Explain about interest rate management, Financial Management

Assignment Help:

Interest rate caps as well as collars are available on the over the counter (OTC) market or may be devised using market based interest rate options. They may be utilize to hedge current or expected interest receipts or payments. An interest cap places an upper edge on the interest rate to be paid and is useful to a potential borrower of funds at a future date. The borrower by purchasing a cap will restrict the interest paid to the agreed cap strike price (less any premium paid). OTC caps are obtainable for periods of up to 10 years and can thus protect against long-term interest rate movements. As with all alternatives if interest rates were to move in a favourable direction the buyer of the cap could let the option lapse and take advantage of the more favourable rates in the spot market.

The major disadvantage of options is the premium cost. A collar option decreases the premium cost by limiting the possible benefits of favourable movements. It engages the simultaneous purchase and sale of options or in the case of OTC collars the equivalent net premium to this. The premium paid for the buying of the alternative would be partly or wholly offset by the premium received from the sale of options. Where it is completely offset a zero cost collar exists.


Related Discussions:- Explain about interest rate management

Defien contractual savings institutions, Contractual savings institutions ...

Contractual savings institutions Contractual savings institutions obtain funds at periodic intervals on a contractual basis. The industry is classified into two main groups ins

Dual-indexed floaters, In dual indexed floaters the coupon rate is a ...

In dual indexed floaters the coupon rate is a fixed rate plus the difference between two reference rates. Purchasers of these securities typically make an assumpt

Compute the rate of return on investment, Suppose you are a euro-based inve...

Suppose you are a euro-based investor who simply sold Microsoft shares which you had bought six months ago. You had invested 10,000 euros to buy Microsoft shares for $120 each shar

Explain the three financial factors that influence the value, List and expl...

List and explain the three financial factors that influence the value of a business. The three factors that influence the value of a firm's stock price are timing , cash flow

When underwriting a new security issue for a corporation, What does an inve...

What does an investment banker do when underwriting a new security issue for a corporation?  When underwriting a new security concern an investment banker buys it and then rese

Determine the economic viability, The purpose of this financial analysis is...

The purpose of this financial analysis is to determine the economic viability during the last five years of the Lance Company and to advise our client on whether the acquisition of

Show the supposition of mm hypothesis, Q. Show the Supposition of MM Hypoth...

Q. Show the Supposition of MM Hypothesis? Supposition of MM Hypothesis:- (i) There are ideal capital markets. (ii) Investors act rationally. (iii) Information regardin

Equity stock, the stock of akpan ltd performs well during recessionary peri...

the stock of akpan ltd performs well during recessionary periods, and the stock of okon ltd does well during growth periods. both stocks are currently selling for Rs 100 per share

Define the advantages of collecting early, What are the advantages of “coll...

What are the advantages of “collecting early” and how do companies attempt to do this? Money has time value.  The sooner cash is collected, the better.  Companies employ regional

Assignment, I should write assignment on financial management ,but have no ...

I should write assignment on financial management ,but have no idea how to start and how to develop. Please help me

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