Interest Rate Derivative Market参考.ppt

15 Interest Rate Derivative Market Chapter Objectives Describe the types of interest rate swaps available Describe the risks of swaps Identify other commonly used interest rate derivative instruments Describe the globalization of swap markets Background Definition: Interest rate swap is an agreement between two parties to exchange one set of interest rate payments for another Usually an exchange of a stream of fixed-rate interest payments for floating-rate payments Characteristics Over-the-counter trading—coordinated and negotiated by financial institution Contracts less standardized than other derivatives like futures and options Provisions of a Swap The notional principal value to which the interest rates are applied to calculate the interest payments The fixed interest rate The formula and type of index used to determine the floating rate The frequency of payments, such as every six months or every year The lifetime of the swap Background Payments equal the differential multiplied by the notational amount used to calculate payments No payment of notional principal Payments made based on net amounts Swaps used to manage risk or to speculate Market imperfections help explain the existence of swaps If used for speculation, can involve losses Background Example of two financial institutions, one in the U.S and one in Europe used to illustrate swap concepts A U.S. financial institution with liabilities more rate-sensitive than assets is affected adversely by rising interest rates A European financial institution has access to long-term, fixed-rate funds but makes floating rate loans and has the opposite exposure as compared to U.S. institution Exhibit 15.1 An Interest Rate Swap Background If interest rates increase and the U.S. and foreign institution negotiate a swap, the U.S. institution gets higher interest payments as rates rise to help offset the increased cost of funds If interest rates decline then the foreign institution makes lower interest payments to th