1 Interest

Interest is an important component of contracts processed by your bank. It is expressed as a percentage of the principal amount. Typically, one party pays interest to another party for using the latter’s assets. Interest is typically expressed as an annual percentage rate (APR).

You should define the attributes for interest components by way of defining interest rules. These interest rules should, in turn, be linked to a product, so that the attributes of the interest rule will be applied on all contracts involving the product. However, while capturing the details of a contract, you can modify some of the attributes defined for a rule. Further, for a contract, you can also indicate that the application of a specific Interest component should be waived.

In this chapter, we shall discuss the processing of interest on contracts. This will include defining Interest Rules, linking them to a product, and applying them on a contract.

For example, you could link two Interest Rules to a product, one with 20% fixed interest and another with floating interest. These two will be processed as two different interest components. The expense and accrual accounts can be different for these components. The two interest components will be reported as different components in all reports and also in the customer correspondence relating to the contract.

This topic contains the following sub-topics:

• Process Interest
  This topic describes the processing of interest.
• Rate Code Maintenance
  This section describes the systematic instructions to maintain the rate codes.
• Treasury Rate Fixing Maintenance
  This topic describes the systematic instructions to maintain Treasury Rate Fixing. For every cash flow settlement period of the floating rate leg, you have to fix the floating rate.
• Define Rate Sources
  This topic explains the systematic instructions to maintain the source from where the interest rates have to be picked up.
• ICCB Rule Availability Maintenance
  This topic explains the systematic instructions to maintain ICCB Rule Availability.
• ICCB Rules
  This topic describes the ICCB rule maintenance, defining the features of ICCB rule details, and the sequence in which the ICCB rules are resolved.
• Create Interest Classes
  This section explains how interest classes are built and how attributes are defined for Securities and Derivatives products and contracts.
• Link Interest Rule to a Product
  This topic describes how link interest rule to a product.
• Interest Details for the Product
  This topic describes the interest details for the product,
• Interest Payment Schedules for a Contract
  This topic describes the interest payment schedules for a contract.
• Treasury Manual Rate Fixing
  This topic explains the systematic instructions to apply the rate fixing on the selected float rate type contracts.