Chapter 9 - Chapter 9 Swaps and Interest Rate Derivatives...

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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. 2
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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 3
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THE CLASSIC SWAP 4. Types a. Coupon swap b. Basis swap 5. LIBOR: the most important reference rate in a swap 6. Swap Usage: To reduce risk potential and costs. 4
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THE CURRENCY SWAP B. Currency Swaps 1. Definition two parties exchange foreign currency- denominated debt at periodic intervals. 2. Purpose: similar to parallel loan 5
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THE CURRENCY SWAP 3. Differences of a Currency Swap: a. Currency swap is not a loan b. No interest expense; no balance sheet entry c. The right to offset any non-payment is more firmly established 6
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THE CURRENCY SWAP 4.
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This note was uploaded on 02/22/2011 for the course BMGT 446 taught by Professor Staff during the Spring '08 term at Maryland.

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Chapter 9 - Chapter 9 Swaps and Interest Rate Derivatives...

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