金融机构管理习题答案026.docx
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金融机构管理习题答案026.docx
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金融机构管理习题答案026
ChapterTwentySix
Swaps
ChapterOutline
Introduction
InterestRateSwaps
∙RealizedCashFlowsonanInterestRateSwap
∙MacrohedgingwithSwaps
CurrencySwaps
∙Fixed-FixedCurrencySwaps
∙Fixed-FloatingCurrencySwaps
CreditSwaps
∙TotalReturnSwaps
∙PureCreditSwaps
∙SwapsandCreditRiskConcerns
Summary
Appendix26A:
PricinganInterestRateSwap
∙PricingaSwap:
AnExample
SolutionsforEnd-of-ChapterQuestionsandProblems:
ChapterTwentySix
1.Explainthesimilaritybetweenaswapandaforwardcontract.
Aforwardcontractrequiresdeliveryortakingdeliveryofsomecommodityorsecurityatsomespecifiedtimeinthefutureatsomepricespecifiedatthetimeoforigination.Inaswap,eachpartypromisestodeliverand/orreceiveapre-specifiedseriesofpaymentsatspecificintervalsoversomespecifiedtimehorizon.Inthisway,aswapcanbeconsideredtobethesameasaseriesofforwardcontracts.
2.Forward,futures,andoptioncontractshadbeenusedbyFIstohedgeriskformanyyearsbeforeswapswereinvented.IfFIsalreadyhadthesehedginginstruments,whydotheyneedswaps?
Althoughsimilarinmanyways,thefollowingdistinguishingcharacteristicscausetheinstrumentstobedifferentiated:
(a)Theswapcanbeviewedasaportfolioofforwardcontractswithdifferentmaturitydates.Sincecashflowsonforwardcontractsaresymmetric,thesamecanbesaidofswaps.Thisisincontrasttooptions,whosecashflowsareasymmetric(truncatedeitheronthepositiveornegativesidedependingupontheposition).
(b)Optionsaremarkedtomarketcontinuously,swapsaremarkedtomarketatcouponpaymentdates,andforwardcontractsaresettledonlyupondelivery(atmaturity).Therefore,thecreditriskexposureisgreatestunderaforwardcontract,wherenothirdpartyguarantorexistsasinoptions(theoptionsclearingcorporationforexchange-tradedoptions)andswaps(theswapintermediary).
(c)Thetransactionscostishighestfortheoption(thenonrefundableoptionpremium),nextfortheswap(theswapintermediary'sfee),andfinallyfortheforward(whichhasnoup-frontpayment).
(d)SwapsalsohavealongermaturitythananyotherinstrumentandprovideanadditionalopportunityforFIstohedgelongertermpositionsatlowercost.Moreover,sincethepackageofforwardcontractsmirrorsdebtinstruments,theswapprovidedFIswithahedgeinstrumentthatisattractiveandlesscostlythanseparateforwardcontracts.
(e)Finally,theintroductionofaswapintermediaryreducesthecreditriskexposureandtheinformationandmonitoringcoststhatareassociatedwithaportfolioofindividualforwardcontracts.
3.Distinguishbetweenaswapbuyerandaswapseller?
Inwhichmarketsdoeseachhavethecomparativeadvantage?
Theswapbuyermakesthefixed-ratepaymentsinaninterestrateswap,andtheswapsellermakesthevariable-ratepayments.Thisdistinctionoccursbyconvention.Thenotationinthistextreferstothecomparativeadvantagepartyasthatwhichmakesthespecificswappayment.Thus,thebuyerissaidtohavethecomparativeadvantageinfixed-ratepayments.Studentswillnotethatsomeotherauthorsrefertothecomparativeadvantageinthemarketsinwhichthecashfinancingoccurs,whichmaynotbethesamemarketthatwouldreducetheinterestrateriskonthebalancesheet,andthereforethereasonfortheswap.Thus,intheexampleonpage623inthetext,themoneycenterbankraisesmoneyinthefixed-ratemarket,eventhoughtheloansarevariable-rate.
4.Aninsurancecompanyowns$50millionoffloating-ratebondsyieldingLIBORplus1percent.Theseloansarefinancedby$50millionoffixed-rateguaranteedinvestmentcontracts(GICs)costing10percent.Afinancecompanyhas$50millionofautoloanswithafixedrateof14percent.Theloansarefinancedby$50millionofCDsatavariablerateofLIBORplus4percent.
a.Whatistheriskexposureoftheinsurancecompany?
Theinsurancecompany(IC)isexposedtofallinginterestratesontheassetsideofthebalancesheet.
b.Whatistheriskexposureofthefinancecompany?
Thefinancecompany(FC)isexposedtorisinginterestratesontheliabilitysideofthebalancesheet.
c.Whatwouldbethecashflowgoalsofeachcompanyiftheyweretoenterintoaswaparrangement?
TheICwishestoconvertthefixed-rateliabilitiesintovariable-rateliabilitiesbyswappingthefixed-ratepaymentsforvariable-ratepayments.TheFCwishestoconvertvariable-rateliabilitiesintofixed-rateliabilitiesbyswappingthevariable-ratepaymentsforfixed-ratepayments.
d.Whichcompanywouldbethebuyerandwhichcompanywouldbethesellerintheswap?
TheFCwillmakefixed-ratepaymentsandthereforeisthebuyerintheswap.TheICwillmakevariable-ratepaymentsandthereforeisthesellerintheswap.
e.Diagramthedirectionoftherelevantcashflowsfortheswaparrangement.
