HKICPA MB 公司金融 期权期货远期互换资料Identifying, measuring and managing financial risk.pptVIP

By Tom Chan, HK 2015.06.15 Start i$ = 8.0% per annum End (2.0% per 90 days) The general level of interest rate (a)Need for a real return. It depends upon other factors such as investment risk. (b)Inflation rate. (c)Uncertainty about future rate of inflation, which would normally require high interest yield when facing the higher level of uncertainty. (d)Liquidity preference for investors and demand for borrowing (e)Balance of payments. When facing deficit, interest rate would be raised to attract capital into the country. (f)Monetary policy. (g)Interest rate abroad. In order to avoid capital transfer abroad and a fall in exchange rate, domestic country might set a higher interest rate to attract people for placing money in. Key FRA terminology o 5.70-5.75 mean deposit rate at 5.7% borrowing rate at 5.75% o A 3-6 forward rate agreement, that starts in month three and lasts for three months. o A basis point is 0.01% Sample question It is the 30 June ABC Ltd will need a $100 million 6-month fixed rate loan from 1 October ABC Ltd wants to hedge using an FRA. The relevant FRA is 6% on 30 June. The FRA required is 3-9. What is the result of the FRA and the effective loan rate if the 6-month FRA benchmark rate has moved to either 5% or 9%? Solution At 5% because the interest rates have fallen, ABC Ltd makes a payment to the bank: $m FRA payment $100m*(6%-5%)*6/12 (0.50) Payment on underlying loan 5%*100m*6/12 (2.50) Net payment on loan (3.00) At 9% because the interest rates have risen, he bank will make a payment to ABC Ltd: $m FRA receipt $100m*(9%-6%)*6/12 1.