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Who the fuck actually understands financial derivatives (interest rate swaps)?

I don't really, and I discovered that the lender's lawyers d...
Trip judgmental crackhouse
  03/28/17
(litigator)
Light irradiated boiling water
  03/28/17
sadly no, I do secured finance.
Trip judgmental crackhouse
  03/28/17
fuck
Light irradiated boiling water
  03/28/17
Interest rate swap Mfe here, taking q's
infuriating foreskin roast beef
  03/28/17
see below.
Trip judgmental crackhouse
  03/28/17
I did in 2008, got a B in Financial Derivatives. I don't kno...
comical blue wrinkle goal in life
  03/28/17
it's not hard to understand, you probably just haven't tried...
bearded chrome heaven
  03/28/17
You swap a floating for a fixed rate, or vice versa Not h...
Overrated Disgusting Chapel
  03/28/17
I get that, and I get you pay out net amounts. And I even...
Trip judgmental crackhouse
  03/28/17
The fixed rate is marked up, because the broker is pocketing...
infuriating foreskin roast beef
  03/28/17
...
comical blue wrinkle goal in life
  03/28/17
thanks. 1) the curve projects higher rates over time beca...
Trip judgmental crackhouse
  03/28/17
the models we use expect interest rates to, in general, go u...
infuriating foreskin roast beef
  03/28/17
so the interest rate curve has nothing to do with the value ...
Trip judgmental crackhouse
  03/28/17
Not that much. The longer a contract is, the more valuable i...
infuriating foreskin roast beef
  03/28/17
So the swap breakage fee is basically the fixed profit the l...
Trip judgmental crackhouse
  03/28/17
It's the profit the lender expects, but it can be negative i...
infuriating foreskin roast beef
  03/28/17
cot damn we have some sophisticated motherfuckers poasting h...
Lilac scourge upon the earth ape
  03/29/17
It's what happens when you cease drinking poison
Multi-colored violet office
  03/29/17
It's totally legit Goldman Sachs tells us what numbers to us...
Ruddy reading party
  03/28/17
why would someone who doesn't understand how swaps work be i...
pearly elastic band casino
  03/28/17
i am realizing that almost no lawyers understand this shit. ...
Trip judgmental crackhouse
  03/28/17
Lol. Attorneys sign off on business terms they don't underst...
Tripping tantric hell
  03/28/17
this "profession" is a joke i want to stick m...
fragrant double fault coffee pot
  03/29/17
Don't try to figure out how it words by looking at the ISDA ...
Domesticated Native Really Tough Guy
  03/28/17
It's like a Chadcock -
Ruddy reading party
  03/28/17
Where is the fucking deal? It's not in the schedule either....
Trip judgmental crackhouse
  03/28/17
Just ignore the master agreement. You cant negotiate it anyw...
Domesticated Native Really Tough Guy
  03/28/17
You can negotiate the Schedule, including to add terms that ...
infuriating foreskin roast beef
  03/28/17
IF he's asking these questions, I don't think he's negotiati...
Domesticated Native Really Tough Guy
  03/28/17
lol true
infuriating foreskin roast beef
  03/28/17
the deal is the swap Confirmation. The ISDA and Schedule are...
infuriating foreskin roast beef
  03/28/17
...
Domesticated Native Really Tough Guy
  03/28/17
that's what I figured. why wont the fucking lender send us ...
Trip judgmental crackhouse
  03/28/17
they should send you a sample confirmation. It will be water...
infuriating foreskin roast beef
  03/28/17
You will never find the "deal" in the agreements. ...
Aromatic ticket booth
  03/28/17
what about when the client asks you to explain what the fuck...
Trip judgmental crackhouse
  03/28/17
ignore nutella's advice here, and I say this not only becaus...
infuriating foreskin roast beef
  03/28/17
You tell them that agreement is needed to protect the partie...
Aromatic ticket booth
  03/28/17
cr
vibrant fuchsia point patrolman
  08/14/19
Okay so help me with this. My client is paying a floating...
Trip judgmental crackhouse
  03/28/17
Not clear what youre asking If hes the fixed rate payer i...
Confused depressive athletic conference
  03/28/17
He is about to close a loan with a floating libor rate. The...
Trip judgmental crackhouse
  03/28/17
a fixed rate loan is bad for the bank. the bank will invert ...
infuriating foreskin roast beef
  03/28/17
I thought the counterparty (dealer whoever) has to actually ...
Trip judgmental crackhouse
  03/28/17
Explained this below, I believe. Regarding your first confus...
infuriating foreskin roast beef
  03/28/17
Isn't the floating leg of the swap (counterparty's floating ...
indigo private investor
  03/28/17
you're correct. floating leg of swap should equal floating r...
infuriating foreskin roast beef
  03/28/17
There is no swap payment at closing, typically you just pay ...
Confused depressive athletic conference
  03/28/17
