TAILIEUCHUNG - Lecture Financial institutions, instruments and markets (7e): Chapter 21 - Christopher Viney, Peter Phillips

Chapter 21 - Interest rate swaps, currency swaps and credit default swaps. The objectives of this chapter are: Describe the nature of a swap and explain the structure and operation of vanilla and basis interest rate swaps, understand the importance of the interest rate swap market, examine the structure of a cross-currency swap and how they can be arranged, explain the rationale for the cross-currency swap markets,. | Chapter 21 Interest rate swaps, currency swaps and credit default swaps Websites: Learning objectives Describe the nature of a swap and explain the structure and operation of vanilla and basis interest rate swaps Understand the importance of the interest rate swap market Examine the structure of a cross-currency swap and how they can be arranged Explain the rationale for the cross-currency swap markets Introduce the concepts and parties to credit default swaps Consider the risks for an intermediary, or a counterparty, to a swap Chapter organisation Interest rate swaps Rationale for the existence of interest rate swaps Currency swaps Rationale for the existence of currency swaps Credit default swaps Credit and settlements risks associated with swaps Summary Interest rate swaps Notional value of swap market transactions in 2010 Australian market Interest rate swaps AUD 5 923 billion Currency swaps AUD 23 963 billion Credit derivatives AUD 247 billion International markets Interest rate swaps USD 347 508 billion Currency swaps USD 16 347 billion Credit default swaps USD 30 261 billion Note: the figures are not comparable. The Australian market figures are annual turnover while the international figures are notional value at a point in time. (cont.) Interest rate swaps (cont.) Swaps may be used to hedge interest risk and exchange rate risk, and also enable investors and borrowers to obtain a lower cost of funds or a higher yield Organised between borrowing parties The two parties swap their interest payment obligations No transfer of the principal amount Both parties benefit from the swap (cont.) Interest rate swaps (cont.) Example: Table outlines the current cost of funds for two borrowers Firm A has a credit advantage in both markets (cont.) Interest rate swaps (cont.) Strategy Firm A borrows in a fixed market, where it has comparative advantage (. 12%)

• Tài chính doanh nghiệp
• Financial institutions
• Financial Instruments
• Financial markets
• Financial system
• Interest rate swaps
• Currency swaps
• 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