國際財(cái)務(wù)管理學(xué)與財(cái)務(wù)知識分析(英文版)

1、internationalfinancialmanagementeun / resnicksecond edition10chapter tencurrency & interest rate swapschapter objective:this chapter discusses currency and interest rate swaps, which are relatively new instruments for hedging long-term interest rate risk and foreign exchange risk.chapter outline

2、ltypes of swapslsize of the swap marketlthe swap banklinterest rate swapslcurrency swaps1chapter outline (continued)lswap market quotationslvariations of basic currency and interest rate swapslrisks of interest rate and currency swapslswap market efficiencylconcluding points about swaps2definitionsl

3、in a swap, two counterparties agree to a contractual arrangement wherein they agree to exchange cash flows at periodic intervals.lthere are two types of interest rate swaps:nsingle currency interest rate swapu“plain vanilla” fixed-for-floating swaps are often just called interest rate swaps.ncross-c

4、urrency interest rate swaputhis is often called a currency swap; fixed for fixed rate debt service in two (or more) currencies.3size of the swap marketlin 1995 the notational principal of:interest rate swaps was $12,810,736,000,000.currency swaps $1,197,395,000,000lthe most popular currencies are:nu

5、.s.$ (34%)n (23%)ndm (11%)nff (10%)n (6%)4the swap bankla swap bank is a generic term to describe a financial institution that facilitates swaps between counterparties.lthe swap bank can serve as either a broker or a dealer.nas a broker, the swap bank matches counterparties but does not assume any o

6、f the risks of the swap.nas a dealer, the swap bank stands ready to accept either side of a currency swap, and then later lay off their risk, or match it with a counterparty. 5an example of an interest rate swaplconsider this example of a “plain vanilla” interest rate swap.lbank a is a aaa-rated int

7、ernational bank located in the u.k. who wishes to raise $10,000,000 to finance floating-rate eurodollar loans.nbank a is considering issuing 5-year fixed-rate eurodollar bonds at 10 percent.nit would make more sense to for the bank to issue floating-rate notes at libor to finance floating-rate eurod

8、ollar loans.6an example of an interest rate swaplfirm b is a bbb-rated u.s. company. it needs $10,000,000 to finance an investment with a five-year economic life.nfirm b is considering issuing 5-year fixed-rate eurodollar bonds at 11.75 percent.nalternatively, firm b can raise the money by issuing 5

9、-year frns at libor + percent.nfirm b would prefer to borrow at a fixed rate.7an example of an interest rate swapthe borrowing opportunities of the two firms are shown in the following table: company b bank a differential fixed rate 11.75% 10% 1.75% floating rate libor + .5% libor .5% qsd = 1.25% 81

10、0 3/8%libor 1/8%an example of an interest rate swapbank aswap bankthe swap bank makes this offer to bank a: you pay libor 1/8 % per year on $10 million for 5 years and we will pay you 10 3/8% on $10 million for 5 years company b bank a differential fixed rate 11.75% 10% 1.75% floating rate libor + .

11、5% libor .5% qsd = 1.25% 910 3/8%libor 1/8%an example of an interest rate swapbank aswap bankheres whats in it for bank a: they can borrow externally at 10% fixed and have a net borrowing position of -10 3/8 + 10 + (libor 1/8) =libor % which is % better than they can borrow floating without a swap.

12、company b bank a differential fixed rate 11.75% 10% 1.75% floating rate libor + .5% libor .5% qsd = 1.25% 10% % of $10,000,000 = $50,000. thats quite a cost savings per year for 5 years.10libor %10 %an example of an interest rate swapswap bankcompany bthe swap bank makes this offer to company b: you

13、 pay us 10 % per year on $10 million for 5 years and we will pay you libor % per year on $10 million for 5 years. company b bank a differential fixed rate 11.75% 10% 1.75% floating rate libor + .5% libor .5% qsd = 1.25% 11libor %10 %an example of an interest rate swapswap bankcompany b company b ban

14、k a differential fixed rate 11.75% 10% 1.75% floating rate libor + .5% libor .5% qsd = 1.25% they can borrow externally at libor + % and have a net borrowing position of 10 + (libor + ) - (libor - ) = 11.25% which is % better than they can borrow floating without a swap. libor + %heres whats in it f

15、or b: % of $10,000,000 = $50,000 thats quite a cost savings per year for 5 years.12libor + %10 3/8 %libor 1/8%libor %10 %b saves %an example of an interest rate swapbank aswap bankcompany ba saves %the swap bank makes money too. company b bank a differential fixed rate 11.75% 10% 1.75% floating rate

