国际金融学课件：Lecture 11 The Swap Market

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TheSwapMarket(Chapter14)McGraw-Hill/IrwinCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.10-1EssentialReadingTheWholeChapterMcGraw-Hill/IrwinCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.10-2DefinitionsInaswap,twocounterpartiesagreetoacontractualarrangementwhereintheyagreetoexchangecashflowsatperiodicintervals.Therearetwotypesofinterestrateswaps:Singlecurrencyinterestrateswap“Plainvanilla”fixed-for-floatingswapsareoftenjustcalledinterestrateswaps.Cross-CurrencyinterestrateswapThisisoftencalledacurrencyswap;fixedforfixedratedebtserviceintwo(ormore)currencies.McGraw-Hill/IrwinCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.10-3TheSwapBankAswapbankisagenerictermtodescribeafinancialinstitutionthatfacilitatesswapsbetweencounterparties.Theswapbankcanserveaseitherabrokeroradealer.Asabroker,theswapbankmatchescounterpartiesbutdoesnotassumeanyoftherisksoftheswap.Asadealer,theswapbankstandsreadytoaccepteithersideofacurrencyswap,andthenlaterlayofftheirrisk,ormatchitwithacounterparty.McGraw-Hill/IrwinCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.10-4AnExampleofanInterestRateSwapConsiderthisexampleofa“plainvanilla”interestrateswap.BankAisaAAA-ratedinternationalbanklocatedintheU.K.whowishestoraise$10,000,000tofinancefloating-rateEurodollarloans.BankAisconsideringissuing5-yearfixed-rateEurodollarbondsat10percent.Itwouldmakemoresensetoforthebanktoissuefloating-ratenotesatLIBORtofinancefloating-rateEurodollarloans.McGraw-Hill/IrwinCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.10-5AnExampleofanInterestRateSwapFirmBisaBBB-ratedU.S.company.Itneeds$10,000,000tofinanceaninvestmentwithafive-yeareconomiclife.FirmBisconsideringissuing5-yearfixed-rateEurodollarbondsat11.75percent.Alternatively,firmBcanraisethemoneybyissuing5-yearFRNsatLIBOR+½percent.FirmBwouldprefertoborrowatafixedrate.McGraw-Hill/IrwinCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.10-6AnExampleofanInterestRateSwapTheborrowingopportunitiesofthetwofirmsareshowninthefollowingtable:McGraw-Hill/IrwinCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.10-7103/8%LIBOR–1/8%AnExampleofanInterestRateSwapBankASwapBankTheswapbankmakesthisoffertoBankA:YoupayLIBOR–1/8%peryearon$10millionfor5yearsandwewillpayyou103/8%on$10millionfor5yearsMcGraw-Hill/IrwinCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.10-8103/8%LIBOR–1/8%AnExampleofanInterestRateSwapBankASwapBankHere’swhat’sinitforBankA:Theycanborrowexternallyat10%fixedandhaveanetborrowingpositionof-103/8+10+(LIBOR–1/8)=LIBOR–½%whichis½%betterthantheycanborrowfloatingwithoutaswap.10%½%of$10,000,000=$50,000.That’squiteacostsavingsperyearfor5years.McGraw-Hill/IrwinCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.10-9LIBOR–¼%10½%AnExampleofanInterestRateSwapSwapBankCompanyBTheswapbankmakesthisoffertocompanyB:Youpayus10½%peryearon$10millionfor5yearsandwewillpayyouLIBOR–¼%peryearon$10millionfor5years.McGraw-Hill/IrwinCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.10-10LIBOR–¼%10½%AnExampleofanInterestRateSwapSwapBankCompanyBTheycanborrowexternallyatLIBOR+½%andhaveanetborrowingpositionof10½+(LIBOR+½)-(LIBOR-¼)=11.25%whichis½%betterthantheycanborrowfloatingwithoutaswap.LIBOR+½%Here’swhat’sinitforB:½%of$10,000,000=$50,000that’squiteacostsavingsperyearfor5years.McGraw-Hill/IrwinCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.10-11LIBOR+½%103/8%LIBOR–1/8%LIBOR–¼%10½%Bsaves½%AnExampleofanInterestRateSwapBankASwapBankCompanyBAsaves½%Theswapbankmakesmoneytoo.10%¼%of$10million=$25,000peryearfor5years.LIBOR–1/8–[LIBOR–¼]=1/810½-103/8=1/8¼

