CHAPTER 15

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Unformatted text preview: ayments) 3. Callable Swaps (Swap options = fixed rate party Callable has option to terminate early) has 4. Putable Swaps (floating rate party has option to Putable terminate early) terminate All Rights Reserved All Rights Reserved Dr David P Echevarria 4 BASIC HEDGING STRATEGIES BASIC A. Short-Term Interest Rate Hedges A. 1. If interest rates go up in the future, bond prices go down. If 2. If a bond is purchased at time t(1) and sold at t(2) and 2. If interest rates have gone down, (price of bond increases), then profits on selling bond and vice-versa. 3. If you are going to invest, you want interest rates to rise 3. If prices to fall. 4. If you expect interest rates to fall, you want to avail 4. If yourself of the opportunity to profit from the increase in prices. All Rights Reserved All Rights Reserved Dr David P Echevarria 5 PRICING INTEREST RATE SWAPS PRICING A. Prevailing Market Interest Rates A. 1. 2. Supply and Demand Level of interest rates: high, low, expectations B. Availability of...
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This document was uploaded on 02/11/2014.

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