Swaps
About the Lecture
The lecture Swaps by Edu Pristine is from the course Archiv - Financial Markets and Products. It contains the following chapters:
- Agenda
- Introduction
- Comparative Advantage Argument
- Question - Comparative Advantage
- Interest Rate Swaps
- Changing a liability
- Financial Intermediaries
- Swap rates
Author of lecture Swaps
Edu Pristine
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Excerpts from the accompanying material
... Agenda Introduction: The Comparative Advantage Argument Interest ...
... flow exchange on one particular date.Most common swaps are Interest Rate Swaps (IRS) and currency swaps. The legal agreement in which the two parties enter is ...
... borrow fixed Table tells us that X can borrow fixed at 5% and Y can borrow fixed at 7%. Also X can borrow floating at LIBOR and Y can borrow floating a t (LIBOR + 100bps). This implies that X has ...
... at LIBOR + 100bps and lends to X at LIBOR. Therefore the net borrowing rate for X becomes (LIB OR – 50bps) which is lower than the original rate at of LIBOR. Similarly the net ...
... Following are the rates at which company ABC and XYZ can borrow from the ...
... the IB makes 200bps profit 10%10.00% LIBOR + 100bps LIBOR ...
... parties get into an agreement where one pays interest on a floating rate to the other, while the other pays a fixed rate of interest on ...
... -Party 2’s effective cash flow:Net cash outflow is 8.3 %. Point to note here is that Party 1’s fixed liability is changed to floating liability after the swap. Party 2’s liability ...
... above you can see that the financial instituti on is making a 3 basis point spread on the fixed payment of the transaction In such cases the bank has separate contract with party 1 and p arty 2 Party 1 and party 2 might not ...
... rate it is willing to receive in return for a payment of a floating rate (its offer rate).Like LIBOR swap ...
... flow exchange on one particular date Most common swaps are Interest Rate Swaps (IRS) and currency swaps. The legal agreement in which the two parties enter ...
... fixed Table tells us that X can borrow fixed at 5% and Y can borrow fixed at 7%. Also X can borrow floating at LIBOR and Y can borrow floating a t (LIBOR + 100bps) This implies that X has absolute ...
... LIBOR + 100bps and lends to X at LIBOR. Therefore the net borrowing rate for X becomes (LIB OR – 50bps) which is lower than the original rate at of LIBOR. Similarly the net borrowing ...
... Following are the rates at which company ABC and XYZ can borrow from the ...
... IB makes 200bps profit. 10.00% LIBOR + 100bps LIBOR ...
... get into an agreement where one pays interest on a floating rate to the other, while the other pays a fixed rate of interest on the same ...
... Party 2’s effective cash flow: Net cash outflow is 8.3 % Point to note here is that Party 1’s fixed liability is changed to floating liability after the swap. Party 2’s liability ...
... above you can see that the financial institution is making a 3 basis point spread on the fixed payment of the transaction In such cases the bank has separate contract with party 1 and party 2. Party 1 and party 2 might ...
... rate it is willing to receive in return for a payment of a floating rate (its offer rate). Like LIBOR ...
... an example in which the swap lasts for n years. If the payments are made at the end of each year then: If the principal is exchanged between the 2 parties at the end of the swap, then Party 1’s cash flow suggests that it’s long a fixed rate bond and short a ...
... rate agreement. For payment at time t, the rate used is the rate for the period ...
