An interest rate cap in Fairways Debt is a derivative instrument in which the buyer receives payments at the end of each period if the interest rate exceeds the agreed strike price. For example, a cap provides for a payment to be received every month that the LIBOR rate exceeds 2.5%.
Interest rate caps can be used for hedging purposes, in order to reduce the average interest rate of the total debt.
Prerequisite
- Enable the Cap 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 Cap
- Click Add Transaction > Derivative > Cap.
- 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 cap. |
|
Currency |
Currency of the notional amount. |
|
Party |
Entity in the system involved in the transaction. |
|
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. |
|
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. |
|
|
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:
Note: If neither stub is selected, the short stub applies 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 cap.
The new cap displays in the draft portfolio.
Note: The Mark-to-Market, Clean Market Value and Interest Rate Sensitivity (100bp) indicators are not calculated if the cap 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. |