THE TRADE LIFE CYCLE FOR AN INTEREST RATE COLLAR
- Recording the trade—contingent
- Account for the premium if any on the trade
- Receive/pay the premium for the trade
- Reset the interest rate for the ensuing period
- Account for accrued interest if any on valuation date
- Reverse the accrued interest if any on coupon date
- Ascertain and account for the fair value on valuation date
- Pay/receive interest on the pay date
- Termination of the trade and accounting for termination fee
- Payment or receipt of termination fee
- Maturity of the trade
- Reversal of the contingent entry on termination or maturity
- FX revaluation entries (for foreign currency trades)
- FX translation entries (for foreign currency trades)
To understand the different events in the trade life cycle of an interest rate collar contract let us assume the following trade data as an illustration:
Get Accounting for Investments, Volume 2: Fixed Income Securities and Interest Rate Derivatives—A Practitioner's Guide now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.
