Financial Engineering 101 - How Derivative Contracts Impact Cash Flow
Both of the starting examples represent hedging applications, where the company identified an exposure and sought to mitigate its associated
Cross hedging – X Marks the Spot
Cross-hedges may be used in financial markets. As is well known, interest rate swaps are the most common tool corporate treasurers use to co
Attracting Deposits
Returning to the above example, the debt host relates to interest rates while the embedded derivative relates to equities. Thus, these two c
Say When
Any determination about the portion of an exposure to hedge is inevitably the outcome of a business judgment. Underlying this decision is co
Assessing Interest Rate Caps
Caps do work as advertised, with some qualifications. In a perfect application, the cap buyer would seek a structure corresponding with the
Free Money
The issue gets a little more complicated when interest swaps are introduced into the equation. Interest rate swaps can be used to convert va