Pleaseseethediagramatthetopofthenextpage.Notethatthefixed-rateswappaymentsfromthefinancecompanytotheinsurancecompanywilloffsetthepaymentsonthefixed-rateliabilitiesthattheinsurancecompanyhasincurred.Thereversesituationoccursregardingthevariable-rateswappaymentsfromtheinsurancecompanytothefinancecompany.Dependingontheratesnegotiatedandthematuritiesoftheassetsandliabilities,bothcompaniesnowhavedurationsmuchclosertozeroonthisportionoftheirrespectivebalancesheets.
Notetoinstructors:
Ifinditveryhelpfultodiagramthecash-marketfinancingcashflowswhenIpresentthematerialonswaps.
f.Whatarereasonablecashflowamounts,orrelativeinterestrates,foreachofthepaymentstreams?
Determiningasetofreasonableinterestratesinvolvesananalysisofthebenefitstoeachfirm.Thatis,doeseachfirmpaylowerinterestratesthancontractuallyobligatedwithouttheswap?
Clearly,thedirectionofthecashflowswillhelpreduceinterestraterisk.
OnefeasibleswapisfortheICtopaytheFCLIBOR+2.5percent,andfortheFCtopaytheIC12percent.Thenetfinancingcostforeachfirmisgivenbelow.
FinanceInsurance
CompanyCompany
CashmarketliabilityrateL+4%10.0%
MinusSwap-inrate-(L+2.5%)-12.0%
PlusSwap-outrate+12%+(L+2.5%)
Netfinancingcostrate13.5%L+0.5%
Whetherthetwofirmswouldnegotiatetheseratesdependsontherelativenegotiatingpowerofeachfirm,andthealternativeratesforeachfirminthealternatemarkets.Thatis,thefixed-rateliabilitymarketforthefinancecompanyandthevariable-rateliabilitymarketfortheinsurancecompany.
5.Inaswaparrangement,thevariable-rateswapcashflowstreamsoftendonotfullyhedgethevariable-ratecashflowstreamsfromthebalancesheetduetobasisrisk.
a.Whatarethepossiblesourcesofbasisriskinaninterestrateswap?
First,thevariable-rateindexontheliabilitiesinthecashmarketmaynotmatchperfectlythevariable-rateindexnegotiatedintotheswapagreement.Thissourceofbasisriskissimilartothecross-hedgeriskintheuseoffuturescontracts.Second,thepremiumovertheindexinthecash-marketvariable-rateliabilitymaychangeovertimeascredit(default)riskconditionschange.
b.Howcouldthefailuretoachieveaperfecthedgeberealizedbytheswapbuyer?
Swappricingnormallyisbasedonafixednotionalamountoverthelifeoftheswap.Ifthefixed-rateassetportfolioofthebuyerdecreasesovertime,afixed-notionalamountswapagreementmaynotreflectaccuratelythedesiredinterest-rateriskgoalsofthebuyeroverthelifeoftheswap.Thissituationcouldoccurasloansareamortized(repaidinthenormalcontext)orasprepaymentrateschangeoneitherloansorbondsasmacroeconomicconditionschange.
c.Howcouldthefailuretoachieveaperfecthedgeberealizedbytheswapseller?
Theswapsellerissubjecttobasisriskasdiscussedinpart(a)above.
6.Acommercialbankhas$200millionoffloating-rateloansyieldingtheT-billrateplus2percent.Theseloansarefinancedby$200millionoffixed-ratedepositscosting9percent.Asavingsbankhas$200millionofmortgageswithafixedrateof13percent.Theyarefinancedby$200millionofCDswithavariablerateoftheT-billrateplus3percent.
a.DiscussthetypeofinterestrateriskeachFIfaces.
Thecommercialbankisexposedtoadecreaseinratesthatwouldlowerinterestincome,whilethesavingsbankisexposedtoanincreaseinratesthatwouldincreaseinterestexpense.Ineithercase,profitperformancewouldsuffer.
b.ProposeaswapthatwouldresultineachFIhavingthesametypeofassetandliabilitycashflows.
Onefeasibleswapwouldbeforthebanktosendvariable-ratepaymentsoftheT-billrate+1percent(T+1%)tothesavingsbankandtoreceivefixed-ratepaymentsof9percentfromthesavingsbank.
c.Showthatthisswapwouldbeacceptabletobothparties.
SavingsBankCom.Bank
CashmarketliabilityrateT+3%9.0%
MinusSwap-inrate-(T+1%)-9.0%
PlusSwap-outrate+9%+(T+1%)
Netfinancingcostrate11.0%T+1%
Thenetinterestyieldonassetsis2percent(13%-11%)forthesavingsbankand1percent[(T+2%)–(T+1%)]forthecommercialbank.Anadjustmenttomakethenetinterestyieldonassetsequalat1.5percentwouldbetohavethesavingsbankpayafixedrateof9.5percentorreceiveafixedrateofT+0.5percent.Obviously,manyratecombinationscouldbenegotiatedtoachieveacceptableratespreadsandtoachievethedesiredinterestrateriskmanagementgoals.
d.Whataresomeofthepracticaldifficultiesinarrangingthisswap?
Thefloatingrateassetsmaynotbetiedtothesamerateasthefloatin
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- 金融机构 管理 习题 答案 026