Create a Cap

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

 

Navigate to the Debt & Derivatives Application
  1. Log in to your Fairways Debt account, e.g. https://login.financeactive.eu/.
  2. Select a customer account.
  3. Navigate to Applications > Debt & Derivatives.

 

Create a Cap
  1. Click Add Transaction > Derivative > Cap.

DebtDerivatives_Transaction_Derivative_EN.png

  1. 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).

Transaction_EN.png

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).

Dates_EN.png

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.

Indexation_EN.png

Field

Description

Amortization Type

Amortization mode.

DebtDerivatives_Transaction_Derivative_Cap_Amortization_EN.png

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 Stub: The payment date just before the end date should be respected.
  • Long Stub: The payment date just before the end date is replaced with the payment occurring at the end date.

Note: If neither stub is selected, the short stub applies by default.

Payment_EN.png

  1. Enable Show Details after Validation to automatically open the new transaction profile once created.
  2. Click Apply to create the cap.

Cap_Create_EN.png

The new cap displays in the draft portfolio.

Cap_Created_EN.png

 

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.

 

 

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