Understanding Calculations in CNS
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      3. Understanding Calculations in CNS

      How are my Forward Contracts Valued in CNS?

      Frequently asked questions on calculations in CNS

      Q1: What is MTM (Mark-to-Market) in the context of FX contracts?

      Mark-to-Market (MTM) is the fair value of an FX contract at a given point in time. It reflects the unrealised gain or loss of the contract based on current market rates compared to the contract rate.

      Q2: How does CNS calculate MTM for FX contracts?

      CNS Treasury calculates MTM using the following formula:

      MTM = (Contract Rate – Market Forward Rate) × Notional Amount × Time Factor

      Here’s how each part works:

      • Contract Rate: The agreed rate on the original FX contract.

      • Market Forward Rate: The prevailing market forward rate for the same currency pair and settlement date.

      • Notional Amount: The total amount of the FX contract.

      • Time Factor (if applicable): Adjusts for accruals when calculating MTM at dates before maturity (mainly relevant in hedge accounting views).

      Example:

      Scenario:

      • FX Contract: Sell USD 1,000,000 / Buy EUR at a rate of 1.1000

      • Forward Market Rate for same maturity: 1.0800

      • Functional Currency: NZD

      • Current EUR/NZD spot rate: 1.8000

      Step-by-step MTM Calculation:

      1. Calculate the value of the trade at contract rate:

        • Receive EUR = USD 1,000,000 / 1.1000 = EUR 909,090.91

      2. Calculate the value of the trade at current forward rate:

        • Receive EUR = USD 1,000,000 / 1.0800 = EUR 925,925.93

      3. Unrealised gain (in EUR):

        • EUR 925,925.93 – EUR 909,090.91 = EUR 16,835.02

      4. Convert to NZD using current EUR/NZD spot rate:

        • NZD MTM = EUR 16,835.02 × 1.8000 = NZD 30,303.04 (Gain)

      Result: The MTM value is a gain of NZD 30,303.04, meaning if the trade were settled at current market rates, the company would be better off by this amount in NZD terms.

      Q3: Where does the market forward rate come from?

      CNS retrieves forward rates from Intercontinental Exchange (ICE). These rates reflect the current market conditions for the contract’s currency pair and maturity date.

      Q4: What is the MTM value used for in CNS?

      MTM values serve several purposes:

      • Valuation Reporting: For understanding the current value of outstanding FX positions.

      • Hedge Accounting: Used in effectiveness testing and accounting entries.

      • P&L Impact: Helps assess unrealised FX gains or losses for financial reporting.

      Q5: How often is the MTM recalculated?

      By default, CNS recalculates MTM values daily using the latest available forward rates. You can also trigger manual refreshes or schedule revaluations as part of your reporting cycle.

      Q6: Are discounting factors or credit adjustments applied?

      Typically, CNS calculates MTM based on undiscounted forward values. However, depending on your system configuration, CNS can also apply:

      • Discounting curves for present value (PV) adjustments

      • CVA/DVA adjustments where enabled, for credit risk measurement

      Q7: Where can I view MTM values in the platform?

      You can view MTM values in:

      • FX Dashboard

      • FX Reports