Constructing synthetic swaps, Financial Management

Assignment Help:

(a) Prior to FAS 133 if companies qualified for hedge accounting their hedges were assumed to be perfect-no valuation or testing required. Currently under FAS 133 risk managers seeking hedge accounting treatment have to thoroughly document every hedge from the outset and explain why they are undertaking the transaction. They have to spot their derivatives to market every quarter no small feat for many instruments afterwards prove they are effectively hedging the underlying exposure.

It's this logic of having to pay for the sins of others that accounts for the deep resentment toward FAS 133. Several finance executives suspect the new rules have less to do with improving financial statements than with discouraging treasury departments from speculating with derivatives.

(b) Constructing synthetic swaps will engage replication of a swap by portfolios of bonds. These do not come under the considerations of FAS 133.


Related Discussions:- Constructing synthetic swaps

Case study - credit-linked notes, Case Study - Credit-Linked Notes Cred...

Case Study - Credit-Linked Notes Credit linked notes are assets issued by financial institutions which have exposure to the credit risk of a reference Issuer . These notes pay

Illustrate the term structure of interest rates, Illustrate the term struct...

Illustrate the term structure of interest rates? The term structure of interest rates: The term to maturity affects the interest rate. Bonds along with identical risk may

Divisional performance evaluation, In modern strategic management accountin...

In modern strategic management accounting it is important to use appropriate performance measurements and control concepts, underpinned by theories and models applied in a variety

Maturity profile, Maturity Profile Even though there is no ideal theory...

Maturity Profile Even though there is no ideal theory/concept of the maturity of the instruments, some important issues that should be considered while balancing the long-term

What do you mean by account, Q. What do you mean by Account? Account - ...

Q. What do you mean by Account? Account - Formal record which represents, in words, money or other unit of measurement, certainresources, transactions, claims to such resources

Example of relationship between bond price and time, Illustration    ...

Illustration      Discount bond (5 yr. bond with 10% coupon) (expected rate yield at 12%) Premium bo

Define supply curve for a good is totally inelastic, Suppose the supply cur...

Suppose the supply curve for a good is totally inelastic.  If the government imposed a price ceiling below the market-clearing level, would a deadweight loss result?  Explain.

Variance analysis, a)   Write short note - 1) P V Ratio 2) Margi...

a)   Write short note - 1) P V Ratio 2) Margin of Safety   3) Material Variances 4) Absorption Costing b)  Describe the meaning of the term 'variance an

Expected value application in finance - safety stock level, Safety Stock Le...

Safety Stock Level The simple Economic Order Quantity (EOQ) model used in inventory management assumes that the reorder point  will be at a level equal to (Lead time in number

Explain pro forma financial statements management goals, Explain how manage...

Explain how management goals are incorporated into pro forma financial statements. Management put a target goal and forecasters makes pro forma financial statements under the

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd