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Former Member

Fixed rate amortization separately of variable rate

Hi experts,

I have the issue below and I would like to know if you can help me.

The customer has a product type that have variable rate + fixed rate. The fixed rate is calculated over the base amount + variable interest, but the issue of this product is the fixed rate that has amortization separately of variable rate. To make it work up in CFM (version 5.0) I created 2 transactions:

1. 1. Interest rate transaction to calculate the variable rate interest;

2. 2. Facility transaction to calculate the fixed rate interest:

but it didn't work.

There is another solution for this issue?

Thank you and best regards.

Luci Maki

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2 Answers

  • Posted on Jun 26, 2012 at 10:16 PM

    Hello Eduardo,

    To better understand your quest, I have two questions. Is it that you are using the SAC gross or net method of amortization and interest is included in the calculation but only the fixed interest? Is this a money market or security product type?

    Regards,Lisa

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    • Former Member Former Member

      Hi Juerg,

      sorry for the delay, I was busy with another problem and I could not answer you.

      Here in Brazil this product type is very common in construction industry.

      Actually I decided develop the solution, because I had no time to do new tests, but I think the solution that I had thought could work.

      Thank you!

      Best regards,

      Luci

  • author's profile photo Former Member
    Former Member
    Posted on Jun 28, 2012 at 09:31 AM

    Hi,

    If I understand your question correctly, then you need a variable interest on a nominal amount for a period and then a fixed interest calculated on the nominal + Variable amount for the same period? As an example, you have a 10M nominal amount on a 3 Month Libor + 5% fixed rate on the 10M + 3month libor interest amt)?

    If this is the case, I am afraid multiple parallel interest conditions are not possible in treasury. For this you would have to use Loans management only where you can have multiple parallel interest conditions. Even there, to include the interest portion as relevant to capital flow for the calculation of the fixed part is not possible.

    As you stated, you can do that by creating a IRI and then creating a swap with floating on one side and floating+fixed on the other side. However, the nominal amount for this swap as per your case should be the total of initial nominal + the variable interest which again has to be calculated manually and hence your existing solution itself

    Also, since you are in CFM 5.0, how did you calculate amortization through money market?

    Regards,

    Ravi

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    • Former Member

      Hi Ravi,

      sorry for the delay, I was busy with another problem and I could not answer you before.

      Actually I decided develop the solution, because I had no time to do new tests, but I think the solution that I had thought could work.

      I would like to thank you for the help, thank you very much.

      Best regards,

      Luci

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