Selected Slides 03B -- Interest-Rate, Market, and Liquidity Risk

Selected Slides 03B -- Interest-Rate, Market, and Liquidity Risk

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INS 3650 / 5550 FINS 3650 / 5550 International Banking Semester 2, 2011 Dr Bruce R Arnold bruce.arnold@unsw.edu.au Re: FINSXX50 z3121234 [Topic]
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reviously Previously … Interest-rate essentials The yield curve y Interest-rate swaps and the swap curve Duration and the zero-coupon curve raming interest te risk Framing interest-rate risk
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hy It Is Called Normal Why It Is Called Normal Investors apparently are rewarded for extending. They are really being compensated for uncertainty: volatility and returns isk aversion) (risk aversion) mark-to-market costs nd/or forced selling and/or forced selling Investors who can go long Normal should go long. Can banks go long?
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inimising Yield urve Risk Minimising Yield-Curve Risk Match-fund maintain liability maturity profile identical to yy p asset maturity profile Effectively match-fund via derivatives enter into forward-rate agreements enter into interest-rate futures contracts purchase options on interest-rate futures ake NO yield- urve risk Take NO yield curve risk
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erm Structure of Interest Rates Term Structure of Interest Rates An investor should be indifferent between (1) investing long and (2) investing short and rolling.
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erm Structure of Interest Rates Term Structure of Interest Rates Term Rate $100 Invested: 5 Years 5.00% $132.77 0 Years 10% 182 37 10 Years 6.10% $182.37 5-year rate, 5 years forward 6.45%
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waps Swaps Swap
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This note was uploaded on 09/19/2011 for the course FINS 3650 taught by Professor Arnold during the Three '11 term at University of New South Wales.

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Selected Slides 03B -- Interest-Rate, Market, and Liquidity Risk

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