correct. the borrower does not pay anything at closing, just...
infuriating foreskin roast beef
  03/28/17
is the dealer the same as a swap counterparty? that's usual...
Trip judgmental crackhouse
  03/28/17
Wouldn't it be a deal that the borrower isn't a party to? Ba...
Tripping tantric hell
  03/28/17
correct
infuriating foreskin roast beef
  03/28/17
The "dealer" is in the background. Your client, if...
infuriating foreskin roast beef
  03/28/17
so how does this limit the banks floating rate exposure as t...
Trip judgmental crackhouse
  03/28/17
the bank(lender) gets it's money from a bigger bank(dealer)....
infuriating foreskin roast beef
  03/28/17
http://d3plit93wdq7ew.cloudfront.net/assets/ir-swap.png d...
Trip judgmental crackhouse
  03/28/17
I think this diagram is confusing. It seems to represent a s...
infuriating foreskin roast beef
  03/28/17
https://en.wikipedia.org/wiki/Interest_rate_swap#/media/File...
Trip judgmental crackhouse
  03/28/17
not party B, but BANK. On this one, ignore box B because it'...
infuriating foreskin roast beef
  03/28/17
nobody sent me a credit support annex. all I have is the ma...
Trip judgmental crackhouse
  03/28/17
for small(er) commercial non-bank borrowers, there's no sepa...
infuriating foreskin roast beef
  03/28/17
hehe
Green contagious garrison digit ratio
  03/28/17
lawyers aren't doing math problems to determine the essentia...
fighting church fortuitous meteor
  03/28/17
I understand swaps generally, though I do not deal with inte...
Aromatic ticket booth
  03/28/17
there is no CSA here. Playing small ball
infuriating foreskin roast beef
  03/28/17
You are a moron.
Vivacious Grizzly Police Squad
  03/29/17
earl billing his midlaw client for time spent watching The B...
laughsome juggernaut friendly grandma
  03/28/17
(xo 2017)
Galvanic cumskin library
  03/28/17
Please explain "shape risk" and "the duck cur...
scarlet theater
  03/28/17
Finance guy here. There is a market determined swap rate....
Razzle-dazzle Brass Filthpig Rehab
  03/28/17
If your client's payment on the loan is not equal to the flo...
indigo private investor
  03/28/17
where does the profit for the bank come in then?
Trip judgmental crackhouse
  03/28/17
he means the actual floating rate itself should be equal on ...
infuriating foreskin roast beef
  03/28/17
Not just LIBOR to LIBOR, but it needs to be 1mL in both case...
indigo private investor
  03/28/17
yes exactly, this is correct, the tenor on LIBOR should be e...
infuriating foreskin roast beef
  03/28/17
That makes sense. So my client is paying 1mL + 3% on the lo...
Trip judgmental crackhouse
  03/28/17
When you followed up with your client, did you refer to poas...
Boyish House Corn Cake
  03/29/17
I don't follow. if loan is, say, libor + 3, and the swap pa...
Galvanic cumskin library
  03/28/17
the swap payment is libor + 3 in exchange for a fixed rate. ...
Trip judgmental crackhouse
  03/28/17
this is often done when the floating rate on the loan is var...
infuriating foreskin roast beef
  03/28/17
Thank you everyone, especially Wilbur. I owe him 3 shots of...
Trip judgmental crackhouse
  03/28/17
jfc alcohol = poison if you have any more trouble email x...
infuriating foreskin roast beef
  03/28/17
Earl, no homo, but this is why you are partner material. ...
clear haunted graveyard blood rage
  03/28/17
...
Spruce beta boltzmann
  03/29/17
Did you miss the leasing thread?
Boyish House Corn Cake
  03/29/17
jfc
massive meetinghouse
  08/14/19
what client and matter number do i bill reading this thread ...
Lilac scourge upon the earth ape
  03/29/17
Looks like a lot of smart people here. Does anyone know how...
alcoholic brindle circlehead love of her life
  03/29/17
You can probably trade CME Treasury futures and Eurodollar (...
clear haunted graveyard blood rage
  03/29/17
Can you explain a bit - how can I trade CME Treasury futures...
alcoholic brindle circlehead love of her life
  03/29/17
Ha, this thread was timely IB offers treasury futures (an...
Buff sadistic regret
  03/29/17
You can just open an account with Interactive brokers. As t...
Razzle-dazzle Brass Filthpig Rehab
  03/29/17
What's the right rule of thumb? Hedge half my notional expos...
alcoholic brindle circlehead love of her life
  03/29/17
*asks Wells Fargo teller in Safeway for a swap*
Boyish House Corn Cake
  03/29/17
(xo 2017)
slimy irate ceo
  03/29/17
The questions I have are do all of these flavors of assets o...
amethyst sanctuary
  03/29/17
A lot of these are useful for dealing with risks as opposed ...
slimy irate ceo
  03/29/17
How is the risk not transformed then, with a matching transf...
amethyst sanctuary
  03/29/17
Lol cq. My boomer sec reg prof spent multiple classes trying...
Purple very tactful cruise ship hunting ground
  03/29/17
Impressive thread
stubborn goyim public bath
  03/29/17


