July 2011
Intermediate to advanced
741 pages
17h 32m
English
book
Accounting for Investments, Volume 2: Fixed Income Securities and Interest Rate Derivatives—A Practitioner's Guide
by R. Venkata Subramani
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THE TRADE LIFE CYCLE FOR CROSS-CURRENCY SWAPS
- Recording the trade—contingent
- Account for the upfront fee (premium on the trade)
- Pay/receive the upfront fee for the trade
- Reset the interest rate for both legs—receivable and payable
- Account for accrued interest on pay leg on valuation date
- Account for accrued interest on receive leg on valuation date
- Reverse the accrued interest on pay leg on coupon date
- Reverse the accrued interest on receive leg on coupon date
- Account for the interest payable on the pay leg on coupon date
- Account for the interest receivable on the receive leg on coupon date
- Pay the pay leg (one currency)
- Receive the receive leg (another currency)
- Reverse the existing net present value of the trade
- Ascertain the fair value on valuation date
- Termination of the trade and accounting for termination fee
- Payment or receipt of termination fee
- Maturity of the trade
- Reversal of the contingent entry on maturity/termination
- FX revaluation entries
- FX translation entries
Let us assume the contract data as shown in Table 12.2 for the purpose of understanding the trade life cycle for a cross-currency interest rate swap.
Table 12.2 Details of cross-currency swap contract
Recording the trade—contingent
Unlike interest rate swaps there may be an exchange of principal taking place ...
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