1.9.4 Specify Preferences for Floating Rate Pickup

This topic explains the preferences for interest components.

For interest components that use floating rates, you can specify preferences that will determine how the rates are to be applied to the component.

Table 1-18 Fields Description

Fields	Description
Reset Tenor	Floating interest rates are defined for specific amount slabs and tenor combinations. If you are defining a floating interest component or a fixed type with rate code attached, you can indicate the reset tenor for which floating rates need to be picked up. The tenor that you specify for the component is defaulted to all contracts with which the floating interest component is associated. Lets suppose that in a Product, the Reset Tenor is chosen as 2190 days. The floating rate chosen is ‘LDRATE’. The Tenor and Int. Rates defined in ‘LDRATE’ are given below. Tenor Int. Rate 365 13% 1825 16% 99999999 19% When a contract is created, the Interest Rate that gets picked up is 16%, since 2190 days falls in the second slab i.e. 1825 days to 99999999 days and the corresponding rate for that slab is 16%.
Margin Basis	Indicate the basis for the interest margin and the method for applying the interest margin on the selected interest component for contracts using this product. You need to specify how the system must obtain the interest margin (if any) that must be applied on the selected interest component at the time of fixing the interest rate for contracts using the product. The available options are: Facility - The system defaults the margin from the borrower facility contract with which the drawdown is linked. Tranche - The system defaults the margin from the borrower tranche contract with which the drawdown is associated. Drawdown - If this option is chosen, you must enter the applicable margin when the interest rate is fixed. This component which you select is excluded from all the processing including liquidation and this calculation type is only used for margin application. After defining this component, booked formula for main interest component needs to be modified by replacing INTEREST_RATE with INTEREST_RATE + MARGIN_RATE. By doing this the interest gets calculated based on resolved interest rate (i.e. including floating rate and spread if applicable) and the margin. Customer - If this option is chosen, then the margin will be applicable to all drawdown contracts under the selected customer.
Rate Cycle Type	For floating type of interest components and fixed type with rate code attached, you can indicate the manner in which floating rates should be applied. The preference that you specify here is used when an interest component does not fit into any direct parameter defined for the floating rate code. The options available are: Up – Choose this option to indicate that the rate of the upper tenor slab should be used Down - Choose this option to indicate that the rate of the lower tenor slab should be used Interpolate - Choose this option to indicate that the rate should be interpolated between the rates of the upper and lower slabs Round Off - Choose this option to indicate that the tenor of the component should be rounded off to the nearest whole number. The rate defined for the derived tenor will be applied to the component. Note: If the calculation tenor is less than the minimum tenor maintained for a slab, then rate of the minimum tenor slab will be picked up irrespective of the rate calculation type. If the tenor is greater than the maximum tenor slab maintained, then rate of the maximum tenor slab will be picked up irrespective of the rate calculation type. If the tenor is exactly equal to the tenor slab maintained, the rate of this tenor slab will be picked up irrespective of the rate calculation type
Rate Code	Each Rate Code corresponds to a rate defined for a combination of Currency, Amount (if it is necessary) and an Effective Date. These details are maintained in the Floating Rates table. This rate will be applied to contracts involving the product. The Standard overnight RFR rate codes maintained from the core screen can also be mapped.