Poast new message in this thread



Reply Favorite

Date: March 28th, 2017 6:38 PM
Author: Trip judgmental crackhouse

I don't really, and I discovered that the lender's lawyers don't either.

My client has no idea how a swap works and sending him the generic ISDA master agreement and a rudimentary explanation is not helping anyone.

I feel like this is just something lawyers ignore and tell their clients to sign.

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940069)



Reply Favorite

Date: March 28th, 2017 8:23 PM
Author: Light irradiated boiling water

(litigator)

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940752)



Reply Favorite

Date: March 28th, 2017 8:27 PM
Author: Trip judgmental crackhouse

sadly no, I do secured finance.

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940780)



Reply Favorite

Date: March 28th, 2017 8:31 PM
Author: Light irradiated boiling water

fuck

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940821)



Reply Favorite

Date: March 28th, 2017 6:39 PM
Author: infuriating foreskin roast beef

Interest rate swap Mfe here, taking q's

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940070)



Reply Favorite

Date: March 28th, 2017 7:06 PM
Author: Trip judgmental crackhouse

see below.

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940265)



Reply Favorite

Date: March 28th, 2017 6:39 PM
Author: comical blue wrinkle goal in life

I did in 2008, got a B in Financial Derivatives. I don't know anything now.

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940072)



Reply Favorite

Date: March 28th, 2017 6:42 PM
Author: bearded chrome heaven

it's not hard to understand, you probably just haven't tried or been exposed to it

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940083)



Reply Favorite

Date: March 28th, 2017 6:43 PM
Author: Overrated Disgusting Chapel

You swap a floating for a fixed rate, or vice versa

Not hard

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940086)



Reply Favorite

Date: March 28th, 2017 7:00 PM
Author: Trip judgmental crackhouse

I get that, and I get you pay out net amounts.

And I even kind of get how you calculate the fixed rate based on the libor curve - though not really.

But what are the swap breakage costs if a deal dies? shouldn't the present value of the swap at closing always be zero, minus fees?

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940221)



Reply Favorite

Date: March 28th, 2017 7:13 PM
Author: infuriating foreskin roast beef

The fixed rate is marked up, because the broker is pocketing money. Most likely a small borrower's counterparty (a bank) is going to the swap market and doing an inverted identical trade to a swap dealer to reduce their interest rate risk exposure to zero. The dealer pays your borrower's bank a nice chunk of change because the fixed payments are marked up.

In the deal's early life, floating cash flows are lower than the fixed. At later life, floating are supposed to be higher than fixed (the curve projects, as a rule, higher rates over time).

