the deal in Quantum:

1.2. Scope

This is related to 7523 - Rhodia Brasil Zero cost Collar 


2. Definitions

Definitions should be added in the Finance Glossary - Add definition and link it to respective Letter in Finance Glossary 

See Finance Glossary:

  • ...


3. Tasks description

WHAT and HOW - Main content of the operation

The content should be mainly organized in 2 levels of Headings to ensure a proper link with the Table of Contents.

Select the level of heading in the "Paragraph" option.

3.1. I update ZCC Brasil Template MM.YYYY.xls with the calculation of Bloomberg and Bank data and prepare the postings of MTM in SAP.

3.1.1. I receive ZCC information

Purpose: Get all the data necessary to execute the MTM monthly posting.


Procedure steps:

For the MTM (Market to Market) of Zero cost Collar monthly posting, it is necessary to have the information from Bloomberg and from the bank where the deals were created, so we can update the database.

Even though we execute the MTM posting using the Bloomberg information, we must update the database with both information.

Treasury team is responsible for provide both information and this can be verified in this Google Drive link:

https://drive.google.com/drive/folders/1Cks3cJ_ofXfcTaISEOFFQDhtwC2WlTJh

Regarding the Bloomberg part, we will use the information in column L “MktVal Port Ccy”:

From the bank part we will use the information from column L “valor MTM”:

3.1.2. I update the data base file

Purpose: It is mandatory to have the updated data base to get the correct amount to execute the MTM posting.


Process steps:

With these two information, we will update the File ZCC Brasil Template, you can update the file from the previous month that is also storage in the Google Drive

Before update the bank/Bloomberg information, go to tab "ZCC BFC" and update the Closing rate information accordingly with the information from transaction ZRATE in SAP WP1 at the month end:

After update the rates, go to tab "Base" and:

1 - Include the information from the bank file from column “valor MTM” to column M “Valor MTM Prêmio”

2 - Include the Information from the Bloomberg file column “MktVal Port Ccy” to column “TVal Blbg”:


On the line 76 from the file “ZCC Brasil Template” you can verify that there is a box comparing the amount from the bank and the amount from Bloomberg:


If the difference in EUR is lower than 50KEUR proceed with the posting file creation, otherwise verify with corporate treasury if the amounts are correct.


After include the information from Bank and Bloomberg, go to tab "ZCC BFC" and Refresh the pivot table in Line 24 column R:

After update the Rate, the database and the pivot table, go to tab "posting file FV" to verify the amount and the accounts that must be used to execute the posting:

3.1.3. I execute the posting in SAP


Use transaction ZZF_POSTING_FILE and click in button 'Journal Entries Cockpit'


use the parameter below and click in execute


After that include the information from the Template file we created on the respective fields:



Include the attachment and save. 


End of document.