An interest rate swap (IRS) is an agreement between two parties providing for the exchange of interest payments (usually fixed rate vs. floating rate), based on a specific notional amount.
Interest rate swaps can be used for hedging purposes, in order to turn a fixed rate debt into a floating rate debt (or vice versa).
An interest rate swap can be canceled or extended by the party or the counterparty.
In addition, a basis swap can be defined from an interest rate swap. Basis swaps are interest rate swaps where both paying and receiving legs are based on floating indexes. Please note that only combinations with the following index types are currently supported: IBOR, RFRs, Term RFRs and Fed Funds.
Navigate to the Debt & Derivatives Application
- Log in to your Fairways Debt account.
- Select a customer account.
- Navigate to Applications > Debt & Derivatives.
Create an Interest Rate Swap
- Click Add Transaction > Derivative > Interest Rate Swap.
- Complete the form with all relevant details.
Note: Fields marked with an asterisk * are mandatory.
|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 interest rate swap.|
|Premium||Premium paid at the start date of the interest rate swap.|
|Currency||Currency of the notional amount.|
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).|
|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.|
Who can cancel the swap between the party or counterparty.
|Cancelation Date||When the swap can be canceled.|
|Extendable by||Who can extend the swap between the party or counterparty.|
|Extended Maturity Date||Date the swap can be extended to.|
|Amortization Type||Amortization mode.|
Name of the index used to calculate the rate value, e.g. FIXED for fixed rate.
Note: You can only apply fixed and floating indexes to cancelable and extendable swaps.
Fixed rate value in percentage.
Note: An extendable interest rate swap can have an extension interest rate defined.
|Initial Interest Rate||
Initial rate of the custom index.
|Spread||Spread (or margin) value in percentage.|
|Day Count Convention||Used to compute the day fraction of an interest accrual period.|
|Frequency||Frequency of the payments.|
|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, applicable to both legs.|
Enter the required custom attributes, if any.
- Enable Show Details after Validation to automatically open the new standard loan profile once created.
- Click OK to create the standard loan.
The new standard loan displays in the draft portfolio.
Adjustment modes define how the system rolls dates in case of holidays in the calendar.
|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.