Interest rate management: swaps, options and swaptions

Article Abstract:

Three hedging transactions available to corporate treasurers for the purpose of interest rate management are interest rate swaps, interest rate options, and options on interest rate swaps or swaptions. Interest rate swaps are affected through forward rate agreements or futures contracts that allow borrowers to lock in an interest rate for succeeding periods. A drawback to these swaps is that they do not allow the borrower to benefit from favorable interest rate movements, a situation remedied by interest rate options. Interest rate options, either caps or floors, are a right but not an obligation to fix an interest rate on a loan or deposit at a specific date for an agreed upon amount. Swaptions, options on interest rate swaps, afford companies protection from adverse interest rate fluctuation but gives the borrower the flexibility to implement a swap at a fixed rate during a specific period.

Management, Finance, Options (Finance), Interest rates, Corporations, Corporate finance, Interest rate swaps, Swaps (Finance)

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Investors: for or against translation hedging?

Article Abstract:

A survey was conducted to examine the views of treasury managers regarding their role in the translation management of foreign exchange transactions. Senior executives in institutional equity management in the UK were interviewed by Touche Ross and Co. A preference for translation exposures that were not hedged was expressed by 63% of all respondents, with 15% viewing translation hedging as a counter-productive action. However, 14% of all respondents expressed a tendency to hedge their own portfolios using currency liabilities. The currency factor was not considered by 68% of respondents to generate viable investment return. The hedging of overseas assets with borrowings of local curency was regarded as a wise and cautious move by 77% of the respondents.

Accounting, auditing, & bookkeeping, Economic aspects, Reports, Surveys, Hedging (Finance), Foreign exchange, Accounting firms, Accounting services, Investors, Touche Ross and Co.

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