Introduction[edit]
Cash is the underlying medium of exchange for all markets.
Security description[edit]
Cash has no maturity date and its local currency price is unaffected by interest rates.1 However, cash holdings can generate interest returns. By definition, cash always has the highest possible credit rating.
Security code[edit]
Cash has security type CASH.
Calculation of returns[edit]
Exposures due to cash are always calculated as $1 market value per $1 face value. Although the market price of cash does not change, cash holdings can generate interest returns, as shown below.
Security file setup[edit]
Cash is up as follows:
| Field number | Field | Type | Description | Samples |
|---|---|---|---|---|
1 | Security ID | String | Identification code | AUD_CASH |
2 | Name | String | Name of cash type | Australian dollars |
3 | Start date | Date | Date at which record becomes effective | [Blank]01/01/2010 |
4 | Security type | String | Type code for cash (CASH) | CASH |
5 | Currency | String | 3-character currency code | AUD |
6 | Cash rate | Double | Annual interest rate paid on cash deposits | 0.045 |
Notes
- Typically, cash holdings in a particular currency need only be defined once, since the parameters for cash do not change over time. The exception is for interest-bearing accounts. For non-interest bearing accounts, set Cash rate to zero. For interest-bearing accounts, set Cash rate to the annual rate.
- More than one type of cash security can be set up for a given currency. For instance, cash held in overnight deposits may pay interest, while cash held in an outstanding settlements account may not. In this case the two deposits should be treated differently by assigning different security identification codes.
- The option of reading the cash rate from the yield curve is not currently offered, since this seldom reflects the rates available for cash deposits.
- If the interest rate paid on cash holdings changes, a new record must be added to for this cash account. The rate supplied in column ‘Cash rate’ should be updated and a new start date entered.
Returns file setup[edit]
An unattributed security requires the following information in the returns file:
| Field number | Field | Type | Description | Sample |
|---|---|---|---|---|
1 | Date | Date | Date at end of interval | 30/11/2009 |
2 | Portfolio | String | Name of portfolio | STF1 |
3 | Security ID | String | Identifier for security | AUD_CASH |
4 | Market weight | Double | Market weight of security within portfolio | 0.01330 |
5 | Base current return | Double | Base currency return of security | 0.00001232 |
6 | Local currency return | Double | Local currency return of security | 0.0001232 |
Example 1[edit]
A portfolio holds AUD that pays 4.5% per annum. This security is represented by a single entry in the security definition file:
The Start date field is left blank, indicating that all supplied characteristics remain unchanged over the holding period for this cash deposit.
The security has the corresponding entries in the returns file:
| Date | Portfolio | Security ID | Market weight | Base currency return | Local currency return |
|---|---|---|---|---|---|
March 12, 2009 | STF1 | AUD_CASH | 0.01033 | 0.0001232 | 0.0001232 |
April 12, 2009 | STF1 | AUD_CASH | 0.01033 | 0.0001232 | 0.0001232 |
May 12, 2009 | STF1 | AUD_CASH | 0.01033 | 0.0001232 | 0.0001232 |
0 | 0 | 0 |
These records show the weight and returns for this cash holdings over successive days within the STF1 portfolio. Note that the daily return of the cash holding is given by 0.045 / 365 = 0.000123.
Example 2[edit]
A portfolio holds AUD. Initially, the cash holdings pay 4.0% per annum, but the deposit rate rises to 5% on 4.12.2009.
This is represented by two rows in the security definition file:
| Security ID | Name | Start date | Security type | Currency |
|---|---|---|---|---|
AUD_CASH | Australian dollars | CASH | 0.04 | |
AUD_CASH | Australian dollars | April 12, 2009 | CASH | 0.05 |
Both rows are identical except for the entries in the ‘Start date’ and ‘Cash rate’ columns.
1The price of one currency relative to another is affected by interest rates, but this source of return is usually regarded as due to currency risk rather than fixed income risk.