Int Rate Hedging .
Avoid >
- Fatty
Risk -
I
- Manage >
- Hedge
Take >
-
Jigha
isk
Int Rate Mange
Ei
Batt
Loan
Floating
⑧
-
-
->it .
98
00e
Upside (100-10]
1100-
Betting
Ft (100 I
-
R 98
Ct - 92
F -
Loan/Borrowing
= 9% X
Upside
C
8
a 91 Onsite
FD
8
"
Downside 7%
92y
Upside
93
Betting
Ft
Borrowing - Downside - F-
Investor >
- Upsite -> F +
-
selling
F-
sell Futures
Money
-
Borrowing
Futures
F+ -
Buy
Money
-
Investor
ouse n
1
.
8 . > H
- .
travel
Bond
eas
. St
9 .
Bond [15 years)
Default
-
- Maturity
it
15%
-
O
69 .
-
do
Bond
To TIT2 Tz
[10sO) 80 88 80
1008
Yield/ <81
Return = .
Int = 8 1
%
HSBC [ifi
Bank #an Bank
Inter Bank
ser Int Rate
Every Day
Dipansil O
. 92 %
7
LIBOR
%
% Loan
8
-
9%
%
188
Ill
I
. 7 % Bond 18
-
8
Inve
14
-
IQ
Tim
· 8 7% Bond 108
000
- 7
Yield =
Demand Demand ↓
Price ↑ Plise ↓
Yield Yield
↓ ↓
Short term Long term
Bonds Bond
#
Inflation ↓
gorg
i
↑
Long
Growth Recession
↓ ↓
Demand 1 Demand
Price Price ↓
102
↓
Inflation
Y 98
182
Recession
-
1089
Inflation
100-98
↓ Int
#
9- -
81 .
A
upside
Down
Fro
-
FRA (Bank)
Futures
Y
>
-
92-91
- Options
>
- FRA
⑧ ~
③
S
I-
To Ts T8
~
W
5/8
#H
To Ts
EFRM Loss
S 3
-
9-9 75% .
Loss
0 15
Loan .
in s
Gain
615
#
94 Loan
9% =
FRA
-
9 15)
= Market
#te
. .
#H
9 .
1 . 9 TS %
.
Loan
- Gain
al 90 25 .
S
H Gair :
-
-
-
. 15 %
8
Load
F- Ft Loss
H 0 .
15
# 2S
-
Ft Investor
- ↓
Fu
Depositol
- F-
Borrowel
↓
Ft
-
* FRA
2) Future
3) Option
exercise 93
+
Ty
F
8.
8
&apset
9%
·
91 -
Max
Cap
Borrower
J
>
- FRA
& Futures
-
>
- Options 2
I Pet
I
%
919
-
928
-
-
Borrowes
-
9% 9
r M Downsite
Put
Cap
817 7%
92 upside
93
Call
Agent
88
100 A . B
10 % & 9 :
-- Fixed
oh ↓ ①
94
SB I BOB
RE
H S
Exercise
. 25
T
=
9
FRA . 15
8
= Lapse
IRA Options
9 .
- ERA +
Flexibility
coptions]
Bank & Exchange
3 Customiss >
- No Custo
T FRA
e FRA + Flexibility =
ERG
>
- Futures
T Options [cap & floors]
- swap