Derivatives and Alternatives Investment Written Assignment Coursework

Derivatives and Alternatives Investment Written Assignment Coursework Assignment example
High school
Assignment
Finance & Accounting
Pages 6 (1506 words)
Download 0
Interest Rates Swap: Definition and Mechanism a. Corb H (2013), in his study defines Swap as a contractual agreement between two different parties to exchange payment over the course of time. An interest rate swap can be defined as when the stream of payment between two parties made in the same currency…

Introduction

The mechanism of interest rate swap is explained below with the help of a small example. Let consider to party A & be involved in the interest swap for a period of 5 years. The payment made by A will be calculated at 6% fixed interest rate where as for B the rate is calculated at 6 months floating. The principal let us consider as $10 million. Cash flows for the above case are described in the diagram below: Payment at the end of half year Period Fixed Rate Payments Floating rate Payment 8 months Libor Net cash from A to B 1 300000 337500 -37500 2 300000 337500 -37500 3 300000 337500 -37500 4 300000 325000 -25000 5 300000 325000 -25000 6 300000 325000 -25000 7 300000 312500 -12500 8 300000 312500 -12500 9 300000 312500 -12500 10 300000 325000 -25000 -2500000 b. Is hedging this portfolio necessary?  Hedging can be defined as a process which control or reduce the risk associated with any kind of trade. Hedging can be done taking into consideration of the market potion which may arrive in the future, which is exactly opposite to that of the present physical market condition in terms of price. Hedging the portfolio is a better option for the asset manager in view of long run profit making. At present there are a fixed rate SWAP in case of EURO market, and floating interest rate with bank of Ericaca for tenure of 1 year. ...
Download paper
Not exactly what you need?

Related papers

Working capital trade-offs of. Porsche AG, Daimler AG, and BMW.
This section would be discussing the working capital trade-offs of three luxury car manufacturing companies Porsche AG, Daimler AG, and BMW. …
Investment Analysis Coursework 2001
‘Herd’ implies a social grouping of people, who have similar understanding or perception about anything. Here ‘herd’ implies the people, who have the same viewpoint within the stock market. The above statement briefs that market movements are dependent on individuals. If a person buys a particular stock and he is a popular figure in the community and society, then every individual intends…
Financial Information: Coursework Assignment
The company has also recently initiated its telecom and data manager and distributions business lines (Bloomberg 2012). The company sells its products and services through its physical stores and also online ecommerce solutions to its millions of customers worldwide. The company operates for achieving its visions that is “to create value for customers to earn their lifetime loyalty” (Tesco…
Coursework Assignment BEHAVIOURAL FINANCE VIEW ON MARKET BUBBLES
During the period of tulip mania it has been observed that the cost of a single tulip had surpassed the average income of an expert employee. The period of tulip mania was considered to be a golden age in the Dutch calendar where the prices of the tulip bulbs reached to an unexpected extent (Thompson, 2006). Literature Review and Explanation of Tulip Mania (of the 17th century) At present time,…
Coursework
Starting April 2016, the 3% supplement for diesel cars will be scrapped (Deloitte, 2012). The other important adjustments that have been made include exclusion of certain security enhancement, which will not be considered henceforth, as accessories when estimating the benefit’s corresponding to the cash value in respect to company cars used for private purpose. These adjustments will be put into…
DERIVATIVES MARKETS
Since the securities are listed and traded in the stock exchange, the secondary market is also called the stock market. In primary market, companies interact with investors directly while in the secondary market investors interact with themselves. In both cases, the capital market intermediaries play an important role .The secondary market, based on all available information, determines the price…
Investment class assignment (behavioral bias)
In most of these studies, researchers have been critical in finding out whether the biases are intentional or unintentional and whether or not forecast bias take place to serve any good to forecasters and estimator. In the current paper, an existing model proposed by Knill, Minnick and Nejadmalayeri (2011, p 13) is examined with a new touch of behavioral bias to find out how behavioral bias such…