chap26 - History teaches us that men and nations behave...

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1 “History teaches us that men and nations behave wisely once they have exhausted all other alternatives.” Abba Eban
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2 Global Derivatives Markets as of June 2001 Credit derivatives - $1 trillion in notional value worldwide Interest rate derivatives - $65 trillion Foreign exchange rate derivatives - $16 trillion Equity derivatives -$2 trillion By comparison, total on-balance sheet assets of all US banks was $5 trillion (as of Dec. 2000) and for Euro area banks $13 trillion. Global derivatives markets totaled approximately $84 trillion in notional value.
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3 Step-By-Step Hedging Using Interest Rate Swaps Step 4: Implementation. Long hedge (DG<0) – sell swaps (make floating rate payments). Short hedge (DG >0) – buy swaps (make fixed rate payments). Fixed for floating rate (plain vanilla) swap Swap intermediary acts as credit guarantor, as well as broker and bookkeeper. Only net amounts exchanged on payment dates (not principal amounts). Swaps are portfolios of forwards so there are no
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chap26 - History teaches us that men and nations behave...

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