16、 libor + .5% libor .5% qsd = 1.25% 10% % of $10 million = $25,000 per year for 5 years.libor 1/8 libor = 1/8 10 - 10 3/8 = 1/8 13libor + %10 3/8 %libor 1/8%libor %10 %b saves %an example of an interest rate swapbank aswap bankcompany ba saves %the swap bank makes % company b bank a differential fixe

17、d rate 11.75% 10% 1.75% floating rate libor + .5% libor .5% qsd = 1.25% 10%note that the total savings + + = 1.25 % = qsd14the qsdlthe quality spread differential represents the potential gains from the swap that can be shared between the counterparties and the swap bank.lthere is no reason to presu

18、me that the gains will be shared equally.lin the above example, company b is less credit-worthy than bank a, so they probably would have gotten less of the qsd, in order to compensate the swap bank for the default risk.15an example of a currency swaplsuppose a u.s. mnc wants to finance a 10,000,000

19、expansion of a british plant.lthey could borrow dollars in the u.s. where they are well known and exchange for dollars for pounds.nthis will give them exchange rate risk: financing a sterling project with dollars.lthey could borrow pounds in the international bond market, but pay a lot since they ar

20、e not as well known abroad.16an example of a currency swaplif they can find a british mnc with a mirror-image financing need they may both benefit from a swap.lif the exchange rate is s0($/) = $1.60/, the u.s. firm needs to find a british firm wanting to finance dollar borrowing in the amount of $16

21、,000,000.17an example of a currency swapconsider two firms a and b: firm a is a u.s.based multinational and firm b is a u.k.based multinational.both firms wish to finance a project in each others country of the same size. their borrowing opportunities are given in the table below. $ company a 8.0% 1

22、1.6% company b 10.0% 12.0% 18an example of a currency swapcompany aswap bank$8%12%$8%11%12%$9.4% $ company a 8.0% 11.6% company b 10.0% 12.0% company b19an example of a currency swapcompany aswap bank$8%12%$8%11%12%$9.4% $ company a 8.0% 11.6% company b 10.0% 12.0% company bas net position is to bor

23、row at 11%a saves .6%20an example of a currency swapcompany aswap bank$8%12%$8%11%12%$9.4% $ company a 8.0% 11.6% company b 10.0% 12.0% company bbs net position is to borrow at $9.4%b saves $.6%21an example of a currency swapcompany aswap bank$8%12%$8%11%12%$9.4% $ company a 8.0% 11.6% company b 10.

24、0% 12.0% company bthe swap bank makes money too:at s0($/) = $1.60/, that is a gain of $124,000 per year for 5 years.the swap bank faces exchange rate risk, but maybe they can lay it off in another swap.1.4% of $16 million financed with 1% of 10 million per year for 5 years.22a is the more credit-wor

25、thy of the two firms.comparative advantage as the basis for swaps $ company a 8.0% 11.6% company b 10.0% 12.0% a has a comparative advantage in borrowing in dollars.b has a comparative advantage in borrowing in pounds.a pays 2% less to borrow in dollars than ba pays .4% less to borrow in pounds than

26、 b:23b has a comparative advantage in borrowing in .comparative advantage as the basis for swaps $ company a 8.0% 11.6% company b 10.0% 12.0% b pays 2% more to borrow in dollars than ab pays only .4% more to borrow in pounds than a:24a has a comparative advantage in borrowing in dollars.b has a comp

27、arative advantage in borrowing in pounds.if they borrow according to their comparative advantage and then swap, there will be gains for both parties.comparative advantage as the basis for swaps25swap market quotationslswap banks will tailor the terms of interest rate and currency swaps to customers

28、needslthey also make a market in “plain vanilla” swaps and provide quotes for these. since the swap banks are dealers for these swaps, there is a bid-ask spread.lfor example, 6.60 6.85 means the swap bank will pay fixed-rate dm payments at 6.60% against receiving dollar libor or it will receive fixe

29、d-rate dm payments at 6.85% against receiving dollar libor.26variations of basic currency and interest rate swapslcurrency swapsnfixed for fixed nfixed for floatingnfloating for floatingnamortizinglinterest rate swaps nzero-for floatingnfloating for floatinglfor a swap to be possible, a qsd must exi

30、st. beyond that, creativity is the only limit.27risks of interest rate and currency swapslinterest rate riskninterest rates might move against the swap bank after it has only gotten half of a swap on the books, or if it has an unhedged position.lbasis risknif the floating rates of the two counterpar

31、ties are not pegged to the same index.lexchange rate risknin the example of a currency swap given earlier, the swap bank would be worse off if the pound appreciated. 28risks of interest rate and currency swaps (continued)lcredit risknthis is the major risk faced by a swap dealerthe risk that a counter party will default on its end of the swap.lmismatch risknits hard to find a counterparty that wants