An amount equal to

Excellent celery that will fill out any drafting that looks a bit thin. It may look like — and is, truth be told — a pointless nominalisation, but this will not stop assiduous attorneys defending it with their miserable little lives:

“...on each Payment Date the Floating Amount shall]], unless otherwise agreed, be reduced by an amount equal to such rate as the Calculation Agent and/or Determination Agent, as the case may be, shall calculate or determine, as the case may be, to be the Floating Rate Payer's unadjusted cost of funding.”

Why add “an amount equal to”? Profound ontological uncertainty — something in which derivatives practitioners tend to be steeped. For it isn't actually the borrower’s cost of funding you’re deducting — that is a incorporeal, abstract concept, logically incapable of being deducted from something else by mathematical operation, where as an amount equal to monetizes this concept, and turns it into something you can articulate in pounds and pence.

Except that there’s a flaw in this logic: “equals” is a mathematical operator as surely as an addition or a subtraction is. It is no more (or less) susceptible to manipulation by ethereal concepts. If you can’t deduct a cost of funding from a rate, you can’t calculate an amount equal to it, either.

But of course you can deduct a cost of funding. Thus the forensic value of the expression “an amount equal to” is an amount equal to nothing.

See also

• Profound ontological uncertainty
• Celery

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