Derivatives Practice

Futures, Forward and Swap Ex.1 Ex.2

Futures, Forward and Swap Ex.3

Futures, Forward and Swap Ex.4

Futures, Forward and Swap Ex.5 Floating (%) Fixed (%) Firm LIBOR+0.2 8 A LIBOR+1.2 10 B The benefit of a swap contract:

A swap that splits the benefit equally between the two parties: Swap to firm A Firm A issues fixed debt at 8% and enters a swap whereby it promises to pay LIBOR-0.3% in exchange to receiving 8% fixed payments, which will offset the required debt payments. Floating Fixed Operation Pay 8% Issue debt Pay LIBOR-0.3% Receive 8% Enter swap Net Pay LIBOR+0.2% Direct cost 0.5% Saving

A swap that splits the benefit equally between the two parties: Swap to firm B Firm B issues floating debt at LIBOR+1.2% and enters a swap whereby it promises to pay 8% fixed payments in exchange to receiving LIBOR-0.3%. Fixed Floating Operation Pay 8% Pay LIBOR+1.2% Issue debt Receive LIBOR-0.3% Enter swap Pay 9.5% Net Pay 10% Direct cost 0.5% Saving

Futures, Forward and Swap Ex.6 Yield Curve (%) yt year 3 1 4 2 5 6

Futures, Forward and Swap Ex.6

Futures, Forward and Swap Ex.6