Swap

Use

A swap is an exchange of payment flows over a fixed period. You define these payment flows when you conclude a swap. However, their absolute amount may depend on future events (such as variable interest payments, where the amounts depend on the level of reference interest rates in the future).

With swaps, the interest rate flows are generated according to the Condition Details .

Features

Depending on the type of payment flows to be exchanged, you can have Interest Rate Swaps and Currency Swaps . You can structure these in any way you require using the nominal amounts, interest or term fields.

You also have the option of displaying the discounted interest amounts. The discounting option can be used for both interest rate swaps and currency swaps.

For more information, see Discount Swap .

In addition, you can create a Compound Swap . In the case of a compound swap, the interest is capitalized and paid out during and / or at the end of the term. Another available feature is the Eonia Swap , a special type of compound swap.

The flexible condition structure also enables you to map the most common swaps:

Example:

Mapping an Amortizing Swap , in other words, a swap where the nominal amount can be reduced any number of times during the term. To do this, you can use the Create nominal changes pushbutton to enter any changes during the term. This enables you to represent repayment schedules.

Activities

  1. On the initial screen, enter the following basic data for the transaction:

  • Company code

  • Product type

  • Transaction type (swap) This includes the following variants:

Payer : outgoing interest payments are fixed - incoming are variable

Receiver: incoming interest payments are fixed - outgoing are variable

Basis : variable against variable interest payments

Fix to fix : fixed against fixed interest payments

  • Business partner

  • Current activity of transaction (e.g. order, contract)

  1. Choose Enter to go to the basic data screen for the transaction. On the Structure tab page, enter the actual transaction data for the swap.

  1. The fields listed below are either required or optional fields:

  • Term

  • Business calendar

  • Outgoing interest (amount, currency, interest structure, and so on)

  • Incoming interest (amount, currency, interest structure, and so on)

  1. You can change nominal amounts and specify interest rate adjustment conditions. Choose the Create nominal changes pushbutton to create nominal amount increases or decreases during the term. Repayment structures are created by reductions in the nominal amount. After you have changed the nominal amounts, the pushbutton changes to: Nominal changes exist .

  2. You can also use the pushbutton to adopt nominal amount increases or decreases from the ‘incoming interest’ side and to copy them to the ‘outgoing interest’ side, or vice versa. To do this, choose the Adopt and copy pushbutton.

  3. You can view the conditions overview for the incoming and the outgoing side and also double-click to view the condition details.

  4. In the Detail View: Interest Rate Adjustment , you can specify how frequently the variable interest rate should be recalculated and on which day the underlying reference interest rate should be set. An interest rate adjustment can be carried out at the start of the period, regularly or on specific dates, for example.

  5. For more detailed information on the pushbuttons (interest and interest rate adjustment), see Condition Details .

  6. An important additional function is the NPV Calculator , which enables you to calculate the value of the swap on the basis of the zero coupon curve. To do this, choose Start of the navigation path Extras Next navigation step NPV Calculation. End of the navigation path The NPV calculator calculates both the price you would have to pay to clear the swap and the price you would have to pay to buy the instrument. The difference between the displayed NPVs reflects the corresponding bid/ask spreads.

  7. You start an automatic interest rate adjustment by choosing Start of the navigation path Back Office Next navigation step Variable Interest Calculation Next navigation step Interest Rate Adjustment Next navigation step Automatic Processing End of the navigation path .

  8. To settle a swap prematurely, you can use the Notice function. You have the option of giving notice for a future date. Interest rate adjustment dates that lie before the date of notice but after the contract conclusion date do not change. The final repayment is due on the date of notice.

  9. You can specify in Customizing whether you want the name of the trader to be displayed. You can also enter additional information, such as the business partner or a reference for the business partner.

  10. You can also branch to the entry screens for the general transaction management functions. To do this, you use the various tab pages.

Note Note

Detailed information is available in the chapter Tab Pages .

The following functions are also available for swaps:

End of the note.

  1. To use additional functions, choose Extras and Environment from the menu .

  2. To save the basic data, choose Start of the navigation path Swap Next navigation step Save End of the navigation path .

For general explanations of terms, see Basic Data - Derivatives .