Ch014InterestRateandCurrencySwaps教学文案文档格式.docx

Ch014InterestRateandCurrencySwaps教学文案文档格式.docx

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CurrencySwaps

BasicCurrencySwap

VariationsofBasicInterestRateandCurrencySwaps

AIG,Nomura,andIFCLinkUpinLatinSwapTransaction

RisksofInterestRateandCurrencySwaps

IstheSwapMarketEfficient?

Summary

MINICASE:

TheCentraliaCorporation’sCurrencySwap

1Theterminterestrateswap

a）referstoa“single-currencyinterestrateswap”shortenedto“interestrateswap”

b）involves“counterparties”whomakeacontractualagreementtoexchangecashflowsatperiodicintervals

c）canbe“fixed-for-floatingrate”or“fixed-for-fixedrate”

d）Alloftheabove

Answer:

d）

2Examplesof“single-currencyinterestrateswap”and“cross-currencyinterestrateswap”are:

a）fixed-for-floatingrateinterestrateswap,whereonecounterpartyexchangestheinterestpaymentsofafloating-ratedebtobligationsforfixed-rateinterestpaymentsoftheothercounterparty

b）fixed-for-fixedratedebtservice（currencyswap）,whereonecounterpartyexchangesthedebtserviceobligationsofabonddenominatedinonecurrencyforthedebtserviceobligationsoftheothercounterpartydenominatedinanothercurrency

c）a）andb）

d）noneoftheabove

c）

3

Theprimaryreasonsforacounterpartytouseacurrencyswapare:

a）tohedgeandtospeculate

b）toplayinthefuturesandforwardmarkets

c）toobtaindebtfinancingintheswappedcurrencyataninterestcostreductionbroughtaboutthroughcomparativeadvantageseachcounterpartyhasinitsnationalcapitalmarket,andthebenefitofhedginglong-runexchangerateexposure

d）a）andb）

c）

4Thesizeoftheswapmarketis

a）Measuredbynotationalprincipal

b）Over7trilliondollars

c）Botha）andb）

d）Noneoftheabove

TheSwapBank

5Whichcombinationofthefollowingstatementsistrueaboutaswapbank?

（i）itisagenerictermtodescribeafinancialinstitutionthatfacilitatesswapsbetweencounterparties

（ii）itcanbeaninternationalcommercialbank

（iii）itcanbeaninvestmentbank

（iv）itcanbeamerchantbank

（v）itcanbeanindependentoperator

a）（i）and（ii）

b）（i）,（ii）and（iii）

c）（i）,（ii）,（iii）and（iv）

d）（i）,（ii）,（iii）,（iv）and（v）

Answer:

6Aswapbank

a）Canactasabroker,bringingtogethercounterpartiestoaswap

b）Canactasadealer,standingreadytobuyandsellswaps

d）Onlysometimesa）butnevereverb）

7Intheswapmarket,whichpositioncarriesgreaterrisks,brokerordealer?

a）Broker

b）Dealer

c）Theyarethesameswaps,thereforethesamerisks.

b）

8Supposethequoteforafive-yearswapwithsemiannualpaymentsis8.50—8.60percent.Themeans:

a）Theswapbankwillpaysemiannualfixed-ratedollarpaymentsof8.50percentagainstreceivingsix-monthdollarLIBOR.

b）Theswapbankwillreceivesemiannualfixed-ratedollarpaymentsof8.60percentagainstpayingsix-monthdollarLIBOR.

9Supposethequoteforafive-yearswapwithsemiannualpaymentsis8.50—8.60percent.Themeans:

a）Theswapbankwillpaysemiannualfixed-ratedollarpaymentsof8.60percentagainstreceivingsix-monthdollarLIBOR.

b）Theswapbankwillreceivesemiannualfixed-ratedollarpaymentsof8.50percentagainstpayingsix-monthdollarLIBOR.

c）Iftheswapbankissuccessfulingettingcounterpartiestobothlegsoftheswapattheseprices,hewillhaveanannualprofitoftenbasispoints.

10XYZCorporationentersintoa6-yearinterestrateswapwithaswapbankinwhichitagreestopaytheswapbankafixed-rateof9percentannuallyonanotionalamountofSF10,000,000andreceiveLIBOR–½

percent.Asofthethirdresetdate（i.e.mid-waythroughthe6yearagreement）,calculatethepriceoftheswap,assumingthatthefixed-rateatwhichXYZcanborrowhasincreasedto10%.

a）SF248,685

b）SF900,000

c）SF2,700,000

d）SF7,300,000

a）

Rationale:

PVofahypotheticalbondissueofSF10,000,000withthreeremaining9percentcouponpaymentsatthenewfixedrateof10percentisSF9,751,314.80

Year0

Year1

Year2

Year3

SF900,000

SF10,900,000

Atanyresetdate,thevalueoftheadjustableratebondsideofthisisparvalue=SF10m.（assumingnochangeincreditworthiness）

Therefore,thepriceoftheswap=SF10,000,000–SF9,751,315

=SF248,685.

