## 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

Buy back the bond, or

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

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