Goodrich-Rabobank Interest Rate Swap In 1983‚ both B.F. Goodrich and Rabobank needed to execute external financing in order to raise 50 million dollars for ongoing operations. Goodrich wanted to raise the money through debt financing‚ but because their bonds were BBB- rated‚ they would have to pay a steep interest rate for a fixed rate. However‚ the Solomon brothers had an idea. Goodrich could borrow with a floating rate that was tied to LIBOR and then swap interest payments with a Euromarket
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CHAPTER 14 INTEREST RATE AND CURRENCY SWAPS SUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Describe the difference between a swap broker and a swap dealer. Answer: A swap broker arranges a swap between two counterparties for a fee without taking a risk position in the swap. A swap dealer is a market maker of swaps and assumes a risk position in matching opposite sides of a swap and in assuring that each counterparty fulfills its contractual obligation
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Review on Swaps‚ Solution 1. The term interest rate swap A. refers to a "single-currency interest rate swap" shortened to "interest rate swap" B. involves "counterparties" who make a contractual agreement to exchange cash flows at periodic intervals C. can be "fixed-for-floating rate" or "fixed-for-fixed rate" D. All of the above 2. Suppose the quote for a five-year swap with semiannual payments is 8.50—8.60 percent. The means: A. The swap bank will pay semiannual fixed-rate dollar payments
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(or longer) at a fixed rate. However‚ since the general level of interest rates were pretty high‚ and Goodrich’s credit ratings had dropped from BBB to BBB-. Goodrich believed that it would have to pay 13% interest for a 30 year corporate debenture. Salomon Brothers had advised Goodrich that they could borrow in the US public debt market with a floating rate debt issue tied to the LIBOR‚ and then swap payments with Euro market bank that had raised funds in the fixed-rate Eurobond market. Note:
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Goodrich-Rabobank Interest Rate Swap Case Section AC-G9 Kurtuluz Korkmaz - Murat Ongider - Jonathan Levi - Sumita Marwah 1. Is this an attractive alternative for the savings banks? Early in 1983‚ BF Goodrich‚ diversified manufacturer of tires and related rubber products‚ needed $50M to fund its ongoing financial needs. It could have borrowed this amount from its committed bank lines‚ with borrowing cost above the prime‚ which was 10 5/8 %. It wanted borrow longer term with fix rates not to compromise
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Treasury Risk Management CURRENCY AND INTEREST RATE SWAP _A CASE STUDY OF THE AUSTRALIAN FOREIGN EXCHANGE MARKET_ ABSTRACT Business transactions occur on the international front and there are laws and regulations regarding the pricing of the long-term forward exchange contracts. It is noted that the violation of the traditionally covered interest arbitrage pricing relation has been rampant and that the activity in the international currency and interest rate swap markets offers a substantial explanation
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Effects of Raising Interest Rates If a central bank increases the base rate‚ this tends to increase all major interest rates in the economy. This means interest rates for both savers and borrowers will increase. Higher interest rates will have various economic effects: 1. Increases the cost of borrowing. Interest payments on credit cards and loans will be more expensive. Therefore this discourages people from borrowing and saving. People who already have loans will have less disposable income
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Figure 7: Relation between yield and CALL RATE …………………………..……..28 Figure 8: Relation between yield and GDP ……………………………………..……29 Figure 9: Relation between yield and rupee per dollar ………………….....................29 EXECUTIVE SUMMURY The purpose of this paper is to provide an overview of recent developments in Indian interest rate yield structure and to describe some of the major factors which have driven these developments. Short-term interest rates have emerged as the key indicators of
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effects of low interest rates on consumption and investment Dec 1st 2012 | from The Economist print edition WHEN interest rates hit double digits in the late 1970s‚ house-builders sent planks of wood to the Federal Reserve in protest. With rates stuck near zero‚ the protests now come from the opposite direction. The retired complain of a “war on savings”. The Fed cut rates to current levels at the end of 2008 and has promised to keep them there until 2015. Since 2008‚ personal interest income has plunged
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Money Banking and financial Markets‚ Interest Rates An interest rate is the rate at which interest is paid by borrowers for the use of money that they borrow from a lender. Specifically‚ the interest rate is a percent of principal paid a certain amount of times per period. Small companies often borrow capital from banks to buy new assets for its business‚ and in return the lender receives interest at a predetermined interest rate for deferring the use of funds and instead lending
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