THE TRADE LIFE CYCLE FOR INTEREST RATE CAPS
- Recording the trade—contingent
- Account for the premium on the trade
- Receive or pay the premium for the trade
- Reset the interest rate for the ensuing period
- Account for accrued interest if any on the valuation date
- Reverse the accrued interest if any on the coupon date
- Ascertain and account for the fair value on the valuation date
- Pay or 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 maturity/termination
- 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 cap 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.
