Frozen GAAP and Interest arbitrage: Difference between pages

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''Loan documentation - financial covenants''.


The financial model used to set initial [[financial covenant]] levels will be based on the accounting principles in use by the borrower at the time of negotiation, usually referred to as generally accepted accounting principles ('[[GAAP]]').  
The international transfer of funds to a foreign centre, or the maintenance of funds in a foreign centre with the intention of benefiting from the higher yield on short-term investment in that centre.


However accounting standards change over time, and consequently financial covenant ratios can be affected.
== See also ==
* [[Arbitrage]]


In general loan documentation is worded such that covenants are tested assuming GAAP at the date the loan was negotiated, as this gives both parties the greatest certainty.
This is called 'frozen' GAAP, because the initially prevailing GAAP is frozen for the purposes of covenant testing.
==See also==
*[[Documentation]]
*[[Financial covenant]]
*[[GAAP]]

Revision as of 14:19, 23 October 2012

The international transfer of funds to a foreign centre, or the maintenance of funds in a foreign centre with the intention of benefiting from the higher yield on short-term investment in that centre.

See also


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