Interest Rate SWAPS - Literature review Example

Comments (0) Cite this document
Interest Rate SWAPS Literature Review Derivatives is considered to be a particular instrument or product worth of which is obtained as a result of more than one fundamental variables referred as an underlying asset, value associated with the reference rate and index by way of a contract…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER95.5% of users find it useful
Interest Rate SWAPS
Read TextPreview

Extract of sample "Interest Rate SWAPS"

Download file to see previous pages According to Pelsser (2000) the market related to derivative securities has been stated to be perceived similar to an insurance market in relation to the considered financial risks. The rapid rate of globalisation in terms of the capital markets has resulted in a significant rise in the level of volatility related to interest rate across the globe. Numerous companies displayed a preference in favour of purchasing insurance in opposition to the rising improbability and instability with regard to the market linked to interest rate. Owing to this particular rationale, the market related to interest rate derivatives witnessed a sharp rise and development during the past two decades (Crotty & North Carolina State University, 2006). It was stated by Whaley (2006) that interest rate derivatives are referred to those kind of derivatives which are supposed to make available the pay-offs that are ascertained by the way of alterations that takes place in the interest rates. The similar derivative products that were made use of with the intention to handle and deal with the risks related to foreign exchange were found to posses the competence of managing the risks related to interest rates as well (Kohn, 1990). The popular form of derivative product that was found to be used in this context was the interest rate swaps. ...
The advantage of tailoring or modifying the risks associated with interest rates in accordance with the requirements of a particular risk manager was attributed to be the major cause behind its popularity. Interest rate swaps have been recognised to be the most extensively applied form of interest rate derivative (Grant & Marshall, 1997; Bodnar & et. al., 1995; Moffet & Karlsen, 1994). Interest rate swap has been stated to be quite an effectual instrument. It is competent of being structured at quite a decreased degree of cost and is also supposed to be less pricey in comparison to a fresh loan with a fixed rate (Schaeffer & Ludwig, 1993). According to Coyle (2001), the concept of interest rate swap is referred to the swap over of payment of interests based on a theoretical amount with regard to the principal. In such instances, one particular party is believed to disburse a preset interest rate with regard to the principal amount for the duration in relation to the swap. Similarly, the other involved party continues disbursing a floating interest rate which is attuned or rather periodically altered. The notion of interest rate has been explained as the sum of money or funds that is assured to be paid by a particular borrower to the concerned lender. The usage or the execution of an interest rate is learnt to be dependent on the degree of relative credit risk as it is believed that the more the expected degree of credit risk, the rate of interest that is assured by the specific borrower also soars and gets increased in relation to it. The interest rate swap is considered to be quite popular and has been stated to be amongst the chief ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
(“Interest Rate SWAPS Literature review Example | Topics and Well Written Essays - 2000 words”, n.d.)
Retrieved from
(Interest Rate SWAPS Literature Review Example | Topics and Well Written Essays - 2000 Words)
“Interest Rate SWAPS Literature Review Example | Topics and Well Written Essays - 2000 Words”, n.d.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document


Banc one corporation (interest rate yield curve and how Banc One's interest swaps impact the curve)

...?Munaf Usmani Academia Research 1st March Interest Rate Yield Curve and How Banc One's Interest Swaps Impact the Curve When we’re talking about the interest rate yield curve for Banc One Corporation, we imply the realized rate of return it is generating from net investments. All banks have a target to earn a substantial spread between their assets and liabilities. In the case of Banc One Corporation, it was given the mandate by its management to reduce the interest rate risk which was associated with its investments. For this purpose, they heavily engaged in the use of...
1 Pages(250 words)Essay

Macroeconomics and Microeconomics - Interest Rate

...?Q1) The money market rate is the interest rate that the investor gets as a result of its investments in money market instruments. The money market is a part of the financial sector of any economy where the investments, or the savings, are done for a time period of one year or less. This means that the money market involves all the short term investment instruments. The instruments of a money market include the certificates of deposits, commercial papers, banker’s acceptances, and treasury bills, all of which are valid up to a year. A developed money market is essential to the development of an economy as it provides the sources of finance to carry out the necessary business transactions....
5 Pages(1250 words)Assignment

Macroeconomic - Market Rate of Interest

...? Macroeconomic Explain the difference between the official cash rate and the market rate of interest. Explain the mechanism by which the RBA decreases the cash rate. Use diagram(s) in answering the question. Answer: It is the responsibility of the Reserve Bank to set the official cash rate which is regarded as the interest rate directed to meet the inflation target prescribed in the policy agreements. The official cash rate has the potentiality to influence the price of borrowing money. The Reserve Bank also uses this method in order to influence the level of inflation. The market rate...
4 Pages(1000 words)Essay

