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:''“...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.” | :''“...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.” | ||
So, why add “[[an amount equal to]]”? | |||
[[Profound ontological uncertainty]] — something in which, like anal retentiveness, derivatives practitioners tend to be steeped — is why. For, they will say, it isn't actually the borrower’s cost of funding you’re deducting — that is not a number but a (different) incorporeal, abstract concept which happens to resemble a number but is not one, and is therefore logically incapable of being deducted from something else by mathematical operation. The neat solution: add the phrase “[[an amount equal to]]”, which “monetises” this concept, turning it into something properly numeric that a fellow can articulate in pounds and pence. | |||
Properly numeric I mean really. | |||
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. | 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. | ||
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*[[Profound ontological uncertainty]] | *[[Profound ontological uncertainty]] | ||
*[[Celery]] | *[[Celery]] | ||
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{{plainenglish}} | {{plainenglish}} | ||