McGraw-Hill/IrwinCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.10-12LIBOR+½%103/8%LIBOR–1/8%LIBOR–¼%10½%Bsaves½%AnExampleofanInterestRateSwapBankASwapBankCompanyBAsaves½%Theswapbankmakes¼%10%Notethatthetotalsavings½+½+¼=1.25%=QSDMcGraw-Hill/IrwinCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.10-13TheQSDTheQualitySpreadDifferentialrepresentsthepotentialgainsfromtheswapthatcanbesharedbetweenthecounterpartiesandtheswapbank.Thereisnoreasontopresumethatthegainswillbesharedequally.Intheaboveexample,companyBislesscredit-worthythanbankA,sotheyprobablywouldhavegottenlessoftheQSD,inordertocompensatetheswapbankforthedefaultrisk.McGraw-Hill/IrwinCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.10-14AnExampleofaCurrencySwapSupposeaU.S.MNCwantstofinancea£10,000,000expansionofaBritishplant.TheycouldborrowdollarsintheU.S.wheretheyarewellknownandexchangefordollarsforpounds.Thiswillgivethemexchangeraterisk:financingasterlingprojectwithdollars.Theycouldborrowpoundsintheinternationalbondmarket,butpayalotsincetheyarenotaswellknownabroad.McGraw-Hill/IrwinCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.10-15AnExampleofaCurrencySwapIftheycanfindaBritishMNCwithamirror-imagefinancingneedtheymaybothbenefitfromaswap.IftheexchangerateisS0($/£)=$1.60/£,theU.S.firmneedstofindaBritishfirmwantingtofinancedollarborrowingintheamountof$16,000,000.McGraw-Hill/IrwinCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.10-16AnExampleofaCurrencySwapConsidertwofirmsAandB:firmAisaU.S.–basedmultinationalandfirmBisaU.K.–basedmultinational.Bothfirmswishtofinanceaprojectineachother’scountryofthesamesize.Theirborrowingopportunitiesaregiveninthetablebelow.McGraw-Hill/IrwinCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.10-17AnExampleofaCurrencySwapCompanyASwapBank$8%£12%$8%£11%£12%$9.4%CompanyBMcGraw-Hill/IrwinCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.10-18AnExampleofaCurrencySwapCompanyASwapBank$8%£12%$8%£11%£12%$9.4%CompanyBA’snetpositionistoborrowat£11%Asaves£.6%McGraw-Hill/IrwinCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.10-19AnExampleofaCurrencySwapCompanyASwapBank$8%£12%$8%£11%£12%$9.4%CompanyBB’snetpositionistoborrowat$9.4%Bsaves$.6%McGraw-Hill/IrwinCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.10-20AnExampleofaCurrencySwapCompanyASwapBank$8%£12%$8%£11%£12%$9.4%CompanyBTheswapbankmakesmoneytoo:AtS0($/£)=$1.60/£,thatisagainof$64,000peryearfor5years.Theswapbankfacesexchangeraterisk,butmaybetheycanlayitoffinanotherswap.1.4%of$16millionfinancedwith1%of£10millionperyearfor5years.McGraw-Hill/IrwinCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.10-21Aisthemorecredit-worthyofthetwofirms.ComparativeAdvantage

astheBasisforSwapsAhasacomparativeadvantageinborrowingindollars.Bhasacomparativeadvantageinborrowinginpounds.Apays2%lesstoborrowindollarsthanBApays.4%lesstoborrowinpoundsthanB:McGraw-Hill/IrwinCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.10-22Bhasacomparativeadvantageinborrowingin£.ComparativeAdvantage

astheBasisforSwapsBpays2%moretoborrowindollarsthanABpaysonly.4%moretoborrowinpoundsthanA:McGraw-Hill/IrwinCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.10-23Ahasacomparativeadvantageinborrowingindollars.Bhasacomparativeadvantageinborrowinginpounds.Iftheyborrowaccordingtotheircomparativeadvantageandthenswap,therewillbegainsforbothparties.ComparativeAdvantage

astheBasisforSwapsMcGraw-Hill/IrwinCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.10-24SwapMarketQuotationsSwapbankswilltailorthetermsofinterestrateandcurrencyswapstocustomers’needsTheyalsomakeamarketin“plainvanilla”swapsandprovidequotesforthese.Sincetheswapbanksaredealersfortheseswaps,thereisabid-askspread.Forexample,6.60—6.85meanstheswapbankwillpayfixed-rateDMpaymentsat6.60%againstreceivingdollarLIBORoritwillreceivefixed-rateDMpaymentsat6.85%againstreceivingdollarLIBOR.McGraw-Hill/IrwinCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.10-25VariationsofBasicCurrencyandInterestRateSwapsCurrencySwapsfixedforfixedfixedforfloatingfloatingforfloatingamortizingInterestRateSwapszero-forfloatingfloatingforfloatingForaswaptobepossible,aQSDmustexist.Beyondthat,creativityistheonlylimit.McGraw-Hill/IrwinCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.10-26RisksofInterestRate

andCurrencySwapsInterestRateRiskInterestratesmightmoveagainsttheswapbankafterithasonlygottenhalfofaswaponthebooks,orifithasanunhedgedposition.BasisRiskIfthefloatingratesofthetwocounterpartiesarenotpeggedtothesameindex.ExchangerateRiskIntheexampleofacurrencyswapgivenearlier,theswapbankwouldbeworseoffifthepoundappreciated.McGraw-Hill/IrwinCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.10-27RisksofInterestRate

andCurrencySwaps(continued)CreditRiskThisisthemajorriskfacedbyaswapdealer—theriskthatacounterpartywilldefaultonitsendoftheswap.MismatchRiskIt’shardtofindacounterpartythatwantstoborrowtherightamountofmoneyfortherightamountoftime.SovereignRiskTheriskthatacountrywillimposeexchangeraterestrictionsthatwillinterferewithperformanceontheswap.McGraw-Hill/IrwinCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.10-28PricingaSwapAswapisaderivativesecuritysoitcanbepricedintermsoftheunderlyingassets:Howto:Plainvanillafixedforfloatingswapgetsvaluedjustlikeabond.Currencyswapgetsvaluedjustlikeanestofcurrencyfutures.