If the discounted differences all sum up to zero, the present value would be zero. But the fixed rate is marked up, so the fixed payments end up being more than the floating payments over all of the deal, or most of it, unless there's an unforeseen spike in rates. The amount of this surplus is the present value

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940314)



Reply Favorite

Date: March 28th, 2017 7:16 PM
Author: comical blue wrinkle goal in life



(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940331)



Reply Favorite

Date: March 28th, 2017 7:16 PM
Author: Trip judgmental crackhouse

thanks.

1) the curve projects higher rates over time because the longer term contracts have higher rates? Or just because we expect interest rates to go up forever? That cant be true.

2) The present value surplus - is that the expected mark up (which is the only amount not netted out at closing)? Is that paid right away or as a chunk of the regular interest payments?

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940334)



Reply Favorite

Date: March 28th, 2017 7:22 PM
Author: infuriating foreskin roast beef

the models we use expect interest rates to, in general, go up as time goes on. When that doesn't happen, it's bad news for the borrower. Their only comfort is that they got a rate they were comfortable with.

The present value is determined by the amount of basis points the fixed rate is marked up. The dealer pays it out in full to the lender two biz days after the trade is done over the phone.

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940392)



Reply Favorite

Date: March 28th, 2017 7:26 PM
Author: Trip judgmental crackhouse

so the interest rate curve has nothing to do with the value of a 5 year contract being higher than a 1 year or 30 day contract?

I ask because the second part of my question is understanding the swap breakage costs.

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940422)



Reply Favorite

Date: March 28th, 2017 7:32 PM
Author: infuriating foreskin roast beef

Not that much. The longer a contract is, the more valuable it is, because that's 12 additional fixed rate payments per year. Each fixed rate payment represents additional profit for the recipient of the fixed rate payment--the more that there are, the more value is in the deal.

When you do the swap, you're promising those payments to the lender. You can break it at any time, but you have to make up for the expected profit they lose via the breakage fee. If there are a LOT of payments left on the deal, you'll owe them the sum of the profit they expect to get on each one. If there are FEW, it will be less.

If rates have moved to the point where the fixed payment recipient is actually expected to LOSE money over the life of the deal, they will pay you to break the swap. The odds are against this happening because the markup tilts the table in favor of the fixed payment recipient.

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940458)



Reply Favorite

Date: March 28th, 2017 7:41 PM
Author: Trip judgmental crackhouse

So the swap breakage fee is basically the fixed profit the lender expects or is it what the counterparty expects?

The swap has nothing to do with the standard LIBOR curve - presumably a 5 year libor contract pays more than a one month LIBOR...

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940505)



Reply Favorite

Date: March 28th, 2017 7:47 PM
Author: infuriating foreskin roast beef

It's the profit the lender expects, but it can be negative if rates move drastically in favor of the fixed rate payer (your borrower, that is, rates go up)

[behind the scenes, the lender breaks a swap with a dealer on the same day your borrower breaks the swap. Under normal circumstances, the lender will pay to the dealer and equal fee that your borrower pays to the lender--a net change for the lender of zero. If rates have gone way up, the lender will pay your borrower....and then the dealer pays your lender and equal amount. The lender ends up at zero no matter what]

The Swap Rate curve is more determinative than the LIBOR curve for this. "USSW0001" or whatever number for the term in bloomberg. Actually forecasting/calculating it is a bit out of my lane



(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940556)



Reply Favorite

Date: March 29th, 2017 12:19 AM
Author: Lilac scourge upon the earth ape

cot damn we have some sophisticated motherfuckers poasting here

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32942793)



Reply Favorite

Date: March 29th, 2017 8:07 AM
Author: Multi-colored violet office

It's what happens when you cease drinking poison

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32943750)



Reply Favorite

Date: March 28th, 2017 6:43 PM
Author: Ruddy reading party

It's totally legit Goldman Sachs tells us what numbers to use and they're smart so it's nbd hehe

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940090)



Reply Favorite

Date: March 28th, 2017 6:44 PM
Author: pearly elastic band casino

why would someone who doesn't understand how swaps work be in a position to be signing off on the purchase of swaps?

