Fxd vs Floating

8/7/2019 Fxd vs Floating

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FIXED V/S FLOATING RATE LOANS

LOAN AMT. $ 100FIXED RATE 4.00%FLOATING RATE MARK-UP 1.50%6 MONTH LIBOR (TODAY) 0.75%

REPAYMENT TERMS 24 MONTH'S MORATORIUM10EQUAL HALFYEARLY INSTALMEN

LIBOR ( 6 MTHLY INCREASE IN BP ) 0.38% -2.46

FIXED FLOATINGINST. INT. TOT. INST. LIBOR INT. TOT.AMT. AMT. AMT. AMT. AMT. AMT.

HY-1 0.00 2.00 2.00 0.00 0.75% 1.13 1.13

HY-2 0.00 2.00 2.00 0.00 0.80% 1.15 1.15HY-3 0.00 2.00 2.00 0.00 0.90% 1.20 1.20HY-4 0.00 2.00 2.00 0.00 1.25% 1.38 1.38HY-5 10.00 2.00 12.00 10.00 1.63% 1.57 11.57HY-6 10.00 1.80 11.80 10.00 2.01% 1.58 11.58HY-7 10.00 1.60 11.60 10.00 2.39% 1.56 11.56

HY-8 10.00 1.40 11.40 10.00 2.77% 1.49 11.49HY-9 10.00 1.20 11.20 10.00 3.15% 1.40 11.40HY-10 10.00 1.00 11.00 10.00 3.53% 1.26 11.26HY-11 10.00 0.80 10.80 10.00 3.91% 1.08 11.08HY 12 10 00 0 60 10 60 10 00 4 29% 0 87 10 87


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TS


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( IN % P.A. )

USD

INTEREST

EXCHANGE

TOTAL

FXD FLTHY-1 2.00 1.13 JPY

HY-2 2.00 1.15 INTEREST

HY-3 2.00 1.20 EXCHANGE

HY-4 2.00 1.38 TOTAL

HY-5 2.00 1.57

HY-6 1.80 1.58 DEM

HY-7 1.60 1.56 INTERESTHY-8 1.40 1.49 EXCHANGE

HY-9 1.20 1.40 TOTAL

HY-10 1.00 1.26

HY-11 0.80 1.08 GBP

HY-12 0.60 0.87 INTEREST

HY-13 0.40 0.62 EXCHANGE

HY-14 0.20 0.33 TOTAL

SOURCE : A.


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RUPEE COST OF A FC LOAN

IMPACT OF E.RATE & I.RATE VOLATILITIES

91/2 92/3 93/4 94/5 95/6 96/7 91/7

5.4 3.7 3.5 5.8 5.8 5.7 5.0 1

60.3 0.8 0.4 0.4 8.6 5.1 10.9 2

65.7 4.5 3.9 6.2 14.4 10.8 15.9 3

4

5

6.4 3.9 2.7 2.4 0.8 0.6 2.8

65.6 14.9 13.9 15.2 -8.3 -10.0 12.8

72.0 18.8 16.6 17.6 -7.5 -9.4 15.6

9.4 9.0 6.4 5.2 4.1 3.3 6.262.5 2.6 -3.1 19.4 3.8 -7.7 10.8

71.9 11.6 3.3 24.6 7.9 -4.4 17.0

10.7 8.5 5.6 6.3 6.7 6.2 7.3

56.6 -13.2 -0.5 8.8 3.3 12.7 9.4

67.3 -4.7 5.1 15.1 10.0 18.9 16.7

.RAJWADE & CO.


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YEAR AVG, Y/Y COMP.

