• Interest rate and currency swaps

    • PRU A6.2.9 PRU A6.2.9

      An interest rate and a currency swap must be treated as two notional government Securities as follows:

      (a) where the Authorised Person is receiving fixed rate interest and paying floating rate interest:
      (i) a notional long position with a maturity equal to the length of the swap; and
      (ii) a notional short position with a maturity equal to the period remaining to the next interest rate reset date;
      (b) where the Authorised Person is paying fixed rate interest and receiving floating rate interest:
      (i) a notional short position with a maturity equal to the length of the swap; and
      (ii) a notional long position with a maturity equal to the period remaining to the next interest rate reset date;
      (c) where the Authorised Person is receiving fixed rate interest and paying fixed rate interest:
      (i) a notional long position with a maturity equal to the length of the swap; and
      (ii) a notional short position with a maturity equal to the length of the swap.
      (d) where the Authorised Person is receiving floating rate interest and paying floating rate interest:
      (i) a notional long position with a maturity equal to the period remaining to the next interest date reset date; and
      (ii) a notional short position with a maturity equal to the period remaining to the next interest rate reset date; and
      (e) the two notional government Securities must have a coupon equal to the rate of interest payable or receivable on the leg.

      • Guidance

        A currency swap is also subject to a Foreign Exchange Risk Capital Requirement (see Section 5.6).