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940096)



Reply Favorite

Date: March 28th, 2017 7:08 PM
Author: Trip judgmental crackhouse

i am realizing that almost no lawyers understand this shit. I understand it better than most and as you can tell I don't now much.

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940279)



Reply Favorite

Date: March 28th, 2017 7:25 PM
Author: Tripping tantric hell

Lol. Attorneys sign off on business terms they don't understand at all. Lawyers are signing off on legal terms and whether the deal is market for the industry, etc. none of which requires you to fundamentally understand the business side

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940412)



Reply Favorite

Date: March 29th, 2017 12:12 AM
Author: fragrant double fault coffee pot

this "profession" is a joke

i want to stick my head in a blender

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32942749)



Reply Favorite

Date: March 28th, 2017 6:45 PM
Author: Domesticated Native Really Tough Guy

Don't try to figure out how it words by looking at the ISDA master agreement. That thing is designed to appear to have nothing to do with what it's actually doing.

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940109)



Reply Favorite

Date: March 28th, 2017 6:46 PM
Author: Ruddy reading party

It's like a Chadcock -

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940113)



Reply Favorite

Date: March 28th, 2017 6:58 PM
Author: Trip judgmental crackhouse

Where is the fucking deal? It's not in the schedule either.

Just the swap confirmation?

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940207)



Reply Favorite

Date: March 28th, 2017 7:11 PM
Author: Domesticated Native Really Tough Guy

Just ignore the master agreement. You cant negotiate it anyway. There will be some other agreement (eg. a loan agreement) that will lay shit out that you actually should pay attention to.

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940304)



Reply Favorite

Date: March 28th, 2017 7:15 PM
Author: infuriating foreskin roast beef

You can negotiate the Schedule, including to add terms that strike parts of the Master Agreement

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940324)



Reply Favorite

Date: March 28th, 2017 7:16 PM
Author: Domesticated Native Really Tough Guy

IF he's asking these questions, I don't think he's negotiating any of the terms on the master agreement.

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940333)



Reply Favorite

Date: March 28th, 2017 7:24 PM
Author: infuriating foreskin roast beef

lol true

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940404)



Reply Favorite

Date: March 28th, 2017 7:14 PM
Author: infuriating foreskin roast beef

the deal is the swap Confirmation. The ISDA and Schedule are just governing documents that are referred to in case of default, or in case collateral needs to be posted.

For commercial borrowers, it's mostly a formality

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940319)



Reply Favorite

Date: March 28th, 2017 7:15 PM
Author: Domesticated Native Really Tough Guy



(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940325)



Reply Favorite

Date: March 28th, 2017 7:17 PM
Author: Trip judgmental crackhouse

that's what I figured. why wont the fucking lender send us a confirmation ahead of time to look at?

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940337)



Reply Favorite

Date: March 28th, 2017 7:23 PM
Author: infuriating foreskin roast beef

they should send you a sample confirmation. It will be watermarked and not executable but it will show you what the general terms are. The fixed rate will be marked "to be determined" on the sample, because that can't be locked down until the moment the borrower calls in to do the swap--it's subject to market movement until that time.

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940400)



Reply Favorite

Date: March 28th, 2017 8:13 PM
Author: Aromatic ticket booth

You will never find the "deal" in the agreements. Generally the bank counterparty is the sole valuation agent and tells you at the end of the day/week/month that you owe x or they owe you x through a confirm. If you dispute the amount, then there's some process to resolve it (generally favorable to the banker). You are wasting your time looking for rates or anything because those things change and the counterparty "in its sole discretion" will just tell you what money is to be exchanged at the end of the day. ISDAs are designed to protect against insolvency and limit losses through regular netting. That is literally all you as the lawyer needs to make sure exists.

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940686)



Reply Favorite

Date: March 28th, 2017 8:14 PM
Author: Trip judgmental crackhouse

what about when the client asks you to explain what the fuck is going on and what they are signing?

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940691)



Reply Favorite

Date: March 28th, 2017 8:24 PM
Author: infuriating foreskin roast beef

ignore nutella's advice here, and I say this not only because I hate nutella, which I do.

she is talking about a different kind of swap, one that banks are doing behind the scenes to hedge their own risk on the swap your borrower is doing.

the payments she's talking about, where there are periodic margin payment calculations calculated by calculation agents, that can be disputed by the subordinate party, aren't going to apply to your situation.