11

Supposethequoteforafive-yearswapwithsemiannualpaymentsis8.50—8.60percentindollarsand6.60—6.80percentineuroagainstsix-monthdollarLIBOR.Themeans:

a）Theswapbankwillenterintoacurrencyswapinwhichitwouldpaysemiannualfixed-ratedollarpaymentsof8.50percentagainstreceivingsemiannualfixed-rateeuropaymentsof6.80.

b）Theswapbankwillenterintoacurrencyswapinwhichitwouldpaysemiannualfixed-rateeuropaymentsof6.60percentagainstreceivingsemiannualfixed-ratedollarpaymentsof8.60.

12Aninterest-onlysinglecurrencyinterestrateswap

a）Isalsoknownasaplainvanillaswap

b）Isalsoknownasaninterestrateswap

c）Isaboutassimpleasswapscanget

13CompanyXandcompanyYhavemirror-imagefinancingneeds（theybothwanttoborrowequivalentamountsforthesameamountoftime.CompanyXhasaAAAcreditrating,butcompanyY’screditstandingisconsiderablylower.

a）CompanyXshoulddemandmostoftheQSDinanyswapwithYascompensationfordefaultrisk.

b）SinceYhasapoorcreditrating,itwouldnotbeaparticipantintheswapmarket.

c）CompanyXshouldmorereadilyagreetoaswapinvolvingYifthereisalsoaswapbankprovidingcreditriskintermediation.

d）a）andc）

14Aswapbankhasidentifiedtwocompanieswithmirror-imagefinancingneeds（theybothwanttoborrowequivalentamountsforthesameamountoftime.CompanyXhasagreedtoonelegoftheswapbutcompanyYis“playinghardtoget”

a）Iftheswapbankhasalreadycontractedonelegoftheswap,theyshouldbeanxioustoofferbettertermstocompanyYtojustgetthedealdone.

b）TheswapbankcouldjustsellthecompanyXsideoftheswap.

c）CompanyXshouldlobbyYtogetonboard

15

CompanyXwantstoborrow$10,000,000floatingfor5years;

companyYwantstoborrow$10,000,000fixedfor5years.Theirexternalborrowingopportunitiesareshownbelow:

Fixed-RateBorrowingCost

Floating-RateBorrowingCost

CompanyX

10%

LIBOR

CompanyY

12%

LIBOR+1.5%

Aswapbankproposesthefollowinginterestonlyswap:

Xwillpaytheswapbankannualpaymentson$10,000,000withthecouponrateofLIBOR–0.15%;

inexchangetheswapbankwillpaytocompanyXinterestpaymentson$10,000,000atafixedrateof9.90%.

WhatisthevalueofthisswaptocompanyX?

a）CompanyXwilllosemoneyonthedeal.

b）CompanyXwillsave25basispointsperyearon$10,000,000=$25,000peryear.

c）CompanyXwillonlybreakevenonthedeal

d）CompanyXwillsave5basispointsperyearon$10,000,000=$5,000peryear

CompanyXwillborrow$10,000,000at10%externaltotheswap（re-readthequestion—Xneedstoraise$10,000,000andpreferstodoitatafloatingrate）.X’sall-in-costwillbe:

10%+（LIBOR–.15%）–9.90%=LIBOR–0.05%.Thisrepresentsasavingsof5basispointsovertheiropportunitytoborrowatLIBOR.

16CompanyXwantstoborrow$10,000,000floatingfor5years;

Ywillpaytheswapbankannualpaymentson$10,000,000withafixedrateofrateof9.90%.inexchangetheswapbankwillpaytocompanyYinterestpaymentson$10,000,000atLIBOR–0.15%;

WhatisthevalueofthisswaptocompanyY?

a）CompanyYwillsave15basispointsperyearon$10,000,000=$15,000peryear.

b）CompanyYwillsave45basispointsperyearon$10,000,000=$45,000peryear.

c）CompanyYwillsave5basispointsperyearon$10,000,000=$5,000peryear

d）CompanyYwillonlybreakevenonthedeal

b）

CompanyYwillborrow$10,000,000atLIBOR+1.5%externaltotheswap（re-readthequestion—Yneedstoraise$10,000,000andpreferstodoitatafixedrate）.Y’sall-incostwillbe:

9.9%–（LIBOR–.15%）+LIBOR+1.5%=11.55%.Thisrepresentsasavingsof45basispointsovertheiropportunitytoborrowat12%.

17

Xwillpaytheswapbankannualpaymentson$10,000,000withthecouponrateofLIBOR–0.15%;

inexchangetheswapbankwillpaytocompanyXinterestpaymentson$10,000,000atafixedrateof9.90%.Ywillpaytheswapbankinterestpaymentson$10,