An interest rate tells you how high the cost of borrowing is, or high the rewards are for saving. So, if you're a borrower, the interest rate is the amount you are charged for borrowing money, shown as a percentage of the total amount of the loan.
Interest rates serve several functions within the Treasury management system, including but not limited to, interest trade agreements, interest rate tables, fixed and variable interest rates, interest rates and loans, and various others.
Interest rate Calculations
Interest rate = P x R x T
P = Principal amount (the beginning balance)
R = Interest rate (usually per year, expressed as a decimal)
T = Number of time periods (generally one-year time periods)
The market for interest rate indices is referred to as an exchange. LIBOR, Bloomberg Foreign Exchange, and Reuter's Foreign Exchange are examples of common market rate indices. The numerous market rates that you monitor are categorized by an index.
In the navigation pane, go to: Modules > Treasury > Common > Exchange
Interest rate integration allows fetching of interest rates from url. The following website, that was built for Ninja API, will be used:
https://www.api-ninjas.com/api/interestrate
In the navigation pane, go to: Modules > Treasury > Setup > Integration setup
Enter a Content type
Enter a Description
Enter a Name
Enter the URL. URL is the URL where the data should be fetched. (For ninja it is from their website, it must end with "=" the country is dynamically added later.
Integration type must be "Interest rate"
Method must be "Get"
The Key is found on the API website.((For ninja it is from their website)
Key value is given after registration on API website, allows for calls to be made.
JSONProperty is the header of the sample JSON given by API Website. (For ninja it is from their website)
The mapping maps the F&O table where the data will go to the JSON text received from the website. Setup must match screenshot above. Country and rate_pct are mandatory for further logic to work.
After the Integration setup has been done, the Interest rates can be fetched by running the Fetch daily interest rates batch job
Interest Agreements allow for the establishment of interest rates agreed against the loan. It can be manually updated or automatically. Both fixed and variable interest rates are available.
In the navigation pane, go to Modules > Treasury > Loans > Loans and open an existing loan.
When opening a loan, by default you will be taken to the Header form.
Click on the Lines form
Now expand the Interest agreements FastTab
Complete the following fields:
Rate linked: select the tick box if this rate is linked to the interest rate table. This is used by the batch job to automatically create new interest rate agreements (Common> Periodic> Batch trade agreements creation–new interest rates)
Rate name can be selected from drop down list as it was set up
Maturity - choose between 12 months, 1 week, 2 weeks, 6 months or Overnight
Rate Auto-update tick box
Interest rate is a mandatory field; this is the interest rate negotiated with the institution and should be entered as a percentage
Margin rate (formerly known as the Bank spread) is the difference between the interest rate that a bank charges a borrower and the interest rate a bank pays a depositor. It is a percentage that tells someone how much money the bank earns versus how much it gives out
Total interest rate
Total effective interest rate
Interest rate group can be either fixed or variable.
a fixed interest rate means that the agreed interest rate is applicable for the entire period of the loan
A variable interest rate means that the interest rate will fluctuate according to market conditions. When creating a new Interest rate, Variable interest rate should be the default.
If you select a Variable interest rate, you will be able to add additional lines on the trade agreement.
When working with variable interest rate, ensure you enter a new “start date” for each line, but keep the end date for all new lines on the trade agreement the same.
Start date gets its value from the loan details header record. The first line of interest agreements start date is populated from the loan header.
When adding additional interest rate lines, from the second line, the start dates can be filled in.
The initial start date is populated from the Loan header
End date: The loan date together with the loan payment terms determines the number of payments that will be made and subsequently the number of statement lines that will be created.
The end date is part of the base data for the loan and is negotiated with the institution on creation of the first agreement. This means that the end date must be the same across all agreement versions.
The end date is automatically populated from the Loan header
Number of statement lines is a non-editable field that is calculated using the start to end dates and loan payment terms (interest calculation intervals)
Interest payment terms: options to choose from is monthly, quarterly, half yearly and yearly
Number of payments in loan
When a loan group has an interest rate linked, the interest rate will be populated to the Loan trade agreement. The user will not be able to manualy edit this interest rate on the Loan trade agreement
By executing a recurring batch operation, interest trade agreements that are tied to an interest rate can be automatically updated.
To automatically assign the latest interest rates to Loans as per the Interest rate table, go to Common > Periodic > Rate auto-updates on Interest agreements
Click the OK button to run the batch job
¶ Step 12: Update Interest rate groups participant rates
This job will update the interest rate table of all the participants with the interest rate table of the leader. Once run, this job will update all rates in the participating entities’ rate table.
In the navigation pane, go to Treasury > Common > Periodic > Update Interest rate groups participant rates
Running this job will update all the participant entities with the same interest rates as the Group leader.
In the dialogue page, select the Interest rate group
Click on the OK button
Interest rates can be setup to be used to update all interest rates on the respective Legal entities, a per set up on the Interest rate group page
Interest rates can run as a batch job, in addition to the existing option for immediate execution
To fetch the daily interest rates, go to: Treasury > Common > Periodic > Fetch daily interest rates
This job has a single parameter - Rate name. When ran, it loops through all rate names matching chosen option and fetches interest rates for the setup country/region that was set up on the Rate name. It then applies the logic below to populate the Interest rate form - Treasury > Common > Interest rate.
Fetch the interest rate for the from the API, using data as setup in Rate name form
Create a new record in the Interest rate table using the response received
Values from Rate names
Rate name = Rate name
Maturity = Maturity
Values from integration response
last_updated = Start date
rate_pct = Interest rate
central_bank = Central Bank (if provided)
Validation
Look at the latest record in the table for the same combination of Rate name, Maturity
If the rate of the identified record is equal to the rate returned by the API, do not create a new record
If a new record could not be created, give a warning message indicating “New record has not been created – there has been no change to the interest rate”