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from the start of the swap to the first scheduled cashflow, if
that was the first period). The fraction’s numerator was the
number of days in the accrual period. If the next scheduled net
cashflow was a cash receipt, then FNBC basically recorded an
increase in a receivable and a corresponding entry for realized
trading income. If the next scheduled net cashflow was a cash
payment, then FNBC basically recorded an increase in a payable
and a corresponding entry to realized trading loss. FNBC reduced
the receivable (or payable) when the scheduled net cashflow was
received (or paid).
The second piece, described by FNBC as the revaluation,
recorded the change in the midmarket value minus the accrual just
discussed. The sum of the two pieces equaled the change in the
midmarket value. At the first valuation date after the start of
the swap, the change in midmarket value equaled the midmarket
value (i.e., the previous value was zero). If the change in the
midmarket value minus the accrual was an increase, then FNBC
recorded an increase in its asset balance for swaps and a
corresponding entry for unrealized trading income. If the change
in the midmarket value minus the accrual was a decrease, then
FNBC recorded a decrease in its asset balance for swaps and a
corresponding entry for unrealized trading loss.
An effect of this manner of accounting for the midmarket
value was that no single account recorded the midmarket value of
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