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Topic: Interest rate derivative

Related Topics

Interest rate

Interest rate cap

Interest Rate Swap

Swap (finance)

Swaption

Discount factor

Certificate of deposit

Implied volatility

Vanilla option

Swap

Yield curve

Financial mathematics

AER

Futures contract

Annual percentage rate

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	"Derivatives for Governmental Users: Basics, Uses and Risks," Public Finance, May 24, 2004; Volume 4, Issue 1 ...
		A “derivative” or “derivative product” is a financial instrument for the purchase or sale of, or whose value depends upon or is derived from, one or more assets, indices or other agreed upon quantitative measures.
		GFOA further advises that derivatives should only be employed when the user has (i) sufficient understanding of the product it is entering into, (ii) the staffing and expertise to evaluate and manage the product, and (iii) a comprehensive derivative policy.
		Prior to entering into a derivative, the “price” of that derivative will generally mean (i) the initial up-front cost of a derivative or (ii) the fixed rate, or spread to a floating rate, paid by a party over time under a derivative for which there is no initial up-front payment.
	www.hklaw.com /Publications/Newsletters.asp?IssueID=460&Article=2550 (3019 words)

	NSE postpones interest rate futures trade
		Last week, the central bank allowed banks, primary dealers and term lenders to transact in interest rate derivatives on the country's stock exchanges and is expected to widen the derivatives market in the country.
		"Interest rate future contracts shall be based on the list of underlying (securities) as may be specified by the exchange and approved by the Securities and Exchange Board of India from time to time," a statement posted on the NSE's Web site said.
		Traders said the interest rate futures contracts will be "marked to market" on a daily basis with the gain or loss exchanged on a cash basis.
	www.rediff.com /money/2003/jun/12nse.htm?zcc=rl (410 words)

	Client Services (Site not responding. Last check: 2007-11-03)
		Interest rate derivative products and services are only available to South Australian public sector agencies, within the confines of the Government Financing Authority Act 1982, and applicable approvals of the Treasurer of South Australia.
		Interest Rate Swaps - interest rate swaps allow agencies to change the nature of their interest rate obligations by swapping them into fixed rates or floating rates with a different frequency.
		Interest rate futures are traded on the Sydney Futures Exchange and trade in fixed face value amounts and fixed dates.
	www.safa.sa.gov.au /services/ir_derivatives.html (297 words)

	:: Quantnotes.com :: Fundamentals ::
		Interest rate is not an asset, it is more like a market parameter, and can not be traded.
		Again, these describe the risk neutral dynamics of interest rate, that is, the drift term is assumed to incorporate the market price of risk, so that the only way to extract an expression for the drift is via calibration.
		Since the volatility is a function of the interest rate, the interest rate can never fall below the level zero barrier; as this happens, the contribution from the random term above diminshes, while the drift term (which pulls the interest rate up towards the long term level) prevails.
	www.quantnotes.com /fundamentals/bonds/interestrate2.htm (1586 words)

	New Interest Rate Hedging Products (Site not responding. Last check: 2007-11-03)
		The 'plain vanilla' OTC interest rate derivatives, such as interest rate swaps, forward rate agreements, caps and floors are useful for hedging when corporations borrow or invest funds which are re-priced with the 91-day BA rate.
		The floating rate used (ie the rand overnight deposit rate), is averaged monthly and compounded at month-end (like the interest rate calculation of a call loan or deposit).
		A basis swap is a transaction where both legs of the swap are reset against floating reference interest rates, as opposed to a 'plain vanilla' interest rate swap transaction where only one leg is reset against a floating reference interest rate, whilst the other leg is fixed up-front for the duration of the transaction.
	www.actsa.org.za /articles/pspansep99.htm (1453 words)

	Interest Rate Risk Management - Event Overview (Site not responding. Last check: 2007-11-03)
		In today’s fast changing interest rate environment, the identification, management and understanding of interest rate risk is crucial to any financial institution and manager.
		Dramatic volatility in interest rate markets coupled with the rise of world bond markets has led banks and corporations to seek new ways of analysing interest rates.
		Development of trading strategies to eliminate interest rate risk and apply a strategic view on the shape of the yield curve will provide the climax to the programme.
	www.iirme.com /raterisk/index.cfm/Link=1/goSection=14 (278 words)

