Why should scenario analysis use the same valuation engine as the standard valuation?
Using the same engine keeps the portfolio and valuation methodology consistent. Treasury can compare the standard valuation with the scenario result without first reconciling a separate calculation model.
Treasury is asked versions of the same question throughout the year: what happens if interest rates move, or if a currency shifts materially? At year end, the question may come from the auditor. During the year, it can come from the CFO, a risk committee or the board.
Most treasury teams can calculate an answer. The harder part is producing it quickly, calculating it consistently and being able to explain the number when the next question arrives.
That is where sensitivity analysis becomes useful beyond compliance. A repeatable scenario process gives treasury a structured way to understand how the current portfolio responds to defined market movements before those movements become actual results.
IFRS 7 market risk disclosure creates the baseline
IFRS 7 requires companies to disclose how reasonably possible changes in relevant market risk variables, including interest rates and FX rates, could affect their financial position. For many organisations, this is where a formal sensitivity process begins.
The same calculation can support decisions well beyond the annual report. An interest rate scenario can add context to a refinancing discussion. A currency scenario can support a hedging review. A combined scenario can help management understand whether several market movements would reinforce one another.
Treasury gets more value from the work when the scenario can be reused instead of rebuilt whenever the reporting date or management question changes.
The standard valuation and the scenario need the same calculation basis
A sensitivity result is most useful when treasury can compare it directly with the standard market valuation of the same portfolio.
If the standard valuation is calculated in the treasury management system and the shocked valuation is rebuilt somewhere else, the team first has to prove that both views use the same deals, valuation date, methodology and market-data conventions. The risk discussion becomes a reconciliation exercise.
A stronger approach runs the scenario through the same valuation engine as the standard calculation. The portfolio and valuation methodology stay consistent. The scenario changes the relevant market rates.
The valuation engine already supports numbers finance relies on
This consistency matters because market valuation is not only a reporting figure. In Nomentia, the same valuation logic also supports realised and unrealised accounting entries for relevant treasury transactions.
When Scenario Analysis uses that engine, the hypothetical result starts from a calculation basis that is already part of the financial process. Treasury is not introducing a second model that has to be maintained, synchronised and defended separately.
The scenario remains hypothetical, but the methodology behind it is the same one used for the standard valuation.
FX and interest rate risk run across more than the obvious instruments
Sensitivity analysis becomes weaker when it covers only the instruments that normally receive the most attention.
FX forwards, swaps and spot transactions can create currency sensitivity. Interest-rate and cross-currency swaps, loans, deposits, bonds and discount instruments can all respond to changes in market rates. Floating-rate positions add another dimension because the market movement can alter future interest payments and receipts.
A useful treasury scenario analysis therefore needs broad portfolio coverage, with the option to narrow the scope when treasury wants to isolate one company, currency, rate set or deal type.
A valuation audit trail makes the scenario easier to defend
An aggregated sensitivity number is useful for management. Treasury still needs to be able to explain what produced it.
Deal-level traceability provides that evidence. The valuation log can show when the calculation was run, who ran it, which market data was used and how the individual cash flows contributed to the final value. The same detail is available for the standard valuation and the scenario result.
When somebody asks which deals drove the movement, treasury can move from the portfolio result into the underlying calculation instead of reconstructing the analysis in another file.
Stored results make market risk reporting comparable over time
A scenario becomes more informative when treasury can revisit the same analysis later.
Scenario results can be stored per deal, date and scenario, including values in the original deal currency, the company accounting currency and the group base currency. Treasury can therefore reopen an earlier run instead of trying to reproduce what was shown months before.
That continuity also improves period-to-period comparison. If the scenario definition and valuation methodology remain consistent, a change in the result can be discussed as a change in exposure rather than a change in calculation.
Parallel shifts provide a practical starting point for stress testing
Many treasury teams begin with a simple question: what happens if the relevant interest-rate curve moves up or down by 100 basis points, or if a selected currency moves by a defined percentage?
The initial Scenario Analysis release supports parallel interest-rate shifts. Treasury can apply a shift broadly or assign different movements to selected rate sets and currencies, depending on the risk question.
More granular per-period shocks and scenarios based on separate market data sets are planned extensions. Starting with clearly defined parallel shifts gives treasury a repeatable basis for the sensitivity analysis most commonly used in IFRS reporting and risk discussions.
Scenario analysis becomes more useful when it is available throughout the year
The practical value of treasury scenario analysis is that the same defined assumptions can be reused when the business needs them.
A scenario prepared for IFRS 7 market risk disclosure can be run again before a board meeting, during a hedging review, ahead of a refinancing decision or after a significant market move.
When the scenario already exists inside the same environment as the standard valuation, treasury spends less time rebuilding the analysis and more time interpreting whether the exposure is acceptable and what, if anything, should change.
