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When you open a cap/floor contract, the system performs the following processing:

• Calculates and stores the Local and Base Premium of the contracts. Some contracts do not have a premium paid or received (zero cost).

• Calculates any applicable traded interest.

• Creates an inventory position for the number of contracts. Buy to Open transactions are Long in inventory. Sell to Open (short sells) are Short in inventory.

• Uses the quantity of the open contract as the first period's notional amount to price and accrue interest on.

• Updates the general ledger with the cost of the contracts and the payable or receivable for the contracts.

The following information is specific to cap/floor processing:

• If a cap is sold short to open, the entity receives the premium, but it takes on the liability of paying out interest. If a floor is sold short, the entity receives the premium, but it takes on the liability of paying out interest.

• The premium paid or received for a cap contract is always paid in full at the start of the contract (up front). Premium for a cap or floor contract is never paid periodically over the life of the contract.

• The premium paid or received for a cap contract, or a floor contract is amortized as income or expense over the life of the contract.

Calculation for Open Cap/Floor Transaction

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Local Currency = Settle Currency = Base Currency:

Local Currency = Settle Currency ≠ Base Currency:

For a Sell to Open (Event Type = Write) or if Net Cap/Floor is set to Yes and Opening Transaction is a Sell

Local Currency = Settle Currency = Base Currency:

Local Currency = Settle Currency≠ Base Currency: