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May 20, 2022 at 3:35 pm
Hi Sir, what is there to know about yield curve in interest rate risk management?
John Moffat says
May 21, 2022 at 7:39 am
For Paper FM you only need to know what is in our free notes and lectures in one of the early chapters.
May 19, 2022 at 4:33 pm
Hey Sir, what’s the most important hedges for currency and interest rates for the exam?
May 19, 2022 at 4:53 pm
They are as I state in the lectures.
January 20, 2021 at 8:09 am
2.75 paid to x..where did you get that??
January 20, 2021 at 8:42 am
It is the missing figure.
If they didn’t swap, X would be paying 10%. Because there is a saving of 1.5% to be shared equally, X must end up paying 10 – 0.75 = 9.25%.
When they swap X pays Y’s interest of L + 6.5%, X then receives L from Y.. So far therefore X is paying 6.5%.
In order to end up paying 9.25%, X must pay Y 9.25 – 6.5 = 2.75%.
(You can do the same thing for Y and end up with the same transfer)
However don’t worry about the arithmetic – calculations are not asked until Paper AFM. It is just being aware of the idea for Paper FM.
June 10, 2020 at 3:09 pm
Thank you Mr John for your lectures. Your explanations drives the point home
June 2, 2020 at 6:15 pm
this is great lecture
February 12, 2020 at 7:15 pm
Love the way you explain with practical examples, and always have an answer for WHY
January 23, 2020 at 10:22 am
I have not been entirely sure what the mechanism and the real reason behind the movements (interest up and futures down and vice versa). It might have been mentioned in the lecture – sorry if I missed it. But I have found a clear explanation:
“Effect of Interest Income
The futures price decreases when there is a known interest income because the long side buying the futures does not own the asset and, thus, loses the interest benefit. Otherwise, the buyer would get interest if he or she owned the asset.”
May 27, 2019 at 12:50 pm
It is the missing figure.
If they did their own borrowing they would be paying 10%.
Swapping gives a saving of 1/2 x 1.5% = 0.75%.
Therefore the settling up must end up with X paying 10 – 0.75 = 9.25%
Swapping means they will be paying 12%, so they settle up by Y paying X 9.25% which means X ends up paying 12 – 9.25 = 2.75%.
Remember, however, that as I say in the lectures you cannot be asked to do this calculation in Paper FM – only to explain the idea behind swapping.
May 26, 2019 at 3:53 pm
hello,how did you get that 2.75 y pay to x from?
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