1. Interest Rate and Currency Swaps
Chapter 9
Interest Rate and Currency Swaps

2. Interest Rate Risk
All firms – domestic or multinational, small or large, leveraged, or unleveraged – are sensitive to interest rate movements in one way or another.
The single largest interest rate risk of the nonfinancial firm (our focus in this discussion) is debt service; the multicurrency dimension of interest rate risk for the MNE is of serious concern.
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3. Management of Interest Rate Risk
The second most prevalent source of interest rate risk for the MNE lies in its holdings of interest-sensitive securities.
Unlike debt, which is recorded on the right-hand side of the firm’s balance sheet, the marketable securities portfolio of the firm appears on the left-hand side.
Marketable securities represent potential earnings for the firm.
Copyright © 2007 Pearson Addison-Wesley. All rights reserved.