Professional Documents
Culture Documents
Y
Y
u
it helps you manage risk with integrated debt, currency, interest rate and
commodity solutions and also provide efficient funding and liquidity
management to the corporate, institutional and government clients.
M
÷tructures to fit your broader risk management policy
Mu
÷ophisticated credit management strategies to reduce credit risk
M u
6ustomized solutions and a range of products structured using our analytical
and risk management expertise
M
motentially add significant value to your dollar bond issues and equity offerings,
as well as cross-border M&A deals
M u
÷olutions to help neutralize market risk and seize market opportunities
interest rate Derivatives
An is a derivative where the
underlying asset is the right to pay or receive a notional
amount of money at a given interest rate.
MThe interest rate derivatives market is the largest
derivatives market in the world.
MThe Bank for international ÷ettlements estimates that
the notional amount outstanding in June
2009 were U÷ trillion for OT6 interest rate
contracts, and U÷ 2 trillion for OT6 interest
rate swaps.
MAccording to the international ÷waps and Derivatives
Association, 80% of the world's top 500
companies as of April 200 used interest rate
derivatives to control their cash flows. This
compares with 5% for foreign exchange options,
25% for commodity options and 10% for stock
option
u
interest rate derivatives can be an effective way to cut exposure to economic risk. it
helps to draws on real-time financial data and a global market perspective to develop
strategies that can neutralize market risk and bring new opportunities within reach.
Minterest Rate ÷waps
Minterest Rate 6aps / Floors / 6ollars
MTreasury Locks, 6aps and 6ollars
M6ross 6urrency ÷waps
M÷waptions
MBudget 6ap
MForward Rate Agreements
Among the most popular of derivative instruments, interest rate swaps are used by
corporations, government entities, and financial institutions to manage interest rate
risk.
÷waps can be applied to a wide range of hedging needs and can be easily tailored to
match a specific risk profile. Their simplicity and flexibility have made them the
workhorse of the risk manager's toolbox.
A swap is an agreement to exchange interest payments in a single currency for a
stated time period. Note that only interest payments are exchanged, not principal.
÷wap terms are customized to meet the user's specific risk management objectives.
Terms include starting and ending dates, settlement frequency, the notional amount
on which swap payments are based, and reference rates on which swap payments are
determined.
Reference rates are published rates such as LiBOR or benchmark Treasuries, or
customized indexes crafted to meet the client's needs.
!$
!$
!$
"
"
%
%
u"
M
M
M
6ross-currency swaps offer companies opportunities to reduce
borrowing costs in both domestic and foreign markets.
M !
interest rate swaptions give the holder the right, but not the
obligation, to enter into or cancel a swap agreement at a
future date. The buyer may purchase either the right to
receive a fixed rate in the underlying swap or to pay the fixed
rate.
%
6ompanies use FRAs to protect short term borrowing or investment programs from
market surprises. For example, a borrower with debt rollovers coinciding with a scheduled meeting of
the Federal Open Market 6ommittee, uses FRAs to lock rollover rates in advance.
FRAs also allow companies to take advantage when the yield curve inverts (long term rates
fall below short term rates). When this happens a company which plans to borrow in the future
would use FRAs to lock-in a future borrowing base rate at a level lower than today's rates.
FRAs are also valuable in making temporary adjustments to long term financial positions.
For example, a company which has swapped floating rate debt to fixed can use FRAs to improve the
swap's performance in the short run when short term rates are expected to decline. in this instance
FRAs protect the value of future swap floating rate receipts from the impact of falling rates.
6ontinued«
Most treasurers manage short term interest rate exposure by adjusting
maturities on commercial paper issuance or changing from one LiBOR reset option to
another on bank debt. Borrowers lengthen maturities when rates are expected to rise,
shorten when they expect rates to drop. ÷ometimes, however, market movements can
outstrip the treasurer's abilities to manage rate exposure using cash market alternatives
alone.
Forward Rate Agreements (FRAs) were invented to fill this gap. FRAs offer a
simple way to manage short term rate exposures without tying up the balance sheet.
Very short-term caps and floors (caplets and floorlets) complement FRAs in
managing short term rate risk. ÷ingle period caps and floors limit exposure to very short
term adverse rate movements while preserving the benefits of favorable market shifts.
6aplets and floorlets used in combination create cost effective hedges to fit
almost any interest rate scenario.
Each of these tools enhances a hedge program by providing added flexibility and unique
opportunities to improve control over short- term reinvestment and rollover rate risk.
!
A ! is designed to hedge a company·s exposure only
to sustained interest rate movements. it establishes a maximum
the hedger will pay out over the life of the cap.
!
Budget cap is its cost effectiveness.
mremiums for budget caps are below the premiums for conventional
caps.
Redge the total interest expense over a specified time period
u
No payments are made under the cap until the cap·s maturity date, the
hedger interim cash flow benefits provided by conventional cap hedges.
% !
To establish the terms of the terms of the cap, the hedger
determines how much principal to hedge, the maximum (capped)
dollar amount of interest over the caps life, and the final maturity
of the cap.
S E
At the Bombay ÷tock Exchange, after a reduction of the tick
size , The sizes now range from 5 paisa to 50 paisa as against 25
paisa to Rs. 2 .
ERES RAE FUURE