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Overview
A Dual Currency Deposit (DCD) is a structured product that combines a Time Deposit with a Foreign Exchange (FX) Option. This allows for the repayment of the deposit and accrued interest at maturity in an alternate currency, which is initiated by a “trigger event.” If no trigger event occurs the deposit is repaid in the initial deposit currency. Trigger events typically happen when the local currency appreciates above the strike price on the contract.
Eagle has modeled DCDs using Short-Term Notes (DBIBST) for the deposit and spot FX transactions in the case of a trigger event. While Accounting does not have processing tailored specifically to DCDs, the core fixed income and option contract functionality can be leveraged to model these investments end-to-end in the Eagle Suite.
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Entity Setup
There are no unique entity configurations required to trade DCDs.
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Reference Data
The Time Deposit (Short-Term Note) piece of the DCD must be set up prior to trading, while the spot FX transaction is entered later at the time of the trigger event. This can be done using Issue Viewer or Security Reference Manager > Add > Fixed Income > Short Term Debt, or Reference Data Center. Below are DCD-specific security details.
Processing Security Type = DBIBST
Price Multiplier = 1.00
Payment Frequency = At Maturity
Issue Price = 1.00
First Coupon Date = Maturity Date
Last Coupon Date = Maturity Date
Maturity Price = 1.00
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Trade Processing
Buy
Buys can be processed using Book Trade > Open > Buy, similar to any other fixed income securities. Par Value should equal the amount of the deposit. The below list captures the absolute minimum data required to book a Short-Term Note in Accounting.
Trade Date
Settlement Date
Select Values to be Calculated by STAR
Par Value/Current Face
Price
Broker
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Accounting
Once a DCD position has been established it will follow all core Eagle Accounting processes.
Mature
Short-Term Notes follow Eagle’s core maturity process to model the DCD being repaid in the issued currency (no trigger events). Use Global Process Center > Expirations > Mature to process the maturity.
Set Maturity Processing Date equal to Maturity Date of the Short-Term Note
To settle the principal and interest cash at maturity, use Global Process Center > Settlements > Contract Cash
Trigger Event
A spot FX transaction can be booked in the case of trigger event where the deposit is repaid in an alternate currency. There is no security setup required for booking spot transactions, as it is created on the fly. Spot transactions can be booked using the Book Trade module by querying for the CASH security of the repayment currency and selecting Book Foreign Exchange > Buy Currency - Spot Transaction. The following list of data elements is required for booking a spot transaction.
Example
Deposit Currency = USD
Repayment Currency = JPY
Repayment Amount = 1,000,000 USD
FX Rate = 95 (JPY/USD)
Spot Transaction
Sell Currency Symbol = USD
Sell Quantity = 1,000,000 (Principal Amount or Principal + Interest on Time Deposit)
Buy Currency Symbol = JPY
Buy Quantity = 95,000,000 (1,000,000*95)
Broker Name = Per contract
Broker Code = Per contract
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Valuation
Price the Short-Term Note daily with a clean unit price. Accounting calculates the security’s value by using the formula below.
Market Value = Par Value * Clean Unit Price * Price Multiplier * Quantity Scale
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Reporting
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STAR to PACE (S2P)
Almost all reports in Eagle leverage data from Data Management, which is populated by the S2P process
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- The market_value_income column on the Dual Currency deposit security’s row will capture the market value
- Cash activity will be appropriately signed
Similar to other instruments, STAR to PACE creates data in position, position_detail, trade, and cash_activity tables.
OPERATIONAL REPORTING
DCDs will appear on all core Eagle reports. The operational reports were specifically designed to support daily workflow. They are used to quickly identify differences and provide the necessary level of detail in order to resolve any discrepancies that may exist. The reports are primarily driven off of Data Management with data updated by the STAR to PACE Direct events. Eagle recommends following current best practices of using these core queries and building custom result profiles that fit your business needs.
INVESTMENT REPORTING
The STAR to PACE process moves position, cash activity, and trade data to Data Management. This enables users to take advantage of all of the Data Management OLAP reporting capabilities:
- Single/multi period lot, aggregate, and position reporting
- Trade activity reporting
- Cash activity reporting
- Exposure reporting with full analytics integration; some data must be augmented to achieve complete exposure reporting
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. This will be scheduled as part of the daily workflow, but can also be triggered manually as described in the Accounting section.
The S2P process creates single rows for each DCD in the POSITION, POSITION_DETAIL, TRADE, and CASH_ACTIVITY tables. The MARKET_VALUE_INCOME column captures the total market value, inclusive of price fluctuations and period-to-date accruals payable or receivable.
Accounting Reports
Eagle has a core set of accounting reports that can be used to review DCD information. These are designed to support the daily operational workflow for business users, allowing Grid Reports to be easily exported to Excel and customized to provide additional details as needed. Advanced Reports are intended to be client-facing and do not provide the same level of customization.
Data Management Reporting
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Performance
The performance toolkit has full functionality to calculate market value-based performance for DCDs
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using data supplied by the
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S2P process. Risk and performance attribution
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features are available to analyze DCD performance.
AUTOMATION
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Automation
CLO SMFs and trades can be loaded through the standard Message Center streams. The SMF must be loaded prior to the trade (the trade will not create a security master file record). Refer to the Eagle Message Center STAR and CSV Format Default Streams Guide trades do not spawn SMFs). Refer to https://eagledocs.atlassian.net/wiki/spaces/GENERICINTER/overview for more information.