Capital flight and Cumulative compounded rate: Difference between pages

From ACT Wiki
(Difference between pages)
Jump to navigationJump to search
imported>Doug Williamson
(Recreate page to correct date in source & remove full stop from page title. Source: The Treasurer, April 2017, p28.)
 
imported>Doug Williamson
(Add quote - source - ACT Slaughter & May Borrower's Guide 2022.)
 
Line 1: Line 1:
Capital flight is the movement of capital, under stress, to safe haven countries.
''Reference rates - risk-free rates.''


(CCR).


<span style="color:#4B0082">'''''Eurozone referendum risk'''''</span>
The compounded risk-free interest rate (RFR) applicable over a given period.


:"People do not realise what it would mean if Italy, for example, voted in a government that decided to hold a referendum to exit the eurozone.


:Just the viability of a referendum would accelerate existing capital flight and increase the TARGET2 imbalances dramatically.
:<span style="color:#4B0082">'''''Sterling Loan Conventions recommend Non-cumulative compounded rate (NCCR)'''''</span>


:One would theoretically have to impose capital controls on the eve of the election result to prevent the system from melting down."
:"There are a choice of approaches to the calculation of compounded rate interest on loans.  


:''The Treasurer magazine, April 2017, p28 - Roland Hinterkoerner, founder, Expertise Asia.''
:The additional amount of interest owed each day can be calculated either by applying the daily RFR to (1) the balance of the loan or (2) to the rate itself:


:'''(1) Compounding the balance:''' The daily RFR is multiplied by the outstanding principal and unpaid accrued interest (collectively, the balance).


:'''(2) Compounding the rate:''' The rate itself is compounded and multiplied by the outstanding principal.


== See also ==
 
* [[Balance of payments]]
::... there are two approaches to compounding the rate:
* [[Capital account]]
:* Cumulative compounded rate (CCR): The compounded rate is calculated at the end of the interest period and that rate is then applied to the whole period. This method allows interest for the whole period to be calculated using a single compounded rate.
* [[Capital control]]
:*Non-cumulative compounded rate (NCCR): This rate is derived from the CCR. The NCCR for a given day is the CCR for that day minus the CCR for the previous day. This generates a daily compounded rate which allows the calculation of a daily interest amount. These daily interest amounts are added up to provide a rate over the required period, enabling accurate calculation of accrued interest at any point in time.
* [[Euro zone]]
 
* [[Safe haven]]
 
:ISDA uses the CCR method in its IBOR fallbacks for derivatives.  The CCR method is also used in capital markets products.
 
 
:The Sterling Loan Conventions however, recommend the NCCR method for loans, because it better supports intra-period events such as prepayments and trading."
 
:''The ACT Borrower’s Guide to the LMA’s Investment Grade Agreements - 6th edition - 2022 - p31.''
 
 
== See also==
* [[Capital market]]
* [[Compound]]
* [[Derivative instrument]]
* [[Fallback]]
* [[IBOR]]
* [[International Swaps and Derivatives Association ]]  (ISDA)
* [[Non-cumulative compounded rate]]  (NCCR)
* [[Prepayment]]
* [[Principal]]
* [[Reference rate]]
* [[Risk-free rates]] (RFR)
* [[Sterling Loan Conventions]]
* [[Trading]]
 
 
==Other resource==
[https://www.treasurers.org/hub/best-practice/borrowers-guide-LMA-investment-grade-agreements The ACT Borrower’s Guide to the LMA’s Investment Grade Agreements]
 
[[Category:Accounting,_tax_and_regulation]]
[[Category:The_business_context]]
[[Category:Corporate_finance]]
[[Category:Investment]]
[[Category:Long_term_funding]]
[[Category:Identify_and_assess_risks]]
[[Category:Manage_risks]]
[[Category:Risk_reporting]]
[[Category:Cash_management]]
[[Category:Financial_products_and_markets]]
[[Category:Liquidity_management]]

Revision as of 13:06, 3 November 2022

Reference rates - risk-free rates.

(CCR).

The compounded risk-free interest rate (RFR) applicable over a given period.


Sterling Loan Conventions recommend Non-cumulative compounded rate (NCCR)
"There are a choice of approaches to the calculation of compounded rate interest on loans.
The additional amount of interest owed each day can be calculated either by applying the daily RFR to (1) the balance of the loan or (2) to the rate itself:
(1) Compounding the balance: The daily RFR is multiplied by the outstanding principal and unpaid accrued interest (collectively, the balance).
(2) Compounding the rate: The rate itself is compounded and multiplied by the outstanding principal.


... there are two approaches to compounding the rate:
  • Cumulative compounded rate (CCR): The compounded rate is calculated at the end of the interest period and that rate is then applied to the whole period. This method allows interest for the whole period to be calculated using a single compounded rate.
  • Non-cumulative compounded rate (NCCR): This rate is derived from the CCR. The NCCR for a given day is the CCR for that day minus the CCR for the previous day. This generates a daily compounded rate which allows the calculation of a daily interest amount. These daily interest amounts are added up to provide a rate over the required period, enabling accurate calculation of accrued interest at any point in time.


ISDA uses the CCR method in its IBOR fallbacks for derivatives. The CCR method is also used in capital markets products.


The Sterling Loan Conventions however, recommend the NCCR method for loans, because it better supports intra-period events such as prepayments and trading."
The ACT Borrower’s Guide to the LMA’s Investment Grade Agreements - 6th edition - 2022 - p31.


See also


Other resource

The ACT Borrower’s Guide to the LMA’s Investment Grade Agreements

Retrieved from ‘https://wiki.treasurers.org/w/index.php?title=Capital_flight&oldid=13027’