	Interest - Wikipedia, the free encyclopedia
		Approximately 3/4 of all interest due on a one year loan is collected by the sixth month, and pay-off of the principal then will cause the effective interest rate to be much higher than than the APY used to calculate the payments.
		Interest rates are the main determinant of investment on a macroeconomic scale.
		Interest rates are generally determined by the market, but government intervention - usually by a central bank- may strongly influence short-term interest rates, and is used as the main tool of monetary policy.
	en.wikipedia.org /wiki/Interest_rate (1792 words)

	Arbitrage-free Binomial Interest Rate Model
		The model assumes that the one-period interest rate volatility is constant over time and, as a result, the model cannot accept a term structure of volatilities.
		This establishes the relationship of the simulated interest rates to the term structure of interest rates and volatilities.
		Since the strengths of the arbitrage-free interest rate model is to enable us to relative value other securities to the term structure of interest rates, we need to take these risks into account, beyond the fundamental time value of money concept.
	www.thomasho.com /analy_sol/documents/interest_rate_owen.htm (3942 words)

	FASB: Net Settlement Provisions
		That fixed rate is the derived rate that would result in the swap having a zero fair value at inception because the present value of fixed cash flows, based on that rate, equate to the present value of the floating cash flows.
		The prepaid interest rate swap contract does not meet the definition of a derivative because it does not satisfy the characteristic of a derivative described in paragraphs 6(b) and 8 related to the initial net investment in the contract.
		Therefore, the embedded interest rate swap is not considered clearly and closely related to the host contract under paragraph 13(a) of Statement 133 with respect to the accounting by both parties to the contract.
	www.fasb.org /derivatives/issuea23.shtml (1841 words)

	CYTEC >> News (Site not responding. Last check: 2007-11-03)
		These derivatives were entered into to partially hedge the impact of increases in interest rates related to the Surface Specialties acquisition and required mark to market accounting resulting in changes to the fair value being recorded as a gain or loss in the period incurred.
		The interest rate derivatives were settled at the end of the quarter as part of our refinancing of the debt outstanding under our 364 day and revolving credit facilities.
		Interest expense is significantly higher than the prior year quarter primarily due to the higher levels of debt outstanding associated with the Surface Specialties acquisition.
	www.cytec.com /News/11032005.shtm (2696 words)

	Basic Interest Rate Anticipation Strategies (Site not responding. Last check: 2007-11-03)
		Basic interest rate anticipation strategy involves moving between long-term government bonds and very short-term treasury bills, based on a forecast of interest rates over a certain time horizon.
		A more sophisticated interest rate anticipation strategy might involve the use of "zero coupon" or "strip" bonds which are far more sensitive to interest rate changes than normal bonds.
		Interest rate derivative securities, such as options and futures, can be used to implement an interest rate anticipation strategy at a lower transactions cost.
	www.finpipe.com /intant.htm (244 words)

	Standard Bank
		Derivatives are contracts between two or more parties that allow the parties to agree the price of a transaction now that will take place in the future.
		The label ‘derivative’ simply means that the value of the instrument is based or derives from the value of whatever (underlying) is to be bought or sold in the future.
		Derivatives are used for both hedging, that is removing or reducing the price risk associated with an expected transaction at some future date, or for trading (speculation) and arbitrage purposes.
	corporateandinvestment.standardbank.co.za /trading/irdt/overview.html (231 words)

	Evaluating and interpreting the effectiveness of end-user interest rate derivative disclosures. \| Management of ...
		Derivatives are "off-balance sheet" financial instruments in that although these instruments are not recorded on the balance sheet, they do generate gains and losses that affect net income.
		While a vast number of foreign exchange, interest rate, and commodity instruments meet the definition of a "derivative," the factors underlying their use and the financial reporting issues surrounding them vary greatly.
		As such, after reviewing the basic types of interest rate derivatives and the disclosure requirements for these instruments, this article outlines a general framework for evaluating financial statement disclosures.
	www.allbusiness.com /management-companies-enterprises/733926-1.html (717 words)

