Product type 56A - what do clients use as the underlying

Question

Hi All
I now understand that you associate some borrowing transaction type/product type combination to product type 56A as a facility in the 'Admin' tab.
The question I have is what do clients normally use as the product type/transaction type combination for these facilties?  Do they do like a 0% interest 55A/200 or do they set up a fixed interest 55A/200.  I mean I am not sure what to advise the client of mine to use.  What product type to use, where to give the injterest (in the 56A or the underlying product type)
Your thoughts & inputs are appreciated.
Thanks
Regards
Morgan

Answer 1

Hi Morgan,
just to add a few words to what mentioned by Ravi.
Facility or credit line is a kind of guarantee, that you as a borrower will be able to borrow some maximum agreed amount of funds during certain period of time. And, of course, usually you need to pay certain price for that. Pricing itself really depends on competitive environment.
So, overall you have 2 type of expenses:
--- interest expenses on facility/ credit line (Product category 560);
--- interest expenses on real borrowing/ drawing (earlier mentioned instruments fixed-term deposits, interest rate instruments, etc.). Usually, interest rate here depends on number of factors, like credit quality of borrower, benchmark yield curve for specific currency, etc., and is almost >0, cause money has certain price.
hope this will help you.
Rgds,
Renatas