4500.16 - International Portfolio & Risk Management...

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International Portfolio & Risk Management Creative solutions by Fnancial engineers Derivatives Derivative = obligation to accomplish a transaction in the future ±orward Contract = basic derivative from which all others have evolved • Repurchase Agreements – Reverse Repurchase Agreements • ±utures Contracts
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Derivatives • Swaps – Futures and Forward Contracts On Swaps • Options • Currency Options – Swaptions – Options On Futures – Futures On Options Floating-Fixed Swaps Fixed If net is positive, underwriter pays party. If net is negative, party pays underwriter. Illustration of a Floating/Fixed Swap Party Underwriter Counterparty Variable Fixed Variable
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LIBOR If net is positive, underwriter pays party. If net is negative, party pays underwriter. Illustration of a Floating/Floating Swap Party Underwriter Counterparty T-Bill LIBOR T-Bill Parallel Loan United States Germany Loan guarantees Debt service in $ Illustration of a parallel loan German Parent
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4500.16 - International Portfolio & Risk Management...

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