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

Eagle Accounting executes the following calculation for an open cap/floor transaction:
Local Premium Value (the Cost/Proceeds) to Open:
(Quantity * Quantity Scale) * (Price per Contract * Price Multiplier)
Base Premium Value:
Local Premium Value / Spot Exchange Rate to Base

General Ledger Postings for Open Cap/Floor Transactions

When a contract is opened, the following general ledger postings are required.
For a Buy to Open
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:

Open Cap/Floor Transaction Example

Open Transaction Information:

• Buy to Open
• Trade Date 01/04/02
• Entity is GBP based
• Security is USD based
• Security Trades Flat

Local Premium Value = (1,000,000 * 1.00) * (0.09575000 * .01) = 957.5 USD
Base Premium Value = 957.50 / 1.44557 = 657.76 GBP
General Ledger Entries executed by Eagle Accounting on 01/04/02:

When earnings processing is invoked, Eagle Accounting posts to the following accounts:

Local Currency = Settle Currency ≠ Base Currency:

Open Short Cap/Floor Transaction (or Open Transaction is a Sell) Example

Open Transaction Information:

• Write or Sell to Open
• Trade Date 01/04/02
• Entity is GBP based
• Security is USD based

Security Trades Flat

Local Premium Value = (1,000,000 * 1.00) * (0.09575000 * .01) = 957.5 USD
Base Premium Value = 957.50 / 1.44557 = 657.76 GBP
General Ledger Entries executed by Eagle Accounting on 01/04/02:

About Cancel Open of Cap/Floor Contract

You can cancel Open Cap/Floor contracts prior to and after settlement. When you cancel an Open, the interest accrual and amortization values for the tax lot you are cancelling are automatically rolled back as part of the cancel transaction.
You can cancel cap/floor transactions using either the Cancel Trade panel or the Cancel and Rebook Trade tool.

General Ledger Postings for Cancel Open of Cap/Floor Contract

When an open contract is cancelled, the following general ledger postings are required:
For a Buy to Open
Local Currency = Settle Currency = Base Currency:

Local Currency = Settle Currency ≠ Base Currency:

For a Sell to Open
Local Currency = Settle Currency = Base Currency:

Local Currency = Settle Currency ≠ Base Currency:

About Settlement of the Opening Transaction

Cap and floor transactions settle according to the entity-level field elections selected for a fund:

• Auto Settle Indicator
• Contractual Cash Settlement Type
• Contract Settle Indicator

The premium of the contract is eligible to be moved through cash on the settlement date of the opening transaction, and any date after.
For a Buy Cap/Floor Contract
Local Currency = Settle Currency = Base Currency:

Local Currency = Settle Currency ≠ Base Currency:

For a Written Cap/Floor Contract or Sell to Open (Net Cap/Floor set to Yes)
Local Currency = Settle Currency = Base Currency:

Local Currency = Settle Currency ≠ Base Currency: