Interest rate swap

In 1999 the United States Congress passed the Gramm-Leach-Bliley Financial Services Modernization Act which finished off the repealing process of the Glass-Steagall Act of 1933 (Moffett, Stonehill, & Eiteman, 2012, p. 114). The Glass-Steagall Act had imposed barriers within the United States financial sector, where commercial banking entities were separate from investment banks. This meant that commercial banks were able to operate in higher risk activities that were traditionally reserved for the

investors realized that the banks were giving out crazy mortgage rates and loans which people wouldn't be able to pay back. After this epiphany, they came to the conclusion that it would only be a matter of time before the poorer people getting worse deals would default, causing a chain reaction and subsequently bringing down the entire American housing market and economy. In order to make money they purchased CDSs - credit default swaps - as a way to bet against the housing market and after a lot of

of our political and financial systems. Lastly, Baily and Elliot cite the global economy and the existence of a credit boom throughout European and Asian nations. Low inflation and consistent growth throughout the world economy spiked investors’ interest in acquiring riskier investments, which encouraged

better return from the interest rate home owners paid on mortgages than they would by investing in U.S. Treasury bonds. Instead of buying these mortgages from individual homeowners, the investors bought Mortgage Backed Securities. These are created when large financial institutions securitize mortgages, essentially buying thousands of individual mortgages, group them together, and sell shares of them to investors. Investors bought these, knowing they would pay a higher rate of return than other investments

is “is the impact of currency exchange rate changes on the reported financial statements of a company.” (Charles W. L. Hills, 2013) Translation is determined by evaluating pass events using present measurements that will produce an unrealized gain or loss. Translation exposure affects the consolidated balance sheet showing whether a company is more or less leverage, which can affect its borrowing capacities. Transaction exposure is when changes in exchange rate affect a contract already establish at

The U.S. dollar index has exhibited a clear long-term downward trend since 2002. This is a cause for concern among emerging markets because a large proportion of their foreign exchange reserves is held in dollar denominated assets. The dollar accounts for 62 percent of allocated foreign exchange reserves around the world and for 58 percent of the allocated reserves of emerging and developing economies . Most central banks would incur considerable losses on their investments if the depreciation of

Introduction General Motors was the world’s largest automaker and, since 1931, the world’s sales leader. In 2001, GM had unit sales of 8.5 million vehicles and a 15.1% worldwide market share. Founded in 1908, GM had manufacturing operations in more than 30 countries, and its vehicles were sold in approximately 200 countries. In 2000, it generated earnings of $4.4 billion on sales of $184.6 billion. The company is trying to accurately calculate the risk of a potential devaluation to the ARS. In

piece to a successful economy. Consumers and businesses rely on credit to make large purchases. In recent years, the American economy has experienced the most severe global financial crisis since the Great Depression of the 1930’s. Unemployment rates rose, and stock and housing markets tumbled. These combined had dramatic effects on American households. Global Financial Crisis Effects When sky-high home prices in the United States turned downward, the entire United States financial

Keister and McAndrews argue that it is merely a reflection of the scale of the policies implemented as well as a result of the Federal Reserve now paying interest on reserves (Keister and McAndrews, 2009). Further, Keister and McAndrews (2009), assert that by now paying interest on the reserves, the Central Bank can now control the target interest rate without manipulating reserves. Additionally, Keister and McAndrews (2009,) conclude that the, 'size of the reserves only reflects the size of the Federal

P&L Explain – Bonds and Swaps Tony Morris antony.morris@db.com MICS – DKS Manila Contents 1. Bond Pricing – basic concepts 2. P&L sensitivities of a bond i. PV01 ii. CS01 iii. Theta iv. Carry 3. Extension to interest rate swaps 1. Bond Pricing – basic concepts Let’s say you have a 4 year 10% annual coupon bond, with a yield (‘yield to maturity’ or ‘yield to redemption’) of 12%. From this information, the price