	Interest Rate Derivatives \| Risk Management \| Bank of America
		Derivatives are employed to change the nature of the underlying exposure, allowing a company to create a profile that would otherwise not be available to them.
		Derivative products can be employed by large and mid–sized companies, financial institutions, governments, asset managers, hedge funds and individuals to manage exposure and take advantage of interest rate movements
		Municipal derivative structures to enable municipalities and not–for–profit organizations to access the lowest cost of funds, while managing the interest rate risk safely and cost effectively
	corp.bankofamerica.com /public/products/irderivatives.jsp (329 words)

	Interest rate derivative - Wikipedia, the free encyclopedia
		An interest rate derivative is a derivative where the underlying asset is the right to pay or receive a (usually notional) amount of money at a given interest rate.
		When most companies think of hedging against rising interest rates, their real concern is mitigating the impact of rising rates on the actual dollar interest payments on outstanding loans and debt issues.
		At the maturity of the cap, the total hedged dollar interest amount is compared to the actual amount of interest paid out over the hedge period.
	en.wikipedia.org /wiki/Interest_rate_derivative (477 words)

	FASB: Embedded Derivatives: Application of Paragraph 13(b) to Securitized Interests in Prepayable Financial Assets
		An embedded derivative in which the underlying is an interest rate or interest rate index and a host contract that is considered a debt instrument are considered to be clearly and closely related unless, as discussed in paragraph 13, the embedded derivative contains a provision that.
		The securitization trust also holds an interest rate swap that is designed to perfectly swap the floating interest rate assets to a fixed interest rate to match the payments on the fixed-rate guaranteed single-class mortgage pass-through security.
		Therefore, the holder may identify both an embedded derivative related to the prepayment risk and an embedded derivative related to the inverse interest rate risk, which would be combined and recorded as one instrument.
	www.fasb.org /derivatives/issueb40.shtml (3213 words)

	FTS Forum
		It generates interest rate trees that will let you value any interest rate derivative or sequence of cash flows, that can be represented on the tree.
		That is, the module provides the interest rate tree and the user provides the valuation problem in their spreadsheet.
		From the risk neutral interest rate tree one can verify that the 2-year zero coupon bond is either worth 87.4753 or 91.0817 at end of year 1.
	www.ftsnet.com /public/ftsmodhtm/ftsBDT/page1.htm (1299 words)

	Interest Rate Risk - Comment
		Interest rate derivative dealers have to respond to the changing needs of end-users and the arrival of new electronic platforms, which are driving costs downwards.
		Interest rates are generally expected to rise in the second half of the year as the Fed and the ECB lift their policy rates, by respective margins of 50bp and 25bp, because of concerns about inflation.
		In euro interest rate products, liquidity is good and we expect the recent client interest in trading euro government bonds versus swaps to continue.
	financewise.com /public/edit/riskm/interestrate/interestrate-rtp.htm (2833 words)

	Calyon Selects Smart Trade's Liquidity Management System (LMS) for New Interest Rate Derivative Distribution and ... (Site not responding. Last check: 2007-11-03)
		Calyon interest-rate derivative traders are market makers for interest rate swaps and options.
		Their IRD trading is hosted within the Calyon's fixed income markets division with traders and sales staff based in Europe, Asia and the Americas.
		"Automating the liquidity management on IRDs, which trade at extremely high speeds, is a highly complex and necessary change to achieve today to optimize the way transactions are carried out," said Benjamin Mellul, global co-head of interest rate derivatives trading at Calyon.
	www.encyclopedia.com /doc/1Y1-105125310.html (437 words)