Interest rate convergence / Covered or uncovered interest rate parity

...Introduction 4 Chapter 1 6 Impact of the Financial Crisis 6 United Kingdom 6 United States of America 7 Europe 8 Asia 9 Comparison 10 Chapter 2 10 Steps towards Recovery 10 United Kingdom 10 United States of America 11 Europe 12 Asia 13 Chapter 3 14 Interest Rate Convergence 14 Conclusion 15 Reference 16 Bibliography 19 Appendices 20 Reflective Essay 24 Question 25 Introduction The economy of United Kingdom and average household incomes, after 1992, has experienced a period of continuous growth. But in 2008, like many OECD economies, U.K. has also experienced a rigorous recession as a result of a sequence of global shocks which has resulted in the fall of gross domestic product (GDP) growth by -2.4% (See...
13 Pages(3250 words)Dissertation

Interest Rate Risk Assignment

...The simplest, most basic definition as referred to by most theoreticians s that the interest rate risk is "the risk to earnings or capital arising from movement of interest rates"1. According to the different instruments that the interest rate risk will impact, we can account for a repricing risk, a yield curve risk, a basis risk or an option risk. The complex financial institution that a bank has become to encompass today, joining trading activities, with the more classical lending instruments, will most likely be impacted by all these subcategories of risks. If we look at the basic lending instruments, for example a credit, the bank...
3 Pages(750 words)Essay

Interest Rates an Exchange Rate

...Introduction: There is a strong relationship between a currency exchange rate and the prevailing interest rate in that country, according to economicmodels a rise in the interest rate will lead to increased value of the currency over all the other currencies in the international market, on the other hand a decline in the interest rate will lead to a decline in value of the currency over all the other currencies. This paper focuses on this model and how it could cost a country billions of money. We focus on the loss incurred by British government in September 1992. During this day the model mislead the decision of the UK...
5 Pages(1250 words)Essay

Interest Rate Options

...INTEREST RATE OPTIONS Interest rate options are those types of options whose payoffs are calculated based on the level of interest charged. There are a number of ways to price such options. The models used most popularly are based on Black Scholes model. The extended version of Black Scholes model, uses the rate of interest to calculate the payoffs of the options, and this model is called popularly, the Black’s Model. Among the products that are most popular in the market are, (i) exchange interest rate options, (ii) embedded bond options, (iii) European bond options, (iv)...
4 Pages(1000 words)Essay

Managing Interest rate and exchange rate volatility

...swap contract is a contract between two counter-parties (Parties to the contract) where one counter-party exchanges a stream of cash flows (debt-service obligations) in one currency for a stream of cash flows in another currency. By so doing both counter-parties can achieve their desired currencies. (Shapiro, 2003). By entering a currency swap contract, Juno Plc can also manage its currency exposure. In this way Juno Plc which has borrowed, Thai Bhat at a fixed interest rate can transform its Thai Baht debt into a fully hedge pound liability by exchanging cash flows with another counter-party who desires to have a fully hedged Thai baht liability. The two loans...
10 Pages(2500 words)Essay

Interest Rate Parity

...Interest Rate Parity – Expected Forward Rate The Current Exchange Rate between Japan and U.K. is One British Pound Equals 150 Japanese Yen. The one year Annual Interest Rate in Japan is 1%, while the Annual Interest Rate in U.K. is 4%. Given this, what would you expect the Forward Rate to be between Japanese Yen and British Pounds, one year from now? Explain your steps. Based upon the principles of covered interest rate parity, the forward rate between the British Pound and the Yen at one year from now should adjust so that the return...
1 Pages(250 words)Essay

Interest Rate Parity, Exchange Rates

...and vision of the organization; through their understanding of the organization’s mission. Vance (2006) sheds more light on Welch & Welch (2006) work by arguing that employees who are motivated show a great ability of the employees to display to compete on a higher scale unlike employees who are less motivated. Rothbard (2001) just like CIPD (2011a) indicates that, employee engagement puts much emphasis on psychological presence of the employees- mostly attention and absorption of employees. Employees spend a great amount of time thinking on certain tasks, an activity referred to as attention. On the other hand, exerting high levels of force and interest in organization’s tasks is referred to as absorption. A closer...
1 Pages(250 words)Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Literature review on topic Interest Rate SWAPS for FREE!

Contact Us