9/21/2013 Modeling Credit Value Adjustment FX Forwards and Currency Swaps Alexi Carlos and Zedrick Torres Introduction This paper is concerned with the generalization of the Credit Value Adjustment (CVA) equation for FX Forwards and Currency Swaps. In addition‚ a model for CVA using Visual Basic for Applications (VBA) in Microsoft Excel will be presented. Counterparty credit risk (CCR) is the risk that the counterparty to a financial contract will default prior to the expiration
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on similar securities (with k periods to maturity) – e superscript denotes the market expectation – Δk is the k-difference operator‚ so Δkst+k = st+k - st Covered interest parity (CIP) • Very often forex efficiency is dealt with in terms of spot and forward exchange rates and using CIP (Keynes‚ 1923): – under no barriers to arbitrage across international financial markets‚ the interest rate differential on two assets whose only difference is the currency of denomination‚ adjusted to cover
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Work in Translation Paradise of the Blind by Duong Thu Huong Final Draft Name: Chung Yee‚ Lee Candidate number: 003072-225 Year 11 QASMT Teacher: Ms Jennifer Russel Word Count: 1477 Work in Translation Paradise of the Blind by Duong Thu Huong In the novel‚ Paradise of the Blind‚ written by Duong Thu Huong originally in Vietnamese and translated into English by Phan Huy Duong and Nina Mcpherson‚ the author constructs characters Aunt Tam and Uncle Chinh as analogs of conflicting
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With the promotional poster depicting a picture of a woman holding the hand of an oversized football player leading him onto the field‚ the movie “The Blind Side” made skeptics of moviegoers. Challenged by most energy-packed movies that hit the screens in 2009‚ the movie at hind sight did not do much visual stimulation. However‚ being a movie that faithfully represents the real life experience of famed football star Michael Oher‚ it did not fail to raise a lot of eyebrows from both movie fans and
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options for the deviation from the policy? [2 pages] [deviation: it’s the 50-75% change in hedge ratio] {Ryan} {Jason} In order to determine whether to use forwards or options‚ it depends on a number of issues such as GM’s expectation on future spot rates and also their management’s level of risk adverseness. If GM wants to hedge
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how might its stock be affected? How could the firm manage its gold price exposure without the use of financial contracts? Particulars for yr 1992($ million) | | Pretax earnings (Exhibit 2) | 223 | Reductions in earning of gold sold at spot (1280mn oz x (422-345) (Exhibit 12) | (99) | Proforma Pretax Earnings | 124 | Taxes @ 21% (Exhibit 2) | (26) | After Tax Earnings | 98 | Thus in absence of risk management program the American Barrick stock would be more sensitive to gold
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CHAPTER 15 1. Vanilla Swaps. Cleveland Insurance Company has just negotiated a three-year plain vanilla swap in which it will exchange fixed payments of 8 percent for floating payments of LIBOR + 1 percent. The notional principal is $50 million. LIBOR is expected to 7 percent‚ 9 percent‚ and 10 percent‚ respectively‚ at the end of each of the next three years. a. Determine the net dollar amount to be received (or paid) by Cleveland each year. ANSWER: End of Year: END OF YEAR 1 2 3
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To compute the expected value of the real cost of hedging‚ first develop a probability distribution for the future spot rate‚ and then use it to develop a probability distribution for the real cost of hedging. If the forward rate is an accurate predictor of the future spot rate‚ the real cost of hedging will be zero. If the forward rate is an unbiased predictor of the future spot rate‚ the real cost of hedging will be zero on average. A money market hedge involves taking one or more money market
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Dozier stands to gain from the upside on the currency exposure. Spot Hedge In this option‚ Dozier can borrow funds in GBP‚ and convert them into USD at today’s spot rate. On April 13th‚ it will receive the payment from sales which it can use to pay off the borrowed fund in GBP. This option removes the uncertainty on the exchange rate. To implement this option‚ Dozier can follow these steps: 1. Borrow £ 1‚019‚277.11 and use todays spot to convert it into USD. 2. Deposit the USD at 8% prevailing
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Research sold a super computer to the Max Planck Institute in Germany on credit and invoiced €10 million payable in six months. Currently‚ the six-month forward exchange rate is $1.10/€ and the foreign exchange advisor for Cray Research predicts that the spot rate is likely to be $1.05/€ in six months. (a) What is the expected gain/loss from the forward hedging? The expected gain from this sale can be figured by using this equation: 10‚000‚000(1.10-1.05)=10‚000‚000(.05)=$500‚000 expected
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