RATE % %-------------- -------------- -------------- --------------

93 31.3394 31.33 0.00% 0.00%95 31.33 0.00% 0.00%96 35.50 13.31% 4.44%

97 36.50 2.82% 3.64%98 42.50 16.44% 6.12%


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MNO has a LIBOR based US$ 7 year bullet r

highly capital intensive industry, it is anxio

risk. The current LIBOR is 5.90 % and the dConsidering historical yields also, MNO tre

appropriate time to hedge the interest rate r

Following proposals are received :

1 a straight 7 year swap at 7.25%

2 a 7 year swap cancellable at the op

at the end of 5 years, at 6.75%

3 a collar on the LIBOR 5 - 8 %

Analyse and indicate the least risky propos

RST has a GBP 30 mn loan, carrying a fixed

a bullet repayment at the end of 5 years. RS

the US$:GBP exchange risk. The current sp

RST is considering the following proposals

1 A i t US$ t 6 5 %


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payment loan. Being in a MNO has a FIXED RATE 7

s to eliminate the interest rate highly competitive industr

llar yield curve very flat. risk. The current $/INR exsury believes this to be an 12 % p.a, available only u

sk.

SPOT RATE IS :

FORWARDS ARE

1 YEAR FWD RA

1 YEAR FWD PRtion of the counterparty MNO buys the principal a

available period of 1 year

amount of loan :

l. amount of interest for 3 y

amount purchased :

AFTER 1 YEAR :

SPOT RATE IS :

interest rate of 7.5% and FORWARDS ARE

is desirous of eliminating 1 YEAR FWD RA

t rate is $ 1.50 per GBP. 1 YEAR FWD PR

: INTEREST TO BE PAID IS

INTEREST PAYABLE:

PRINCIPAL PAYABLE


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NET RATE :

BOOKING SPOT RATE

PREMIUM PAID FOR 1ST

PREMIUM PAID FOR 2ND

THIS IS SAME AS :

NEW FWD CONTRACT RA

CANCELLATION GAIN / (

SPOT RATE RISK BEC

THEREFORE, AN IMPERF


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.5 % US$ 3 year bullet repayment loan. Being in a

y, it is anxious to eliminate the $/INR rate

hange rate is INR 43 per $ and the forwards are.p to 1 year. ( The loan amt is $ 1 mio )

43.00 INR PER $

: 12.00% P.A.

E : 48.16

M : 5.16 INR PER $

d the interest amount forward for the

48.16

1,000,000 $

ars 225,000 $

1,225,000 $

40.00 INR PER $

: 2.00% P.A.

E : 40.80

M. : 0.80 INR PER $

: 75,000

150,000

1 000 000


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43.00

EAR 5.16

EAR 0.80

I.E. 48.96

TE 40.80

OSS ) (8.16)

I.E. 48.96

OMES FORWARD PREMIUM RISK

CT HEDGE


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Bills

COUPON

MATURITY CURRENT PRICE/YIELD

TIMEDATE PRICE/YIELD CHANGE

3-Month N.A. 3/11/2005 3.40/3.48 10:13

6-Month N.A. 2/2/2006 3.61/3.73 8:47

Notes/Bonds

COUPON

MATURITY CURRENT PRICE/YIELD

TIMEDATE PRICE/YIELD CHANGE

2-Year 3.88 07/31/2007 -59.7 10:23

3-Year 3.75 05/15/2008 -77.92 10:235-Year 3.88 07/15/2010 -134.15 10:23

10-Year 4.13 05/15/2015 -243.24 10:23

30-Year 5.38 02/15/2031 -526.32 10:23

U.S. TREASURIES

0.02/.014

0.02/.020

99-18/4.10

98-30/4.1698-14/4.23

97-30/4.39

111-28/4.58


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5 YEAR BOND

1 3.88

2 3.88

3 3.88

4 3.88

5 103.88

4.23% 98.4298 0.44

10 YEAR BOND :

1 4.13

2 4.13

3 4.13

4 4.13

5 4.13

6 4.13

7 4.138 4.13

9 4.13

10 104.13


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10 YEAR BOND :1 3.5

2 3.5

3 3.5

4 3.5

5 3.5

6 3.5

7 3.5

8 3.5

9 3.5

10 103.5

2.91% 105.0163 0.02


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HY-1 HY-2 HY-3 HY-4 HY-5 HY-6 HY-7 HY-8 HY-9 HY-10 HY-11 HY-12 HY-13 HY-14

0.00

0.50

1.00

1.50

2.00

2.50

FIXED V/S FLOATING

Column T Column U

PERIOD

INTERE

ST

IN

$

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Fxd vs Floating