Interest Rate Swaps and Economic Exposure potx

... use of interest rate swaps when firmsface economic exposure. Exchange rate shocks have a microeconomic effect on the firm'scash flows and a macroeconomic effect on the interest rate in ... http://www.frbatlanta.org/publica/work_papers/. Interest Rate Swaps and Economic Exposure Gautam Goswami and Milind ShrikhandeFederal Reserve Bank of AtlantaWorking Paper 97-6October 1997Abstract: The interest rate swap market ... use of interest rate swaps increases withincrease in exchange rate variability, level of economic exposure, and change in interest rates. The use of fixed-for floating (floating-for-fixed) interest...

...

... afloating -rate market and promises to pay the Aaa corporation a fixed- rate interest, while the Aaa corporation raises funds in a fixed -rate market and promises to pay the Baa corporation a floating -rate interest. 19OTHER ... Lower- A wants floating and B wants fixed17Example of Lowering Fixed Rate Costs:Baa corporate borrows at floating rate = T-bill + 0.5%Aaa corporate borrows at floating rate = T-bill + .25%Quality ... fix-flo2 INTEREST RATE SWAPS Definition: Transfer of interest rate streams without transferring underlying debt.3FIXED FOR FLOATING SWAPSome DefinitionsNotational Principal: The dollar the interest rates...

... of interest rate risk. For example, interest rate swaps are typically created so that their market price is equal tozero initially, but they still mitigate the bank’s exposure to interest rate ... Interest Rates(By Bank Characteristics and the Usage of Interest Rate Derivatives) Interest Rate SurpriseVariable × Interest Rate Surprise Level Slope Swaps 0.212 0.956(2.083) (1.393)OTC options ... Moreover, interest rates on thesespecial bank liabilities are often substantially below market rates; demand deposits, for example,yield no interest at all, obviously a very low and sticky rate. 19Although...

...

... expectedgrowth rate of output (or aggregate demand) and the real interest rate, ratherthan a connection between the level of output and the real interest rate. (Thatis, the standard IS schedule ... lower interest rate with higher inflation. Instead, heargued that the nominal interest rate had to rise one-for-one with sustainedinflation and monetary expansion due to the natural real rate of interest. ... short-term relationship between inflation (output) and interest rate shocks was random in magnitude and sign.Combining the Cases: Limits on Pure Interest Rate RulesThus, depending on what one admits...

... Meetings, Interest Rate Decisions, and Surprise MeasuresThe table contains interest rate decisions of the MPC for the period June 1997–October 2007. “Bloomberg Expectation” refers tothe interest rate ... μpos and μnegare additional constant terms, I(Δi>0) is an indicator function that takesthe value of one on interest rate surprise days between 12:05 and 13:00 if the announced interest rate ... higher than expected, and I(Δi<0) is an indicator function that takes the value of one on interest rate surprise days between 12:05 and 13:00 if the announced interest rate is lower than expected.Coefficient...

... Department of Economics Working Paper: 01/46 Duflo, Esther (2003). Grandmothers and Granddaughters: Old-Age Pensions and Intrahousehold Allocation in South Africa, World Bank Economic Review, ... Ranis, Gustav, Frances Stewart and Alejandro Ramires (2000). Economic Growth and Human Development, World Development Vol. 28, No. 2 Ravallion, Martin (1997). Good and Bad Growth: The Human Development ... Strauss, John and Duncan Thomas (1998). Nutrition, and Economic Development Journal of Economic Literature, Vol. 36, No. 2., pp. 766-817 Streeten, Paul (1979). Basic Needs: Premises and Promises,...

... of selling, advertising, and delivery of goods and services. 1 GlossaryoFAccounting,Finance and Economic TermsAccounting–pages1‐7 and 8Finance–page7Economics–page7ACCOUNTING:http://www.alpineguild.com/glossary_of_important.htmAccount‐‐arecordoffinancialtransactions;usuallyreferstoaspecificcategoryortype,suchastravelexpenseaccountorpurchaseaccount.Accountant‐‐apersonwhotrainedtoprepare and maintainfinancialrecords.Accounting‐‐asystemforkeepingscoreinbusiness,usingdollars.Accountingperiod‐‐theperiodoftimeoverwhichprofitsarecalculated.Normalaccountingperiodsaremonths,quarters, and years(fiscalorcalendar).Accountspayable‐‐amountsowedbythecompanyforthegoodsorservicesithaspurchasedfromoutsidesuppliers.Accountsreceivable‐‐amountsowedtothecompanybyitscustomers.Accrualbasis,system,ormethod‐‐anaccountingsystemthatrecordsrevenues and expensesatthetimethetransactionoccurs,notatthetimecashchangeshands.Ifyoubuyacoat and chargeit,thestorerecordsoraccruesthesalewhenyouwalkoutwiththecoat,notwhenyoupayyourbill.Cashbasisaccountingisusedbyindividuals.Accrualbasisaccountingisusedbymostbusinesses.Accruedexpenses,accruals‐‐anexpensewhichhasbeenincurredbutnotyetpaidfor.Salariesareagoodexample.Employeesearnoraccruesalarieseachhourtheywork.Thesalariescontinuetoaccrueuntilpaydaywhentheaccruedexpenseofthesalariesiseliminated.Aging‐‐aprocesswhereaccountsreceivablearesortedoutbyage(typicallycurrent,30to60daysold,60to120daysold, and soon.)Agingpermitscollectioneffortstofocusonaccountsthatarelongoverdue.20 ... tax rates that fall midway between single rates and married filing joint rates, if they fit the qualifying profile. Hedge - A financial term for a specific type of commodities planning and ... treated as if the realistic rate of interest had been used. The difference between the realistic interest and the interest actually used is referred to as imputed interest. Income - Inflow of REVENUE...

... the multiplication with Ei(t) and the divisionby 130).The variable ki(t) states the ratio of the bank’s interest rate exposure to the interest rate risk exposure of the bond portfolio, ... this standardized interest rate shock. Currently,the standardized interest rate shock consists of two parts: a parallel upward shift of 130basis points (bp) in the entire term structure and a ... intermediaries and interest rate risk: II. FinancialMarkets, Institutions and Instruments 15 (5), 225–272.16Svensson, L. E. O. (1994). Estimating and interpreting forward interest rates: Sweden1992...