Book Trades for Currency Swaps

In the Currency Rate Swap panel, you can manually book an open and close trade for a currency swap. Currency swaps are multi-leg swaps. That is, they are comprised of three separate legs that are linked together by a shared primary asset identifier. The swap contains a contract leg, which provides general information, such as trading, pricing, and fee amortization. It also contains receive and pay legs, which provide specific payment details, such as daily accruals.

What makes a currency swap different from an interest rate swap is that one or both of the legs can be in a different currency than the base currency of the fund. For example, the payer of the contract pays the notional value in currency 1 (USD) and receives the notional value for currency 2 (CAD), whereas the receiver does the opposite. For accruals, the payer receives the accrual based on the notional for USD and pays the accrual based on the notional for CAD, whereas the receiver does the opposite.

The system processes each leg of a multi-leg swap as an individual position so that you can view holdings and accruals separately. Pricing is only processed at the contract level. One or both of the legs can be floating and each leg can have different coupon rates and payment frequencies.

This article assumes you are familiar with the entity and security level elections that have been made for processing a currency swap. For example, you must enter a value for the Swap Accrual Method field. If you set this field to Income/Expense, the system posts interest accruals and dividends to income/expense accounts in the general ledger. If you set this field to Unrealized, the system posts interest accruals and dividends to unrealized capital accounts in the general ledger. You can access this field using the Create/Edit Entity, Create Master Fund, and Edit Master Fund/Sector panels. Also, if the Primary Amortization/Accretion Rule field is not set to Straight Line, Straight Line Actual, or None, you must set up the Amortization/Accretion Rule at the processing security type level. You can access this field using the create/edit Amortization & Accretion Rules panels.

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