Calculation of Forwarding Exposures as the Sum of Present Value of Cash flows using EIR

The LLFP application calculates the Forward Exposure on each cash flow date as the Net present value of all future and current cash flows, discounted using the Effective Interest Rate (EIR) of the account or cohort. The discounting period is as per the Cash flow dates and not as per the buckets.

That is, Forward Exposure on each cash flow date is calculated as the Sum of Present Value of all the Future Cash Flows and the Current date Cash Flow, that is, the Cash flow corresponding to that date.

The forward exposures are then adjusted for PD and LGD to calculate the Per Period losses and the Expected Credit Loss of the account.

Present Value of Cash Flows in the FSI_ACCOUNT_INCEPTION_RATES table is computed during EIR computation. If the EIR is obtained as a download, the PV of cash flows is also expected as a download. These values need to be updated in the FSI_ACCOUNT_INCEPTION_RATES table, for all features dependent on this value.