TAILIEUCHUNG - Lecture Financial markets and institutions - Chapter 15: Interest rate derivative markets

This chapter presents the following content: Participation by financial institutions; participation by financial institutions; risks of interest rate swaps; pricing interest rate swaps; factors affecting the performance of interest rate swaps; interest rate caps, floors, and collars; globalization of swap markets. | Chapter 15 Interest Rate Derivative Markets Financial Markets and Institutions, 7e, Jeff Madura Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Chapter Outline Background Participation by financial institutions Types of interest rate swaps Risks of interest rate swaps Pricing interest rate swaps Factors affecting the performance of interest rate swaps Interest rate caps, floors, and collars Globalization of swap markets Background An interest rate swap is an arrangement whereby one party exchanges one set of interest payments for another ., fixed-rate payments are exchanged for floating-rate payments The provisions of a swap include: The notional principal The fixed interest rate The formula and type of index to determine the floating rate The frequency of payments The lifetime of the swap Background (cont’d) Amounts owed are typically netted out so that only the net payment is made The market for swaps is facilitated by over-the-counter trading Swaps are less standardized than other derivatives Swaps became popular in the early 1980s because of large fluctuations in interest rates ., financial institutions traditionally had more interest rate-sensitive liabilities than assets and were adversely affected by rising interest rates ., some foreign financial institutions had access to long-term fixed rate funding but used funds primarily for floating rate loans By engaging in an interest rate swap, both institutions can reduce their exposure to interest rate risk (see next slide) Background (cont’d) A . financial institutions could send fixed-rate payments to a European financial institution in exchange for floating-rate payments If interest rates rise, the . financial institution receives higher interest payments from the floating-rate portion, which helps to offset the rising cost of obtaining deposits If interest rates decline, the European institution provides lower interest payments in the swap, .

• Tài chính doanh nghiệp
• Financial markets
• Lecture Financial markets
• Thị trường tài chính
• Interest rate derivative markets
• Financial institutions
• Interest rate swaps
• Financial futures markets
• Valuation of financial futures
• Interest rate futures
• Lecture Financial markets and institutions
• Financial institutions markets
• Capital markets
• Money markets
• Derivative securities markets
• Futures markets
• Option markets
• Swap markets
• Foreign exchange derivative markets
• Bank management
• Types of Financial Markets
• Securities traded
• Valuation of securities
• Money market yields
• Bond markets
• Municipal bonds
• Mortgage markets
• Primary mortgage market
• Stock markets
• Common stock
• Foreign exchange markets
• Foreign exchange
• Commercial banks
• Financial statements
• Risks at financial institutions
• Market risk
• Exchange rates
• Economics 252
• Efficient markets
• Excess volatility
• Efficient Markets Hypothesis
• Mortgage backed securities
• Globalization of mortgage markets
• Financial markets and institutions
• The financial system
• Interest rates change
• Financial markets efficient
• Term structure affect interest rates
• The stock market
• The mortgage markets
• The international financial system
• Financial regulation
• Interest rate fundamentals
• Interest rates
• Security valuation