Calendars and Finance, a long story :

 

Financial Products & calendars :

The calendar and especially the forex calendar are used in finance to adjust dates and generate flow schedules.

The flow schedules are present in all derivatives products like the interest rate Swaps but also in the Commodity linked swaps, the equity linked swaps and all sorts of financial products :

• the MoneyMarket Loan & Deposit
• the Term Forex operation and the spot forex operation
• the forex and refinancing Swaps also known as the cross currency swaps where 2 currencies are at stake
• the forex options
• the Swaptions, the FRAs, the CapFloors
• commodity exchanges
• the equity derivatives like the warrants
• the organized markets such as bonds and futures

These products are generally based on an exchange of flows.

The payment dates of these flows are subject to adjustments. This is where the forex calendar rules.

Of course, these flows cannot be exchanged during the week end, nor during bank holydays ie when the currency is not deliverable.

Date Adjustments thanks to the forex calendar :

When a theroretic payment date, like for instance, every 3 months starting on the 15/07/2006 falls on a week end or a closing day on the its currency (USD for instance), you clearly understand that we have to shift the date backward or forward. It is there that the adjustment convention is taking part in the action :

An adjustment convention indicates for interest flows payment dates, the way we have to shift dates whenever they're falling on non business days on one marketplace or one currency.

Lorsque d'une date théorique de paiement, comme par exemple tous les 3 mois à partir du 15/07/2006, tombent sur un Week end ou bien un jour férié sur la devise dans laquelle le flux doit être réglé, vous l'avez compris, il convient de déplacer la date en avant ou en arrière. C'est là que le mode de report intervient :

We distinguish 3 important adjustment methods :
- Following : shift to first next Business Day (forward)

- Preceding :shift to the first previous Business Day (backward)
- Modified following :shift to the first next business day, except if it's making us change from one month to another. in that cas, we applu backward and shift to first previous business day to keep it in the same month as the theoretic date.

 

Other important dates

The payment dates are obviously very important but the same principle applies the same way to all the specific dates of a financial product :

• Start date of the flow period
• End date of the flow period
• Fixing date of a floating rate
• Fixing date of a tunnel
• Exercice option notification date
• Financial alert notification date

On all these dates, one single mistake could lead to :

• either financial loss that could be very heavy, especially on exercice option date, not exercised for instance.
• either a downgrade of your back office reputation when you will have to explain a client or a bank that you want to modify an amount of a payment - meaning generally technical refinancing fees at least.

 

Download Freely a Forex Calendar from 2004 to 2008