ch09_2 - Multinational Financial Management Alan Shapiro...

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Multinational Financial Management Alan Shapiro 9 th Edition Power Points by Joseph F. Greco, Ph.D. California State University, Fullerton
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Chapter 9 Swaps and Interest Rate Derivatives
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INTEREST RATE AND CURRENCY SWAPS I. INTEREST RATE AND CURRENCY SWAPS A. INTEREST RATE SWAPS 1. Definition an agreement between 2 parties to exchange US$ interest payments for a specific maturity on an agreed notional amount. 3
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HOW THE CLASSIC SWAP WORKS A. INTEREST RATE SWAPS (con’t) 2. Notional principal: a reference amount used only to calculate interest expense but never repaid. 3. Maturities: less than 1 to over 15 years 4
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THE CLASSIC SWAP 4. Types a. Coupon swap In the coupon swap, one party pays a fixed rate calculated at the time of trade as a spread to a particular Treasury bond, while the other side pays a floating rate that resets periodically throughout the life of the deal against a designated index. b. Basis swap
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ch09_2 - Multinational Financial Management Alan Shapiro...

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