A limit defines the total amount of money or exposure you are willing to risk with a counterparty, currency, or country.
Every deal you enter into has an element of risk. For example, if you enter into a fixed interest rate loan, there is a risk that the interest rate will drop; or if you buy a large amount of foreign currency, there is a risk that the currency will lose its value. Use limits to define the tolerance your company has for deal-related risks.
You can define multiple limits for each of these deal-related risks:
Global: limits the total value of deals a company can commit to for a particular limit type. You can define one limit for each limit type. For more information on limit types, see: Limit Types. For more information on global limits, see: Defining Global Limits.
Term: limits the total length of time for a deal with a specific deal type, deal subtype, product type, and counterparty combination. You can define one limit for each possible combination. Time limits apply to all companies defined in Treasury. See: Defining Term Limits.
Sovereign: limits the total value of deals that a specific company can commit to with parties that are located in a specific country. You can define one limit for each country. See: Defining Sovereign Limits.
Currency: limits the total value of deals in a particular currency for a company. You can define one limit for each currency. Currency limits apply to all companies defined in Treasury. See: Defining Currency Limits.
Counterparty: limits the total value of deals a specific company can enter into with a single counterparty. You can define multiple limits for each counterparty. See: Defining Counterparty Limits.
Counterparty Group: limits the total value of deals a specific company can enter into with a counterparty group. You can define one limit for each counterparty group. See: Defining Counterparty Group Limits.
Settlement: limits the total value of settlements that a specific company can commit to with a single counterparty on a single day. You can define one limit for each counterparty. See: Defining Settlement Limits.
Dealer: limits the total value of a single deal that a dealer can perform. You can define one limit for each dealer. Dealer limits apply to all companies defined in Treasury. See: Defining Dealer Limits.
Once you define your limits, you can periodically track limits to see how closely your exposures stay within limit amounts.
Although you can track limits you cannot enforce limits. Treasury does not let you enforce limits, because enforcing limits can prevent dealers from making the best possible deal for your company. Enforcing limits can also slow down your deal-making process. In addition, by the time a user records a deal in the system and receives a limit violation warning, the company and counterparty may have already concluded the deal.
You can use these views and reports to track your limits:
View Limits Setup window: Shows which limits are defined and authorized.
View Limit Exceptions window: Shows which limits have been exceeded, who exceeded each limit, and by how much.
View Limit Utilizations window: Shows how much of your limit amounts are already committed to deals. The difference between the limit utilization amount and the limit amount is the total amount that you can still commit to deals using that specific limit.
Limit Exceptions Log report: Shows the Limit Exceptions window in printed format.
Limit Utilization report: Shows the Limit Utilization window in printed format.
Use these views and reports in combination with your company policies and dealer self-monitoring to ensure that your deals stay within an acceptable limit exposure.
When you enter a deal that exceeds one or more limits, Treasury displays a limit warning. Limit warnings do not force you to comply with limits, but they do force you to accept the limit warning message before you can save the deal. Treasury also creates a log of every limit exception.
When you enter a deal, Treasury checks your deal details against any authorized and monitored limits. If the deal exceeds one or more authorized and monitored limits, Treasury displays a limit warning in the Limit Warning window. Each limit warning contains the following information:
The limits that the deal exceeds.
The amount by which the deal exceeds each limit.
The options that you have to avoid exceeding each limit (for example, a list of other counterparties for which you have available limits).
Limit warnings also appear if no limit is defined. For more information, see: Viewing Limit Excesses.
To check your deals against your limits and to produce limit warnings, you must authorize and monitor your limits.
You authorize limits in the Limits window. Limits are authorized on an individual limit basis. For example, you can choose to authorize a $1,000,000 limit for the Bank One counterparty. You authorize a limit by enabling the Authorized check box for the limit. If there is no Authorized check box available for the limit (for example, currency limits do not have an Authorized check box), then the limit is automatically authorized.
You monitor limits in the Limit Types window. You cannot monitor limits individually; limits monitoring applies to all limits that control a particular risk factor. For example, you cannot monitor settlement limits for Counterparty A but exclude Counterparty B. Treasury only checks your deals against and produces a limit warning for limits that are both authorized and monitored. For more information, see: Limit Types.
A deal exceeds a limit when you enter a deal amount that is greater than the difference between the total limit amount and the amount of the limit that has already been committed to other deals. This differential is called the limit utilization amount for this deal. Treasury recalculates the limit utilization amount for a given limit each time you enter into a new deal, by subtracting the deal amount from the total limit amount for each authorized and monitored limit that applies to the deal. When a limit's limit utilization amount is greater than the total limit amount, you have exceeded your limit. Treasury calculates limit utilization amounts in your company reporting currency.
Limit amounts apply to the cumulative total of all deals, and are not the result of debits and credits. For example, if your company has deals that require you to pay a total of $400,000 to counterparties located in a specific country, and has deals that require counterparties in that same country to pay a total of $300,000 to you, then your total limit utilization for that country is $700,000. If your company has deals that require you to pay a total of $200,000 to a specific counterparty, and has deals that require that counterparty to pay a total of $200,000 to you, then your settlement limit utilization for that counterparty is $400,000.
Treasury only calculates limit utilization amounts if you authorize the limit for use when you define your global limits. If you authorize the limit for use after you have already entered deals, you must run the Update Limit Utilization concurrent to ensure that all deals are included when Treasury calculates your limit utilizations.
See also:
You can identify your available funds in the View Limits Liquidity window. This window calculates your liquidity using the limit utilization figures of the global limits to which you have assigned funding limit types or investment limit types. To ensure that you have the most accurate and complete liquidity information, assign funding limit types to all of your global funding limits, and assign investment limit types to all of your global investment limits. See: Viewing Liquidity Positions.
This section provides an overview of the steps to use to define limits.
Define limit types. See: Defining Limit Types and Limits Monitoring.
Define global limits. See: Defining Global Limits.
Define limit weightings. See: Limit Weighting.
Define term limits for deals. See: Defining Term Limits.
Define other limits as needed:
Define Limits Workflow Notifications, if you have installed Oracle Workflow. See: Limits Workflow Notification.