	FRB: Supervisory Letter SR 02-10 on Derivative Contracts Hedging Trust Preferred Stock -- March 28, 2002
		Federal Reserve staff has become aware that in recent weeks bank holding companies seeking to hedge the interest rate risk on their issues of trust preferred stock have been offered derivative contracts with terms that have the effect of contravening the strict conditions for the inclusion of the trust preferred stock in tier 1 capital.
		When a banking organization hedges trust preferred stock through an interest rate swap with a deferral feature, the deferral terms on the swap must be symmetrical for both the organization and its counterparty and must not have the effect of draining the organization's resources in a time of stress.
		The conditions set forth in the Board’s October 21, 1996 release authorizing the inclusion of trust preferred stock in tier 1 capital include a condition that distributions to investors in trust preferred stock be deferrable for a minimum five-year deferral period.
	www.federalreserve.gov /boarddocs/srletters/2002/sr0210.htm (568 words)

	Derivatives Strategy - March'2000: Pricing Weather Derivatives (Site not responding. Last check: 2007-11-03)
		Intuitively, r, the instantaneous interest rate, changes by an amount equal to dr. In this model, it is assumed that interest rates will converge to some long-term mean b.
		As with interest rates, it is unlikely that the weather next year will be 10 times higher than the weather this year.
		Interest rate derivative models are calibrated to the market prices of liquid instruments, whereas weather derivative models are calibrated to past data.
	www.derivativesstrategy.com /magazine/archive/2000/0300col1.asp (6148 words)

	Interest Rate Risk - Comment
		Interest rate derivative dealers have to respond to the changing needs of end-users and the arrival of new electronic platforms, which are driving costs downwards.
		Interest rates are generally expected to rise in the second half of the year as the Fed and the ECB lift their policy rates, by respective margins of 50bp and 25bp, because of concerns about inflation.
		In euro interest rate products, liquidity is good and we expect the recent client interest in trading euro government bonds versus swaps to continue.
	www.financewise.com /public/edit/riskm/interestrate/interestrate-rtp.htm (2833 words)

	Hedge Fund Consistency Index, Hedge Funds Research
		We derive a unified term structure of interest rates model which gives closed form solutions for caps and floors written on interest rates as well as puts and calls written on zero-coupon bonds.
		The crucial assumption is that the simple interest rate over a fixed finite period that matches the contract, which we want to price, is log-normally distributed.
		Using data on OTC interest rate options from a recent survey of global derivatives markets, this paper addresses the question whether that potential for positive feedback is likely to be realised.
	www.hedgefund-index.com /s_derivatives.asp (2342 words)

	Real Estate Financing Options Include Interest Rate Derivatives
		The most common uses of interest rate derivatives by real estate investors have been to hedge interest rate risk in connection with floating rate borrowings and to lock in a rate on a loan that is being entered into in the future.
		The benefit of the interest rate swap relative to the interest rate cap is that a typical swap does not involve an upfront payment, as does a cap.
		Under circumstances where a mortgage interest is being given in connection with the financing of real estate, as is most often the case, it is possible to structure the transaction so that this property also acts as security for performance under a related derivative transaction.
	library.findlaw.com /2002/May/27/132496.html (1066 words)

	Global Markets \| Interest Rate Derivatives \| Main
		We have provided interest rate derivative solutions to a broad spectrum of corporate and institutional clients since 1992.
		Our derivatives capabilities continue to be voted highly by a variety of external polls in regional magazines.
		Corporations, banks, insurance companies, fund managers, governments, individuals and the financial services industry use interest rate derivative tools to solve their financial risk management problems.
	www.standardchartered.com /global/gmkts/gmkts_ird.html (727 words)

	American Capital Declares $0.78 Q3 2005 Dividend, Reports $0.78 Net Operating Income Per Basic Share in Q2 2005
		At June 30, 2005, the weighted average loan grade of American Capital's loan portfolio was 3.1 on a scale of 1 to 4, with 4 being the highest quality, compared to 3.1 as of December 31, 2004.
		We experienced $24 million of net appreciation and gains from our portfolio, excluding the interest rate derivatives for the quarter, and $146 million over the past seven quarters since the economy began its recovery.
		American Capital had a positive 5.3% annual rate of gain on average equity over the past seven quarters versus an annual rate of charge offs net of securities gains of negative 3.4% of average annual equity over the past six quarters for FDIC insured commercial banks.
	www.prnewswire.com /cgi-bin/stories.pl?ACCT=104&STORY=/www/story/08-02-2005/0004080994&EDATE= (2413 words)

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