8.2.31.2 Module Usage

Oracle ALM and Funds Transfer Pricing Cash Flow Calculations reference the COMPOUND_BASIS_CD field when determining the detailed record's compounding method to be applied during interest income (financial element 430) calculations.

The following table shows the code values for the COMPOUND_BASIS_CD and the interest calculation logic for an annual-paying instrument with a 30/360 accrual basis code.

Table 8-12 List of Compounding Basis Code Values

Code Value	Description	Annual Payment Calculation
110	Daily	Balance * [(1 + Rate/365)^365-1]
120	Monthly	Balance * [(1 + Rate/12)^12-1]
130	Quarterly	Balance * [(1 + Rate/4)^4-1]
140	Semi-annual	Balance * [(1 + Rate/2)^2-1]
150	Annual	Balance * [(1 + Rate/1)^1-1]
160	Simple	Balance * Rate (no compounding)
170	Continuous	e(Rate Per Payment) -1
200	At Maturity	Balance * Rate (no compounding)
999	Other	Balance * Rate (no compounding)

1. The annualized rate that is applied to the record for interest income calculations is compounded according to one of the methods listed earlier.
2. OFSAA cash flow engine compounds the rate on the record at the time of the interest income calculation. If the record has repriced, the cash flow engine calculates the new rate, applies any rounding, caps/floors, or tease periods, and then applies the compounding calculation (COMPOUND_BASIS_CD) before calculating interest income (financial element 430).
3. Simple and At Maturity calculate interest in the same manner. These two codes do not compound the rate.
4. Compounded interest is calculated only when the compounding frequency is less than the PMT_FREQ. If the compounding frequency is greater than the PMT_FREQ, the model assumes simple compounding.
5. Multiple reprice events within a payment event, compounding is applied when:
   • Compounding frequency is same as Repricing frequency
   • Compounding frequency is less than Payment frequency, and Payment frequency is same as Reprice frequency.

For above condition(s), on first payment date, post as of date, if accrued interest (see ACCRUED_INTEREST) is provided as download, interest is calculated on provided accrued interest. In addition, when compound frequency is less than payment frequency, there would be multiple compounding period within a payment event. Interest from last payment event until first compound period is used as an input for calculating interest for next compounding period, till next payment event is reached.

Note:

When Compounding frequency is same as Reprice Frequency, with same payment and compounding frequency, compounding of interest would not happen. For below Multiple Repricing use cases Compounding is defaulted to None:

1. When Adjustable type code =500-99999 (repricing patterns), COMPOUND_BASIS_CD defaults to None. An error message is logged "For Multiple Reprice Instruments with repricing patterns, the compounding defaults to None".
2. When Adjustable type =50 (floating-rate), COMPOUND_BASIS_CD defaults to None. An error message is logged "For Floating rate Multiple Reprice Instruments”, the compounding defaults to None”.

When COMPOUND_BASIS_CD is 170 (continuous), it is defaulted to None. An error message is logged “For Multiple reprice instruments when compounding frequency is set as Continuous (170). The compounding is defaulted to None”. This use case is applicable from release 8.1.1.1.0 onwards.

Note:

Simple to Annual Compounding Rate Conversion: There are two points to note: When term of Cash Flow is less than one year, then simple compounding rate would be used as it is for annual compounding. Because there is no compounding before 1 year.

When Cash Flow term is more than 1 Year, then the conversion is done by equating (P+I) for simple and annual compoundingSimple Compounding (P+I) Annual Compounding (P+I) 1 + (r*Term in Days/365) = (1 + R) ^ (Term in Days/365)

R is rate after conversion from Simple to Annual compounding.