Derivatives and Alternatives Investment Written Assignment Coursework

Derivatives and Alternatives Investment Written Coursework - Assignment Example The mechanism of interest rate swap is explained below with the help of a small example. Let consider to party A & be involved in the interest swap for a period of 5 years. The payment made by A will be calculated at 6% fixed interest rate where as for B the rate is calculated at 6 months floating. The principal let us consider as $10 million. Cash flows for the above case are described in the diagram below: Payment at the end of half year Period Fixed Rate Payments Floating rate Payment 8 months Libor Net cash from A to B 1 300000 337500 -37500 2 300000 337500 -37500 3 300000 337500 -37500 4 300000 325000 -25000 5 300000 325000 -25000 6 300000 325000 -25000 7 300000 312500 -12500 8 300000 312500 -12500 9 300000 312500 -12500 10 300000 325000 -25000 -2500000 b. Is hedging this portfolio necessary?   Hedging can be defined as a process which control or reduce the risk associated with any kind of trade. Hedging can be done taking into consideration of the market potion which may arri ve in the future, which is exactly opposite to that of the present physical market condition in terms of price. Hedging the portfolio is a better option for the asset manager in view of long run profit making. At present there are a fixed rate SWAP in case of EURO market, and floating interest rate with bank of Ericaca for tenure of 1 year. However, If the central bank withdraws the support behind the asset price then there will be a chance of a decrease in the asset price. So to hedge to invest for a 1 year term will help the investor to get the profit. We can consider two different scenarios: if the asset price goes down in next one year or if the asset price goes up in next one year. In the first instance, if the asset price goes down the value of the contract will decrease, so the asset management company will incur loss in future transaction, but the purchase that he has to make will gain profit for him. On the other hand if the value of the asset increases over the year then a t the end of the term, the asset manager will gain profit for his future transaction, but on the other hand to purchase the new asset he has to pay more hence there is a possibility of loss. So in both the cases there is a chance of loss which can be overruled by the profit of long term contract or hedge that the asset management company have take as a precaution. c. Is hedging this portfolio necessary without IRS? The portfolio would require hedging even without the IRS because of the German equities which belongs to the Euro region and needs hedging. The USD LIBOR lending is hedgined by the futures contract but the equities require further hedging with the help of long term futures. Reference Corb, H. (2013), Interest rates Swaps and other Derivatives, Columbia University Press. a) Credit default Swap or CDS can be defined as an agreement between seller and the buyer, in case of loan default. It is a financial swap agreement, where the buyer makes a series of payment to the seller and gets the payoff if the loan gets default. The concept was first invented by Blythe Masters of JP Morgan in the year 1994. According to Schutz (2012), it is an essential insurance contract to hedge the credit risk associated with any kind of loans. It is a kind of derivatives, the value of which depends on the possibility of a company defaulting. Schutz in his writing mentioned about the existence of two different kinds of

Social Context Account Essay Example | Topics and Well Written Essays - 1500 words

Social Context Account - Essay Example For one to look back at the past and analyse its effect in life today, the present has to be favourable according to the individual in question. This means that if the past influenced one’s life so badly that the present is damaged, only counselling or other forms of therapy can remedy the situation and enable one to look back at the events of their past.1 Depending on an individual, the social environment one grows in can make or break one’s character. For instance, some people are discouraged by discriminative backgrounds till they psychologically believe they are not worth better treatment. On the other hand, others consider maltreatment as a challenge which if overcome, one emerges not only a stronger, but also a better person. Due to the unpredictable nature of a child’s reaction to the social environment, there are many organizations committed to ensuring that children are protected from harsh social conditions. In addition, many governments have signed tre aties and passed laws to protect young citizens.2 _____________________________ 1 A James, and A Prout (eds), Constructing and Reconstructing childhood: contemporary issues in the sociological Study of Childhood, Falmer Press, London, 1997. 2 R Appignanesi, and O Zarate, Freud for Beginners, Icon Books, Cambridge, 1992. Background information My parents were born and brought up in Bangladesh after which they moved to London, UK. I was born on April 4, 1989 in London where I have lived ever since. The UK and Bangladesh are countries with many contrasting characteristics that are mainly due to their geographical locations, economic, political, and religious practises found in the two countries. Bangladesh is found in southern Asia while UK is situated in northern Europe. Bangladesh is mainly an Islamic country while the most dominant religion in the UK is Christianity. In society, religion plays an important role in how the society operates since it provides a basis for moral and ethi cal standards. In the UK, the church and government are separate entities and that is why the society in London is considered secular and has markedly different characteristics compared to that of Bangladesh where religion determines the kind of lifestyle people live. Comparison between UK and Bangladesh Christianity, mostly Anglican, is the dominant religion in the UK while Bangladesh is mostly Islamic. The cultures of the two countries are composite, having components derived from all over the world. Both countries are members of the UN and have signed the United Nations convention on the rights of the child (UNCRC) which seeks to ensure that minors enjoy basic rights and are protected from unfair treatment. However, the countries differ in the way they enforce these laws since in Bangladesh, children are still recruited into the armed forces among other forms of mistreatment. This means that a child growing up in Bangladesh is likely to be affected by these vices directly or indi rectly. On the other hand, the UK is strict in assuring her citizens of their rights and, therefore, children enjoy more rights and freedoms compared to their Bangladeshi counterparts. 99 percent of the population in the UK is literate as compared to a mere 43.1 percent in Bangladesh. Education has a huge impact on how people relate to each other and their interpretations of everyday phenomena. On the other hand, the educated population in UK is more corrupt at 7.7 perception index compared