LEARNING OBJECTIVES
After studying this chapter you will be able to get a grasp of the following:
- Interest rate floors—description of the product
- Interest rate floor—to pay
- Interest rate floor—to receive
- Benefits of interest rate floor instruments
- Risks of a floor instrument
- Accounting for interest rate floors
- Trade life cycle of interest rate floors
- Accounting journal entries to be recorded during the different phases of the trade life cycle
- Illustration of investments in an interest rate floor instrument
- Preparation of general ledger accounts
- Preparation of income statement, balance sheet after the investment in an interest rate floor is made
- FX revaluation and FX translation process
- Functional currency, foreign currency and presentation currency
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