Principles of Corporate Finance

Margin w The amount (percentage) of a Futures Contract Value that must be on deposit with a broker. w Since a Futures Contract i ...

Commodity Speculation with margin You have lived in NYC your whole life and are independently wealthy. You think you know everyt ...

Nov: Short 3 May K (.4400 x 38,000 x 3 ) = + 50,160 Feb: Long 3 May K (.4850 x 38,000 x 3 ) = - 55,290 Loss = - 5,130 Loss 5130 ...

SWAPS Birth 1981 Definition - An agreement between two firms, in which each firm agrees to exchange the “interest rate character ...

SWAPS w “Plain Vanilla Swap” - (generic swap) w fixed rate payer w floating rate payer w counterparties w settlement date w trad ...

SWAPS example (vanilla/annually settled) XYZ ABC fixed rate 10% 11.5% floating rate libor + .25 libor + .50 Q: if libor = 7%, wh ...

SWAPS example - cont. Benefit to XYZ Net position floating +7.25 -7.25 0 fixed +10.50 -10.00 +.50 Net gain +.50% Benefit ABC Net ...

SWAPS example - cont. Settlement date ABC pmt 10.50 x 1mil = 105,000 XYZ pmt 7.25 x 1mil = 72,500 net cash pmt by ABC = 32,500 i ...

SWAPS w transactions w rarely done direct w banks = middleman w bank profit = part of “swap gain” example - same continued XYZ & ...

SWAPS example - example - contcont.. settlement date - XYZ Bank pmt 10.50 x 1mil = 105,000 XYZ pmt 7.25 x 1mil = 72,500 net Bank ...

SWAPS example - cont. benefit to XYZ floating 7.25 - 7.25 = 0 fixed 10.50 - 10.00 = +.50 net gain .50 benefit to ABC floating 7. ...

u Managing International Risk Principles of Corporate Finance Brealey and Myers Sixth Edition Chapter 27 ...

Topics Covered w Foreign Exchange Markets w Some Basic Relationships w Hedging Currency Risk w Exchange Risk and International I ...

Foreign Exchange Markets Exchange Rate - Amount of one currency needed to purchase one unit of another. Spot Rate of Exchange - ...

Foreign Exchange Markets Forward Premiums and Forward Discounts Example - The yen spot price is 112.645 yen per dollar and the 6 ...

Foreign Exchange Markets Forward Premiums and Forward Discounts Example - The yen spot price is 112.645 yen per dollar and the 6 ...

Foreign Exchange Markets Forward Premiums and Forward Discounts Example - The yen spot price is 112.645 yen per dollar and the 6 ...

Exchange Rate Relationships w Basic Relationships 1 + r 1 + r foreign $ 1 + i 1 + i foreign $ f S foreign/$ foreign/$ E(s S fore ...

Exchange Rate Relationships Interest Rate Parity Theory w The ratio between the risk free interest rates in two different coun ...

Exchange Rate Relationships Example - You have the opportunity to invest $1,000,000 for one year. All other things being equal, ...