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“ International Finance and Payments ”

Academy of Economic Studies Faculty of International Business and Economics. “ International Finance and Payments ”. Lecture XII “ Using of Derivatives in International Financing ”. Lect. Cristian PĂUN Email: cpaun @ase.ro URL: http://www.finint.ase.ro. International Derivatives Market.

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“ International Finance and Payments ”

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  1. Academy of Economic Studies Faculty of International Business and Economics “International Finance and Payments” Lecture XII “Using of Derivatives in International Financing” Lect. Cristian PĂUN Email: cpaun@ase.ro URL: http://www.finint.ase.ro

  2. International Derivatives Market

  3. Interest rate derivatives – International Market

  4. Currency derivatives – International Market

  5. Equity derivatives Real assets (goods) derivatives

  6. Long Short Profit Spot Loss Forward rate Forward contract

  7. Forward contracts and credit risk management • Forward contract characteristics: • it is not a standardized contract • forward price is negotiable • forward contracts are settled only at the maturity • there is not a secondary market • you have no possibility to give the contract to another beneficiary.

  8. Futures contracts Long futures Short futures Profit Futures at the Settlement date Loss Initial Futures

  9. Credit Risk Management using Futures Contracts

  10. CALL Options Long CALL Profit Profit Loss Loss Short CALL PE + Premium

  11. Put Options Long PUT Profit Profit Loss Loss Short PUT PE - Premium

  12. Credit Risk Management using Options Contracts Note: Short positions are not desirable for a proper credit risk management

  13. Swap Contracts Swap Bank A B Fixed interest rate LIBOR Credit Credit Swap contract Bank A Bank B

  14. Interest rate synthetic instruments / cap a. « cap »: Premium A Bank B Cap Credit LIBOR Bank A i1= i1+ premium – dif.i

  15. Synthetic instruments / floor b. « floor »: Premium Bank A Bank B cap Credit LIBOR A i1= i1 - premium + dif.i

  16. Synthetic instruments / collar c. « collar »: TBR Bank A Bank B Credit LIBOR Credit Premium Collar A Bank C

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