An interest rate swap is an agreement to swap interest rate exposures from floating to fixed or from fixed to floating.
You can enter into either nominal or physical swaps. A nominal swap is where only the interest cash flows are exchanged. A physical swap is where both principal and interest amounts are exchanged.
You can automatically reset the floating rates in your interest rate swap deals by setting a benchmark rate and a margin and then running the Reset Floating (Benchmarked) Rates program. For more information on the Reset Floating (Benchmarked) Rates program, see: Reset Floating (Benchmarked) Rates.
Use the Interest Rate Swaps window to enter the paying and the receiving sides of your interest rate swap deals.
Navigate to the Interest Rate Swaps window.
Enter a unique reference to identify the swap in the Swap Reference field.
In the Company and Counterparty fields, select a company and counterparty for the swap.
Select a portfolio for the swap in the Portfolio field.
If you want to apply a limit to the swap, in the Limit field, select a limit.
In the Product Type field, select a product type for the swap.
If you want to link the swap to another deal or group of deals, in the Link Code field, select a deal group.
In the Start Date and the Maturity Date fields, enter a start date and maturity date respectively.
In the Pricing Model field, choose the pricing model that you want to use to value the deal. The pricing model chosen will override the default pricing model for the deal type and company.
In the Market Data Set field, choose the market data set that you want to use to value the deal. The market data set chosen will override the default market data sets for the deal type and company.
If the principals of the interest rate deals are being physically swapped, check the Principal Cashflows check box.
Choose the Swap Details button. The Swap Details window appears. This window contains a region for the paying and the receiving side of the swap.
In the Paying Details tab region, enter the details about the paying side of the swap as follows:
Enter the Currency of the paying leg.
Enter the Face Value of the paying leg.
Choose a Day Count Basis for the paying leg.
In the Initial Basis field, choose Fixed or Floating as the interest rate basis.
In the Interest Rate field, enter the interest rate of the deal being swapped.
If you want to automatically reset the floating rate for the deal, in the Benchmark Rate field, enter a benchmark rate and in the Margin field, enter a margin. The margin should be entered in basis points and can be positive or negative.
Note: Both the Benchmarked Rate and Margin fields are optional. You can leave these fields blank and adjust your floating interest rates manually.
For more information on resetting the rate by running the Reset Floating (Benchmarked) Rate program. See: Reset Floating (Benchmarked) Rate.
To generate month-end dates for rollover dates and corresponding interest due on dates, enable the Force Month End check box.
Note: To ensure month-end dates, you must also set the Business Day Convention Rollover Dates field and Interest Due On Dates field to No Adjustment. To ensure that month-end dates that fall on weekends or holidays are automatically adjusted to business days, choose another value according to your needs.
The Force Month End option does not affect the maturity date of the deal.
In the Business Day Convention region, choose a setting for Rollover Dates and/or Interest Due On Dates. Treasury adjusts the dates that fall on non-business days according to the settings that you choose. The choices are: Following, Modified Following, Modified Previous, No Adjustment, and Previous.
You can apply a separate adjustment to each field:
The Rollover Date affects the interest amount.
The Interest Due On Date is the settlement due date; it is also used as the journal date for the interest payment.
In the Rollover Freq field, enter the frequency, in months, with which you want to roll over the swap.
In the First Interest Date field, you can update the rollover date of the first transaction populated by Treasury. Treasury populates this date based on the values of Start Date, Force Month End, Business Day Convention Rollover Date, and Rollover Frequency. If you change the populated date, then Treasury will base future rollover dates and interest due on dates on this modified date rather than the deal's start date.
In the Interest Rounding field, choose the rounding rule that you want to use for calculating interest on the deal. The possible choices are: Nearest, Round Up, or Round Down.
In the Interest Includes field, choose the days that you want to include when the interest is calculated on the deal. The possible choices are: First Day, Last Day, or Both Days.
Note: If you select Both Days for Interest Includes, you cannot use the 30/360, 30E/360, or 30+/360 day count basis.
In the Receiving Details tab region, repeat step 13 and enter the details for the receiving side of the swap.
Complete the Additional Details tab region.
Save your work.
Choose the Paying Details button.
The Paying Transaction Details window appears.
In the Interest Amount field, the total amount of interest for the paying side of the swap appears. You can override this calculated interest amount by entering a new interest amount. The System Interest field shows the interest amount calculated by the system.
Note: You can only override interest amounts if you have the appropriate user access levels. See: User Access Levels.
In the Interest Due On field, Treasury populates the settlement due date. You can update the populated date, if necessary.
This date is used as the journal date of the interest payment.
Choose the Receiving Details button.
The Receiving Details window appears.
In the Interest Amount field, the total amount of interest for the receiving side of the swap appears. You can override this calculated interest amount by entering a new interest amount. The System Interest field shows the interest amount calculated by the system.
Note: You can only override interest amounts if you have the appropriate user access levels. See: User Access Levels.
In the Interest Due On field, Treasury populates the settlement due date. You can update the populated date, if necessary.
This date is used as the journal date of the interest payment.
Save your work. Treasury notifies you if you have exceeded any limits and applies the swap.
Use the Paying Transaction Details window to view the details of the payment transactions in an interest rate swap deal.
In the Swap Details window, choose the Paying Details button. The Paying Transaction Details window appears, listing all of the transactions in the payment side of the interest rate swap.
Use the Receiving Transaction Details window to view the details of the receipt transactions in an interest rate swap deal.
In the Swap Details window, choose the Receiving Details button. The Receiving Details window appears, listing all of the transactions in the payment side of the interest rate swap.
Use the View Interest Rate Swaps window to view the details of an interest rate swap deal.
In the View Interest Rate Swaps window, query the swap that you want to view.
If you want to view the paying and receiving sides of the swap, choose the Swap Details button. The View Swap Details window appears.
If you want to view the transaction details for the paying side of the swap, in the View Swap Details window, choose the Paying Details button. The View Paying Transaction Details window appears.
If you want to view the transaction details for the receiving side of the swap, in the View Swap Details window, choose the Receiving Details button. The View Receiving Details window appears.