5.3.5.2 Defining Add-on Rate Methods

The definition of Add-on Rate Methods is part of the Create or Edit Add-on Rate Rule.

When you click Save in the Create Add-on Rule Process, the rule is saved, and the Add-on Rate Rule Summary page is displayed. However, Add-on Rate Assumptions have not yet been defined for any of your products at this point. You would start defining your Add-on Assumptions for Product-Currency combinations before clicking Save.

To define an Add-on Method:

1. Navigate to the Add-On rate Assumption Browser page.

   Figure 5-65 Add-on Rate Rule Assumption Browser

   
   

   

   
   
2. Select an appropriate Add-On Rate Type: Liquidity Rate, Basis Risk Costs, Pricing Incentives, Other Add-On Rates, or Breakage Charge by opening the Add-On Rate Type Selector Window. You can enable one or more Add-on Rate Types within a single Add-on Rate Rule and apply more than one Add-on Rate to a single product.

   Note:

   The Product Hierarchy refreshes when you change your Add-on Rate Type selection, but note that all selections made within the Rule are saved. For example, when Liquidity Rate is selected, the Hierarchy displays the status of Liquidity Rate mappings within the Hierarchy. If you change your Add-on Rate Type selection to Basis Risk Cost, the Hierarchy will refresh and you will see the status of all Basis Risk Cost mappings, and so on.
3. Select a Product Hierarchy. Based on the selected Hierarchy, the application displays a list of all the products (for which you can define Assumptions).
4. Specify a Currency from list of active currencies.
5. Select the check-box for one or more products for which you want to define Add-on Rate Method details.
6. Select an Add-on Rate Method and enter the appropriate parameters.

   Note:

   The Add-on Rate Methods available depends on the Selected Add-on Rate Type. Depending on the Add-on Rate Type and Add-on Rate Method combinations selected, certain required and optional parameter fields are displayed. You can update these fields as required.
7. Click Apply. If only one product was selected, the Assumption Browser Page is displayed. If more than one product was selected on the Assumption Browser Page, then each subsequent product in the select list will appear in the Selected Product drop-down list and each item should be defined appropriately. After completing the Assumption Details for each selected product, the Assumption Browser Page is displayed. At this point you can:
   1. Continue defining Assumptions for additional Product-Currency combinations for the selected Add-on Rate Type, by repeating the above procedure.
   2. Select a new Add-on Rate Type and continue defining Assumption Details for the required set of products.
   3. Complete the process by clicking Save. The new assumptions are saved, and the Add-on Rate Rule Summary page is displayed.

Oracle Funds Transfer Pricing Cloud Service provides you with the option to copy, in total or selectively, the Product Assumptions contained within the Add-on Rates Rule, Transfer Pricing, and Prepayment Rules from one currency to another currency or a set of currencies or from one product to another product or set of products.

Table 5-21 Fields and Descriptions for Add-on Rate Method Specification Screen

Term	Definition
Reference Term	The associated term is used for the Add-on Rate assignment. You can select one of the following types of reference terms: Original Term (the contractual term to the maturity of the account) Repricing Frequency (the frequency at which the account reprices) Remaining Term (the number of months until the account matures).
Interest Rate Code	Used for the Rate Lookup for the Formula Based Rate, and in the Breakage Charge - Economic Loss Method when discounting Cash Flows.
Assignment Date	Allows you to choose the date for which the Yield Curve values are to be sourced. Choices available are: As-of-Date Last Repricing Date TP Effective Date Origination Date Commitment Start Date Adjustment Effective Date
Lookup Method	The method used to derive an Add-on Rate for different reference Term Values. Specify Range as the Lookup Method if you want the application to apply the rates defined in the Add-on Rate Rule to a range of Reference Term values, using the terms defined in the Rule to specify the lower end of the range. Note that for values less than the lowest term point, the application uses the value associated with the lowest point. Specify Interpolation as the Lookup Method if you want the application to interpolate Add-on Rate Values for applicable Reference Terms falling between node points specified in the Add-on Rate Rule, using straight-line interpolation between the term points. Deals that are outside of range or ranges will not be populated with any values.
Term	In conjunction with the Multiplier, this field allows you to specify the value for the Reference Term for a given Lookup Tier.
Multiplier	The unit of time applied to the Term. The choices are: Days Months Years
Rate	The Add-on Rate to be applied to instruments where the Reference Term is the product of the Term and Multiplier defined for the row. The rate should be in percentage form, for example, 1.25 percent should be input as 1.25.
Amount	The Add-on Amount to be applied to instruments where Reference Term is the product of Term and Multiplier defined for the row.
Formula	The mathematical formula used in the Formula Based Rate Method to determine the Add-on Rate: (Term Point Rate * Coefficient) + Rate Spread.
Rate Floor and Rate Cap	The minimum and maximum rate. If the calculated value is less than the Floor or more than the Cap, then these rates will be applied. These boundaries are applicable only to Formula Based Method and Use the TP Method from TP Rule add-on rate Method types. These are optional inputs. Ensure that the Rate Floor value is always less than or equal to the Rate Cap Value.
Term Point	In conjunction with the Multiplier (Day, Month, or Year), it is used in the Formula Based Rate Method when looking up the rate for the designated Interest Rate Code.
Coefficient	Coefficient by which the Term Point Rate should be multiplied.
Rate Spread	The spread added to the Interest Rate read from the selected Interest Rate Code. Rate Spread is used in the Formula Based Rate and Breakage Charge - Economic Loss Add-on Rate Methods. For the Formula Based Rate Method, the spread is added to the result of the Term Point Rate * Coefficient. Enter the Rate Spread in percentage form, for example, 1.25 percent should be input as 1.25.
Minimum Charge	Used in the Fixed Percentage and Economic Loss Add-on Rate Methods for Breakage Charges. If the calculated Break Funding Amount is less than the Minimum Charge, then the Minimum Charge overrides the calculated amount and is written to the Break Funding Amount column.
Original Term	Select to apply Original Term to both Fixed and Adjustable Rate Instruments.
Standard Term	Standard Term is the traditional approach used in Funds Transfer Pricing, which is the Original Term for Fixed-Rate Instruments and Repricing Terms for Adjustable-Rate Instruments.
Repricing Frequency	Repricing Frequency is the frequency of rate change of a product.
Remaining Term	Remaining Term is the number of months remaining until the instrument matures.