12.1.1 Structured Change
For Structured Change input, the user can incrementally increase or decrease exchange rates over specific periods. Structured rate changes are applied to the exchange rates in effect during the previous period. Rate changes have two components:
- A change amount
- A period over which the change occurs
The minimum period over which a change occurs is one modeling bucket. If a rate change occurs over more than one modeling bucket, the rate change is apportioned across each modeling bucket using a straight-line method based on the amount of time in each bucket.
If the modeling bucket lengths are not even, each modeling bucket's length is converted to units of months. Oracle ALM employs the same method to calculate an equal-month percentage for daily modeling buckets, as described later in this chapter for the Implied Forward calculations.
Once all modeling buckets are expressed in monthly units, the apportionment of rate changes can occur.
- Add the total number of months for the modeling bucket range.
- Divide the total rate change by the total number of months.
- Apply rate change in each bucket by multiplying the monthly rate change by the number of months for that bucket.
For example, assume that the active Time Bucket rule defines each bucket as 1 month, and the following Structured Change is forecast:
Table 12-2 Example of Structured Change
| Start Bucket | End Bucket | From Date | To Date | Total Rate Change |
|---|---|---|---|---|
|
1 |
3 |
1/1/2011 |
03/31/2011 |
0.25 |
|
4 |
12 |
4/1/2011 |
12/31/2011 |
1.25 |
With monthly buckets, the amount of change to apply in this example is as follows:
Table 12-3 Example of Monthly Bukcets
| Buckets | Rate Change per bucket |
|---|---|
|
1 - 3 |
0.25 / 3 = 0.0833 |
|
4 - 12 |
1.25 / 9 = 0.1389 |
Applying this change in each bucket results in the following Forecast Rates
Table 12-4 Example of Forecast Rates
| Bucket | Bucket Start | Bucket End | Rate |
|---|---|---|---|
|
0 |
N/A |
12/31/2010 |
5.2 |
|
1 |
1/1/2011 |
1/31/2011 |
5.2833 |
|
2 |
2/1/2011 |
2/28/2011 |
5.3667 |
|
3 |
3/1/2011 |
3/31/2011 |
5.45 |
|
4 |
4/1/2011 |
4/30/2011 |
5.5889 |
|
5 |
5/1/2011 |
5/31/2011 |
5.7278 |
|
6 |
6/1/2011 |
6/30/2011 |
5.8667 |
|
7 |
7/1/2011 |
7/31/2011 |
6.0056 |
|
8 |
8/1/2011 |
8/31/2011 |
6.1444 |
|
9 |
9/1/2011 |
9/30/2011 |
6.2833 |
|
10 |
10/1/2011 |
10/31/2011 |
6.4222 |
|
11 |
11/1/2011 |
11/30/2011 |
6.5611 |
|
12 |
12/1/2011 |
12/31/2011 |
6.7 |
|
13 + |
1/1/2012 |
end of modeling horizon |
6.7 |