Interest Rate Adjustment 

Use

Interest rate adjustments that you must make based on variable interest rates can either be carried out manually or - based on the reference interest rates that you have entered in the system - automatically, so that the interest due can be determined. In both cases, a reference interest rate is linked with an interest rate value on a particular date. You perform interest rate adjustments for all interest rate instruments on the scheduled fixing dates.

With the automatic method, a check is made in a table to see whether the current interest rate value for a reference interest rate exists.

For the manual method, you enter the interest rate value per reference interest rate for each transaction. This data is saved in a table.

The tables in which the interest rate values are saved are different in both cases. A control is, therefore, necessary to determine which interest rate value should be read/from which table the percentage values for the Planned Record Update should be read.

When you adjust the interest rate, flows are generated in the cash flow that you can post to FI (if required, with a posting release). In both cases, you can import current market data via a file interface or a Realtime Datafeed Link.

Activities

Creating a manual interest rate adjustment

To manually create an interest rate adjustment:

  1. Choose Back office ® Interest rate adjustment ® Create.
  2. Enter the Company code and the Transaction ID on the initial screen.
  3. Choose Enter. The screen for determining the reference interest rate appears with entries for the planned interest rate fixing date and the reference interest rate. Enter the current rate for the reference interest rate in the Interest rate field. The Actual date and Actual time of the rate fixing is defaulted to the CPU date and time, but you can change it.
  4. Press Enter or click the Copy pushbutton.
  5. The entry screen for creating interest rate settlements appears. You can display the new flows, the old flows, or all the flows.
  6. To save the interest rate adjustment, choose Settlement ® Save.
  7. When you save the interest rate adjustment, the settlement is saved under a transaction number i.e. the financial transaction is assigned one of the following activities: interest receivable, interest payable or expiration.

Editing an interest rate adjustment

You can edit the interest rate adjustments as follows:

  1. Choose Back office ® Interest rate adjustment ® Edit.
  2. Enter the Company code and the Transaction ID on the initial screen.
  3. A list appears containing all the interest rate adjustments with entries for the activity category, transaction status, actual and planned date for interest rate adjustment, reference interest rate and percentage rate.
  4. From here, you can perform new interest rate adjustments using the Create function. If you want to edit an existing interest rate adjustment, position the cursor on the relevant activity and choose one of the following functions:

5. To edit the interest rate or the interest rate fixing date, you must reverse the activity.

Automatic interest rate adjustment

To carry out interest rate adjustments automatically:

  1. Choose Back office ® Interest rate adjustment ® Automatic. This takes you to the entry screen for the automatic interest rate adjustment for interest rate instruments.
  2. Enter the following selection parameters:

3. To start Due date processing, choose Program ® Execute.

4. You can call up a list of the due date processing in Treasury.

If the current reference interest rate exceeds the strike when adjusted, the seller of the CAP has to pay the purchaser the corresponding settlement payment.