TAILIEUCHUNG - Lecture Financial institutions, instruments and markets: Chapter 20 - Christopher Viney

Chapter 20 - Interest rate swaps and currency swaps. In this chapter, students will be able to understand how interest rate and currency swaps operate, outline the various risks associated with swaps. | Chapter 20 Interest Rate Swaps and Currency swaps Websites: Learning Objectives Understand how interest rate and currency swaps operate Outline the various risks associated with swaps Chapter Organisation Introduction Interest Rate Swaps Currency Swaps Credit and Settlements Risks Associated with Swaps Summary Introduction Turnover in the Australian swap market in 2000/01 was trillion Swaps may be used to hedge interest risk and exchange rate risk Swaps also enable investors and borrowers to obtain a lower cost of funds or a higher yield Chapter Organisation Introduction Interest Rate Swaps Currency Swaps Credit and Settlements Risks Associated with Swaps Summary Interest Rate Swaps Organised between borrowing parties The two parties swap their interest payment obligations No transfer of the principal amount Both parties benefit from the swap Example: Table outlines the current cost of funds for two borrowers Firm A has a credit advantage in both markets Interest Rate Swaps (cont.) Interest Rate Swaps (cont.) Strategy Firm A borrows in fixed market, where it has comparative advantage (. 12%) Firm B borrows in other market (. floating) at BBSW + . One possible swap arrangement B pays A a fixed rate of A pays B a floating rate of BBSW + Figure illustrates the flow of funds and benefits of this interest rate swap Interest Rate Swaps (cont.) Interest Rate Swaps (cont.) The majority of swaps require the involvement of an intermediary . merchant bank, that often seeks an offsetting ‘matched swap’ . It enters into opposite swap transactions to offset its net swap exposure, making a profit through a spread between the rates Figures and in the textbook illustrate an intermediated interest rate swap Interest Rate Swaps (cont.) Interest Rate Swaps (cont.) Rationale for the existence of .

• Tài chính doanh nghiệp
• Financial institutions
• Financial Instruments
• Financial markets
• Financial system
• Impact of globalisation
• Functions of the financial system
• Lecture Financial markets and institutions
• Financial institutions markets
• Risks at financial institutions
• Market risk
• Savings institutions
• Credit unions
• Commercial banks
• Financial statements
• Financial markets and institutions
• Interest rates change
• Financial institutions exist
• Central banking
• Capital markets
• Money markets
• Interest rate fundamentals
• Interest rates
• Security valuation
• Federal reserve system
• Monetary policy
• Money market yields
• Bond markets
• Municipal bonds
• Mortgage markets
• Primary mortgage market
• Stock markets
• Common stock
• Foreign exchange markets
• Foreign exchange
• Derivative securities markets
• Futures markets
• Commercial bank liabilities
• Regulation of commercial banks
• Deposit guarantee funds
• Insurance companies
• Life insurance companies
• Securities firms
• Investment banks
• Mutual funds
• Hedge funds
• Pension funds
• Private pension funds
• Managing credit risk
• Balance sheet
• Managing liquidity risk
• Managing interest rate risk
• Insolvency risk
• Managing risk
• Loan sales
• Managing risk off the balance sheet