Interest rate swaps are over the counter (private) transactions; and they are highly liquid financial derivatives that can be used by hedgers to manage both their fixed and floating assets and liabilities. A party that pay fixed rate is referred to as the payer and the receiving party is called the receiver. For example, X agrees to pay fixed rate of interest under specified time intervals to W and in return, X receives variable or floating interest on notional principle from W. The types of currency swaps include fixed for floating swap for same currency, fixed for floating rate for different currencies, floating for floating swap for same currency, floating for floating rate for different currencies and fixed for fixed rate swap for different currencies. Currency swap refers to a foreign-exchange currency agreement entered into by two parties in relation to principle alone or with interest for payment of a specified loan sum in one currency for an equivalent principle and interest of a specified loan sum in another currency (Shamah, 2003). Payments are made periodically and at maturity or termination of the contract, the principle amounts are re-exchanged. Currency swaps are over the counter financial instruments. Foreign currency swaps are long term because they involve high costs associated with finding counterparty. Currency swap are further divided into two. Principle only currency swap and principle plus interest currency swap. Principle only currency swap is appropriate for contract that are up to ten years and involves exchange of principle with another party in a specific time in future at a rate agreed at the present. It is used to secure cheap loan and reduce exposure to exchange rate fluctuations. Principal plus interest currency swap considers both principal and interest payments. In currency swap, principal is exchanged on national amounts at market rates, often using the same rate for the transfer at inception and at maturity. Credit default swaps refers to contracts between two parties, where one who buys credit default swap, pays a seller and receives a payoff if loan is defaulted. Credit default swaps can be compared to Insurance because the buyer pay a premium, which make the party to receive specific sum of money if events specified in the contract matures (occur). However unlike in insurance, the buyer can make a profit from the contract and covers assets that the buyer does not have direct exposure. [b] Evaluate the usefulness of these swaps for issuers of and investors in debt. First, swaps are flexible. Swaps are over the counter transactions. This means that the terms and conditions such as maturity dates and the amount involved is decided upon by the two counterparties at their convenience. It also allows parties involved to freely exploit their comparative advantage in their respective markets. Secondly, the cost of transaction is lower in swaps. The transaction is over the counter meaning that, there are no brokerage fees which could have been charged by a clearing house. In addition, the transaction is based on comparative advantage of both parties. Therefore, both parties are able to obtain funds at cheaper rates Third, swaps minimize risks associated with foreign exchange, interest rates changes as well as changes in credit facilities following occurrence of an event. If a company issues fixed bond rates and expects interest rates
1. [a] The main characteristics of interest rate, currency, and credit default swaps Interest rate swaps refer to an agreement entered into by two parties. One party undertakes to make interest payment to another party according to the terms of the agreement on scheduled dates in future…
I will get low mark even fail if the report still use those website references. So can you please use book or journal references instead of those highlighted website references below. Thank you so much. Table of Contents Introduction 3 Current Financial Practices of GHC 3 Profitability position 3 Analysis and Measurement of Political and Country Risk 3 Threats, Shortcomings and Inefficiencies 5 Recommendations 5 Recent Development and Opportunities 5 Expectation of Government from GHC 6 Benefits Expected by GHC 6 Accessing Risk Associated With Inward Investment 7 Responsibilities of Chief Accountant and Group Treasurer 10 Conclusion 12 Reference 13 15 Introduction Global Hardwood Corporation
It will also provide information regarding the outlook of the top management for the subsidy, this information mostly will pertain to financial aspect of the companies new subsidy. Although this may be a feasible option, another proposition to be considered is whether this is worth compromising quality and customers of its base country.
The effects of uncertainty and timing enable businesses to make various economic choices that concern alternate course of action. International finance refers to the examination of institutions, their practices, and analysis of various cash flows of different countries.
Thus many business corporations and banks have been using forward contracts to ignoring future uncertainty about prices. But nonetheless speculators depend on forward contracts to bet on price changes of the underlying asset. Thus forward contracts have differed from other currency deals with reference to the size, time period and settlement procedures.
Forex rate is defined as the units of one currency that can be purchased in terms of another. The general standard for the later is considered the US Dollar (USD). The problem complicates further if the organization deals in various countries with various currencies.
My recommendations will be made after careful study and analysis of the Chinese market.
China, (People's Republic of China), is situated in eastern Asia, bounded by the Pacific in the east. The third largest country in the world, next to Canada and Russia, it has an area of 9.6 million square kilometres, or one-fifteenth of the world's land mass.
The main question answered by the report is: "Whether we should invest into Chinese production facilities or" Additionally it analyses the situation on the Chinese market and gives recommendations concerning the operation on it. At first, the economic situation is discussed both for the whole China and for its pharmaceutical industry.
This is an early-warning sign of a speculative attack on the currency designed to force a revaluation, or a strengthening of the local currency's exchange rate with the dollar. The paper outlines what the nation can do to ward off speculation, minimize the potential for inflation - identified as an economy's worst enemy - and at the same time improve its standing in the world economy.
The conversion of the US$ 12,000,000 to GB Pounds for the aggregate value of foreign exchange rate in June 2006 (@ 1 = $1.75) the value of the amount earned in pounds by the company is 6,857,143 approximately. The interest earned for the three-month period between June and October 2006 is estimated at about 1,902,857 (simple interest) totalling to 8760000 earnings to the company.
There are those who think that American economy with its ballooning deficit is heading for a crash down. However, there are also those who think that this not a thing to worry since this is just a kind of anomaly and that the economy is bound to correct itself.
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