I remember starting on the swaps desk at First Chicago (now J.P. Morgan) in 1991 and a letter was sent to me, Simon Rogers, on the S.W.A.P.S desk. Someone thought it stood for something, like Special Weapons And Products (!). It only means you are "swapping" cash flows. Always draw them out to make sure you are using the correct side of the bid/offer spread.
Hello, thank you for the video. Showing the cashflow is extremely helpful for me. Can i kindly ask you to describe the cashflow for a principal only swap and a coupon only swap?
Hi, thank you for this presentation. I am student in finance. Can anyone help me with basis ? I would like to know what is the main difference between CIM Basis Swap spread and Cross Currency basis Swap Spread ? Thank you in advance.
Remember ANZ is not a bank and as such can't borrow from them. The rationale for doing the CCIRS is because the company may have a poor credit rating and thus not get a favourable rate from a bank, then they instead get a foreign loan, then synthetically lock the rates using swaps
When you pay the AUD interest of 5.2m to the counterparty, won't it be subjected to like exchange rate risk? Or is it assumed that the money you took this loan for is invested in a profitable business, thus you are able to meet the AUD interest payment instead of converting your USD to AUD to pay for the interest.
Hi Sebastian, as Telstra is an Australian company, their business generates cash flows in AUD (mainly), which will go towards the AUD interest payments, hence no FX risk. BUT, if the company involved in the CCIRS is let's say, a Singapore-based company, I would assume it will use the AUD 130m proceeds to invest in a business that generates cashflows in AUD, else there will be FX risk. Hope it helps
@@FabianMoa didnt expect a swift reply seeing that this video was 1 year ago. Thanks a lot! I wasn't able to solve my queries by googling thus i really require someone to give me insight. Thank you for the enlightenment!
So if I'm correct in this case it would only be viable to undertake this loan if the normal AUD borrowing rate is higher than the borrowing rate when using a swap loan? Could you please explain what would happen if the loan is already done in USD but the borrower wants to hedge it's risk after having experienced currency volatility? Thank you for the video.
So if I'm correct in this case it would only be viable to undertake this loan if the normal AUD borrowing rate is higher than the borrowing rate when using a swap loan? [FM: Yes. Also important for consideration is the USD interest rate in the CCIRS. For this case, I assumed it is 2.5%, i.e. the same as the interest rate on the USD loan. If there is a difference in the USD rates, then you need to factor that basis in as well.] Could you please explain what would happen if the loan is already done in USD but the borrower wants to hedge it's risk after having experienced currency volatility? [FM: You can go into a CCIRS for USD/AUD based on the remaining maturity of the loan to hedge the FX risk.]
Hi Zach, if both sides are based on fixed rates, then you can price each leg individually by taking (PV of fixed swap payments = 1; where the notional of the swap is 1). For some cases if you already have the fixed rates or spreads (for floaters) in mind, then they will calculate the net PV of the cash flows (net of the two currencies), and the party with the positive NPV will make a one off payment to the other party (this is an off market CCRIS).
Dear Fabian an invitation for you and all the people that make videos explain derivatives, PLEASE USE T ACCOUNTS to complete the lectures!!!! T accounts are real world, boxes and arrows not .
I remember starting on the swaps desk at First Chicago (now J.P. Morgan) in 1991 and a letter was sent to me, Simon Rogers, on the S.W.A.P.S desk. Someone thought it stood for something, like Special Weapons And Products (!). It only means you are "swapping" cash flows. Always draw them out to make sure you are using the correct side of the bid/offer spread.
One of the best explanation around.
Thanks a lot, Fabian.😀
May i know if you have more videos related to FRM
Hello, thank you for the video. Showing the cashflow is extremely helpful for me. Can i kindly ask you to describe the cashflow for a principal only swap and a coupon only swap?
Hi, thank you for this presentation.
I am student in finance. Can anyone help me with basis ?
I would like to know what is the main difference between CIM Basis Swap spread and Cross Currency basis Swap Spread ?
Thank you in advance.
Is CCIRS same as CCBS( cross currency basis swap)?
thank you so much for these, helps a lot for my FRM study
You're welcome
What's the point? In the end, Telstra is paying 4% pa every year which is the AU interest rate. They could have just taken a $130m loan from ANZ.
Remember ANZ is not a bank and as such can't borrow from them. The rationale for doing the CCIRS is because the company may have a poor credit rating and thus not get a favourable rate from a bank, then they instead get a foreign loan, then synthetically lock the rates using swaps
When you pay the AUD interest of 5.2m to the counterparty, won't it be subjected to like exchange rate risk? Or is it assumed that the money you took this loan for is invested in a profitable business, thus you are able to meet the AUD interest payment instead of converting your USD to AUD to pay for the interest.
Hi Sebastian, as Telstra is an Australian company, their business generates cash flows in AUD (mainly), which will go towards the AUD interest payments, hence no FX risk. BUT, if the company involved in the CCIRS is let's say, a Singapore-based company, I would assume it will use the AUD 130m proceeds to invest in a business that generates cashflows in AUD, else there will be FX risk. Hope it helps
@@FabianMoa didnt expect a swift reply seeing that this video was 1 year ago. Thanks a lot! I wasn't able to solve my queries by googling thus i really require someone to give me insight. Thank you for the enlightenment!
You're welcome 😄
So if I'm correct in this case it would only be viable to undertake this loan if the normal AUD borrowing rate is higher than the borrowing rate when using a swap loan? Could you please explain what would happen if the loan is already done in USD but the borrower wants to hedge it's risk after having experienced currency volatility? Thank you for the video.
So if I'm correct in this case it would only be viable to undertake this loan if the normal AUD borrowing rate is higher than the borrowing rate when using a swap loan?
[FM: Yes. Also important for consideration is the USD interest rate in the CCIRS. For this case, I assumed it is 2.5%, i.e. the same as the interest rate on the USD loan. If there is a difference in the USD rates, then you need to factor that basis in as well.]
Could you please explain what would happen if the loan is already done in USD but the borrower wants to hedge it's risk after having experienced currency volatility?
[FM: You can go into a CCIRS for USD/AUD based on the remaining maturity of the loan to hedge the FX risk.]
Do you happen to know any pricing tools for CCIRS?
Hi Zach, if both sides are based on fixed rates, then you can price each leg individually by taking (PV of fixed swap payments = 1; where the notional of the swap is 1).
For some cases if you already have the fixed rates or spreads (for floaters) in mind, then they will calculate the net PV of the cash flows (net of the two currencies), and the party with the positive NPV will make a one off payment to the other party (this is an off market CCRIS).
@@FabianMoa thank you so much
Dear Fabian an invitation for you and all the people that make videos explain derivatives, PLEASE USE T ACCOUNTS to complete the lectures!!!! T accounts are real world, boxes and arrows not .
Bertram Pike