An interest rate floor in Fairways Debt is a derivative instrument in which the buyer receives payments at the end of each period if the interest rate is below the agreed strike price.
Interest rate floors can be used for hedging purposes, in order to reduce the average interest rate of the total debt.
Prerequisite
- Enable the Floor transaction type (contact your Finance Active consultant)
Navigate to the Debt & Derivatives Application
- Log in to your Fairways Debt account.
- Select a customer account.
- Navigate to Applications > Debt & Derivatives.
Create a Floor
- Click Add Transaction > Derivative > Floor.
- Complete the form with all relevant details.
Note: Fields marked with an asterisk * are mandatory.
| Field | Description |
|---|---|
| Transaction Reference Code | Unique reference of the transaction. Identifies the transaction in the portfolio. The reference must be unique among all the entities managed in the account. |
| External Reference Code | Used by external systems to identify the transaction. Used when transactions are imported from or exported to another system. |
| Notional Amount | Notional amount of the floor. |
| Currency | Currency of the notional amount. |
| Party |
Entity in the system involved in the transaction. Note: Users can only manage entities available in the current organization. |
| Counterparty | Can be either internal (an entity in the system) or external (a commercial bank). |
| Field | Description |
|---|---|
| Trade Date | Date at which the transaction has been traded. From that date, the system takes the transaction into account as an item of the portfolio. |
| Start Date | Unadjusted start date of the transaction. |
| Maturity Date | Unadjusted maturity date of the transaction. |
| First Roll Date | Unadjusted date of the first payment (useful when the first period is a long or short stub). |
| Field | Description |
|---|---|
| Index | Name of the index used to calculate the floating rate value. |
| Strike | Strike percentage. |
| Day Count Convention | Computes the day fraction of an interest accrual period. |
| Field | Description |
|---|---|
| Amortization Type | Amortization mode. |
| Field | Description |
|---|---|
| Frequency | Frequency of the payments. |
| Interest Calculation Adjustment | Adjustment mode for the interest calculation. The nominal start and end dates of the accrual period will be adjusted accordingly before computing the interest amount. |
| Payment Date Adjustment | Adjustment mode for the payment date. |
| Last Stub Period | Defines whether the last period should be a short or long stub when it does not match the selected frequency. Short End Stub by default. |
Enter the required custom attributes, if any.
- Enable Show Details after Validation to automatically open the new transaction profile once created.
- Click Apply to create the floor.
The new floor displays in the draft portfolio.
Note: The Mark-to-Market, Clean Market Value and Interest Rate Sensitivity (100bp) indicators are not calculated if the floor is defined with a custom index.
Adjustment
Adjustment modes define how the system rolls dates in case of holidays in the calendar.
| Field | Description |
|---|---|
| Unadjusted | Not rolled. |
| Preceding | Rolled to the previous business day. |
| Following | Rolled to the next business day. |
| Modified Preceding | Rolled to the previous business day, only if that day occurs in the same month. Otherwise, rolled to the next business day. |
| Modified Following | Rolled to the next business day, only if that day occurs in the same month. Otherwise, rolled to the previous business day. |
| End of Month (unadjusted) | Rolled to the last day of the month. |
| End of Month (preceding) | Rolled to the last day of the month, then adjusted to the previous business day. |
| Modified Following (year) | Rolled to the next business day, only if that day occurs in the same year. Otherwise, rolled to the previous business day. |