INTEST RATE SWAPS
Transcript of INTEST RATE SWAPS
![Page 1: INTEST RATE SWAPS](https://reader035.fdocuments.in/reader035/viewer/2022081605/5871ba5b1a28ab55058b55dd/html5/thumbnails/1.jpg)
Interest rate swaps
Manjunat
h
PRESENTED BY
![Page 2: INTEST RATE SWAPS](https://reader035.fdocuments.in/reader035/viewer/2022081605/5871ba5b1a28ab55058b55dd/html5/thumbnails/2.jpg)
Origin of swaps
Swaps market can traced to the late 1970, British controls on the movement of foreign currency. The 1st interest rate swap occurred in 1981agrement b/w IBM & World Bank.
![Page 3: INTEST RATE SWAPS](https://reader035.fdocuments.in/reader035/viewer/2022081605/5871ba5b1a28ab55058b55dd/html5/thumbnails/3.jpg)
INTEREST RATESWAPS
An interest rate swap is a contractual agreement entered into b/w two counterparties under which each agrees to make periodic payment to the other for an agreed period of time
![Page 4: INTEST RATE SWAPS](https://reader035.fdocuments.in/reader035/viewer/2022081605/5871ba5b1a28ab55058b55dd/html5/thumbnails/4.jpg)
SWAPS CAN BROADLY BE CLASSIFIED INTO TWO TYPES
1.Fixed to floating
2.Floating to floating
![Page 5: INTEST RATE SWAPS](https://reader035.fdocuments.in/reader035/viewer/2022081605/5871ba5b1a28ab55058b55dd/html5/thumbnails/5.jpg)
TYPES OF INTEREST RATE SWAPS
1.Basis swaps2.Forward swaps3.Rate capped
swaps4.Deferred rate
swaps5.Callable swaps
![Page 6: INTEST RATE SWAPS](https://reader035.fdocuments.in/reader035/viewer/2022081605/5871ba5b1a28ab55058b55dd/html5/thumbnails/6.jpg)
HOW IT WORKS/EXAMPLE
1.Fixed rate 2.Folting rate 3.National amount (np)4.London interbank offered rate (LIBOR)
![Page 7: INTEST RATE SWAPS](https://reader035.fdocuments.in/reader035/viewer/2022081605/5871ba5b1a28ab55058b55dd/html5/thumbnails/7.jpg)
HOW IT WORKS/EXAMPLE
A)Assume that Charlie owns
Investment = $1,000,000
National Interest = LIBOR + 1% every month.
payment = Charlie receives changes.
B)Assume that Sandy owns
Investment = $1,000,000 Interest = 1.5% every month. payment = Sandy receives never changes.
LIBOR goes up and down
![Page 8: INTEST RATE SWAPS](https://reader035.fdocuments.in/reader035/viewer/2022081605/5871ba5b1a28ab55058b55dd/html5/thumbnails/8.jpg)
HOW IT WORKS/EXAMPLEScenario A: LIBOR = 0.25% Charlie:- ($1,000,000 x (0.25% + 1%))
$12,500 Sandy :- ($1,000,000 x 1.5%) $15,000
Sandy owes Charlie the difference: $2,500.
![Page 9: INTEST RATE SWAPS](https://reader035.fdocuments.in/reader035/viewer/2022081605/5871ba5b1a28ab55058b55dd/html5/thumbnails/9.jpg)
HOW IT WORKS/EXAMPLE
![Page 10: INTEST RATE SWAPS](https://reader035.fdocuments.in/reader035/viewer/2022081605/5871ba5b1a28ab55058b55dd/html5/thumbnails/10.jpg)
HOW IT WORKS/EXAMPLE Scenario B: LIBOR = 1.0% Charlie :- ($1,00,000 x (1% + 1%)) $20,000 Sandy:- ($1,000,000 x 1.5%) $15,000
Charlie owes Sandy the difference : $5,000.
![Page 11: INTEST RATE SWAPS](https://reader035.fdocuments.in/reader035/viewer/2022081605/5871ba5b1a28ab55058b55dd/html5/thumbnails/11.jpg)
HOW IT WORKS/EXAMPLE
![Page 12: INTEST RATE SWAPS](https://reader035.fdocuments.in/reader035/viewer/2022081605/5871ba5b1a28ab55058b55dd/html5/thumbnails/12.jpg)
HOW IT WORKS/EXAMPLE
Interest rate swaps provide a way for businesses to hedge their exposure to changes in interest rates.
![Page 13: INTEST RATE SWAPS](https://reader035.fdocuments.in/reader035/viewer/2022081605/5871ba5b1a28ab55058b55dd/html5/thumbnails/13.jpg)
THANQ U….
UR’S MANJUNATH
INTEREST:- you only do itWhen it’s convenient
COMMIT:- No excuses, only RESULTS