1.1 The Advantages of Defining a Product

The attributes that you define for a product apply on all contracts that are processed under the product. By creating a product, you construct a broad framework within which you can process contracts. This helps minimize the details you have to capture when processing a contract.

The advantage of defining a product is that it simplifies the task of entering into contracts. The following example further illustrates the concept of products.

For example, a money market deal could be of any of the following types:

• Overnight Placement
• Overnight Borrowing
• Weekly Placement
• Weekly Borrowing
• Monthly Placement
• Monthly Borrowing

You can define any number of Overnight Placement products, Weekly Placement products, Monthly Borrowings, etc., having varying rates of interest. You may choose to allow or deny rollovers, apply or waive tax, specify different accrual frequencies, and so on. Each of these types of placement/borrowing definitions, with their specific set of attributes, constitutes a product.

You could allot Product Codes for each of these products as follows:

• MWP1 - Weekly Placement 1
• MOB2 - Overnight Borrowing 2

Attributes of MWP1:

• Rate of interest - 16% fixed interest
• Maximum tenor - 1 week
• Minimum tenor - 1 day
• Daily repayment schedules
• Rollover allowed

Attributes of MOB1:

• Rate of interest - Floating rate of the day applied automatically
• Maximum tenor - 1 day
• Repayment at Maturity
• No rollover

Note:

In this example, only a few attributes have been defined. You can define many more attributes for a product.

All deals involving MWP1 are overnight placements, which inherit the attributes of MOB1.

MWP1 and MOB1 are examples of products.

A product is set up at the Head Office of your bank. This means that the Product Definition facility also serves as a central control mechanism — you can ensure that a service your bank provides is offered uniformly across branches.