## 这是一篇来自澳洲的关于利率互换和货币互换的经济代写，以下是具体作业内容：

Outline

• Swaps
• Interest rate swaps

-Mechanism

-Why use interest rate swaps?

-Pricing

• Currency swaps

-Mechanism

-Why use currency swaps?

-Pricing

Swaps

• Agreements to exchange a series of cash flows on periodic dates
• Swaps are similar to forwards:

-Swaps typically do not require payment by either party at initiation (except currency swaps)

-Swaps are traded OTC and not standardized

-Swaps are regulated by International Swaps and Derivatives Association (ISDA) in the global market, and by Australian Financial Markets Association (AFMA) in Australia

-Although regulations exist, default risk is high for swap transactions

• Two most common swaps:

-Interest rate swap

– Currency swap

Interest rate swap

• An agreement to exchange fixed rate for floating (variable) rate over the tenor (i.e., life) of the swap

– Suppose I lend you \$100 at 4% pa fixed rate and you lend me \$100 at variable (i.e., floating) rate for 3 years. Interest is paid semi-annually.

– Thus we have an interest rate swap with a tenor of 3 yrs

– Both loan amounts are equal, hence it is pointless to exchange \$100.

– Also, it is pointless to exchange the full interest amount every 6 mths. Only the party with the larger payment liability pays the difference. Example: If the floating rate is 6% pa, I pay you \$1. If the floating rate is 3% pa, you pay me \$0.50

– In the above, you are the fixed rate payer (i.e., ‘payer’) and I am the fixed rate receiver (i.e.,‘receiver’). As a fixed rate receiver, I pay floating rate.

– We don’t usually use the terms ‘floating rate payer’ or ‘floating rate receiver’.

Why do we use interest rate swap?

• To transform a liability

-Suppose company A borrowed at LIBOR floating rate + a margin of 50 bps.

Company A already has many variable rate borrowings and wanted to convert the above into fixed rate borrowing.

-Suppose company B has just issued an 8% coupon bond, in addition to other fixed rate borrowings. Company B wanted to convert the above to variable rate borrowing.

-Hence, companies A and B can do an interest rate swap. Let’s assume the fixed swap rate is 6%

To transform an asset

• Suppose company F holds floating rate notes issued in Australia. Thus, it receives BBSW minus 30 bps margin. BBSW (Bank Bill Swap Rate) is analogous to LIBOR; it is the reference rate at which variable rates in Australia are set upon. Company F wanted to convert its cash inflow into fixed amount.
• Suppose company V holds 5.8% fixed coupon bonds and wanted to convert its cash inflow into variable amount
• Thus, companies F and V can do an interest rate swap. Let’s assume the fixed swap rate is 6%.

-Usually, companies F and V won’t directly transact the interest rate swap.

They will do this through a financial intermediary (FI)

-In the example below, FI earns a 4 bps spread but each of F and V receives 2 bps less.

To speculate:

-If you predict that the yield will increase (price will decrease) in the future, you can try to speculate on your prediction by

Sell bond futures (sell high now, close out by buy low later), or

Enter into an interest rate swap as a fixed-rate payer (pay fixed, receive floating). Reason:

-It can be shown (later) that if yield increases, the fixed coupon bond will trade at discount. The effect is such that the swap has a positive value to fixed rate payer

To hedge:

– Suppose you were a liability manager and you have issued/sold a fixed coupon bond. To hedge the risk of a falling yield (bond price or value of your liability increases), you can

Enter into an interest rate swap as a fixed-rate receiver (receive fixed, pay floating). Reason:

• It can be shown (later) that if yield decreases, the fixed coupon bond will trade at premium.

The effect is such that the swap has a positive value to fixed rate receiver. This positive swap value offsets the increase in your liability  zero net effect

• It can be shown (later) that if yield increases, the fixed coupon bond will trade at discount.

The effect is such that the swap has a negative value to fixed rate receiver. This negative swap value offsets the decrease in your liability  zero net effect

– Note also that a receive fixed, pay floating swap has the same effect as decreasing duration. This is because this swap implies that you issue short-term floating rate notes (thus pay floating rate) and use the proceeds to buy back long-term bonds (thus receive fixed rate)

Replicating an interest rate swap

• Suppose we are the fixed rate payer (we pay fixed rate and receive floating rate).
• We can replicate this effect using a clever combination of basic bonds:

-Issue fixed coupon bond

-Invest the proceeds in floating rate coupon bond with the same maturity and payment dates as the above fixed coupon bond

-On each interest payment date, we pay fixed coupon and receive floating rate

-OR

-Issue fixed coupon bond

-Invest the proceeds in short-term floating rate notes (e.g., 6-mth floating rate note) and roll-over successively until the maturity of the above fixed coupon bond

• Thus, we can value an interest rate swap by aggregating the value of each of the components in the portfolio:

-Value a fixed coupon bond (discussed a few weeks ago)

-Value a floating rate coupon bond with the same maturity and payment dates as the above fixed coupon bond

The value is equal to the par value on interest repayment dates

The value is greater than the par value on non-interest repayment dates

• Why is the floating rate coupon bond always repriced to par on interest repayment dates?

-To understand this, remember first that the floating rate interest is always set in advance, but paid at the next period EasyDue™ 支持PayPal, AliPay, WechatPay, Taobao等各种付款方式!

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