The only payments your borrower are going to owe are the monthly interest payments (loan plus swap adding up to fixed rate) and potentially a breakage fee/receipt

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940760)



Reply Favorite

Date: March 28th, 2017 8:25 PM
Author: Aromatic ticket booth

You tell them that agreement is needed to protect the parties in case of insolvency.

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940769)



Reply Favorite

Date: August 14th, 2019 2:29 PM
Author: vibrant fuchsia point patrolman

cr

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#38686410)



Reply Favorite

Date: March 28th, 2017 7:05 PM
Author: Trip judgmental crackhouse

Okay so help me with this.

My client is paying a floating rate of one month LIBOR + 3% spread, lets say. Loan matures in 5 years for simplicity.

The lender is forcing him to take out a swap to effective pay fixed interest. How does that rate get measured?

If you look at a LIBOR curve, you have the present value (in interest rates) of LIBOR contracts of various times out to the 5 year maturity. Today LIBOR may be 1% for a one month contract. The 5 year contract may be 2.5% or whatever.

How do you use the curve to calculate what the fixed rate should be now? Is the fixed rate higher than one month LIBOR + spread only because we expect rates to go up over 5 years? Or is it because the present value of a contract with a 5 year maturity is higher, that this somehow increases the fixed rate? I get that when you plot a fixed rate onto the libor curve, at closing the area above and below the line (the derivative amount) should zero out.

I never took any finance so this is confusing me.

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940260)



Reply Favorite

Date: March 28th, 2017 7:10 PM
Author: Confused depressive athletic conference

Not clear what youre asking

If hes the fixed rate payer in the swap he pays the fixed rate. Swap payments are calcuated by looking at the pv of the trade ("exposure" in isda terms)

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940299)



Reply Favorite

Date: March 28th, 2017 7:13 PM
Author: Trip judgmental crackhouse

He is about to close a loan with a floating libor rate. The lender is forcing him to enter into a swap where he will pay a fixed rate and be the payer. The same lender is the swap counterparty and is the payee. Why didn't they just enter into a fixed rate loan? I dunno.

Explain to me how you calculate the PV of the trade. What is actually paid at closing and paid monthly?

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940313)



Reply Favorite

Date: March 28th, 2017 7:18 PM
Author: infuriating foreskin roast beef

a fixed rate loan is bad for the bank. the bank will invert this swap and do an inverted, offsetting, identical trade with a swap dealer.

the bank doesn't want a fixed rate loan on their balance sheet, so they do it this way. By doing the offsetting trade with the dealer, the bank has no exposure to interest rate market movements. They mark up the fixed rate, take a payment from the dealer for the marked up fixed rates, pass the marked up fixed rate on to the borrower. The borrower's payments will be identical to the payments the bank pays to the dealer--the bank makes all of it's money on day 1, by taking that payoff from the dealer. The only risk for the lender becomes that the borrower will not default on his/her payments

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940348)



Reply Favorite

Date: March 28th, 2017 7:24 PM
Author: Trip judgmental crackhouse

I thought the counterparty (dealer whoever) has to actually pay money to the Borrower if interest rates spike. My Borrower pays a fixed rate the the counterparty, the counterparty pays a floating rate back to my borrower, which is usually netted out such that the borrower pays.

How does that relate to the underlying payment made to the original lender (which is a standard floating loan)?

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940408)



Reply Favorite

Date: March 28th, 2017 7:41 PM
Author: infuriating foreskin roast beef

Explained this below, I believe. Regarding your first confusion, I think it's a terminological issue (your borrower doesn't interact with the "dealer" at all, that's a separate trade the bank is putting on) Second question I address below

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940502)



Reply Favorite

Date: March 28th, 2017 8:08 PM
Author: indigo private investor

Isn't the floating leg of the swap (counterparty's floating payment to borrower) set to equal the borrower's rate on the loan of 1mL+3? If not, then they're really sticking your borrower with a lot of risk.

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940658)



Reply Favorite

Date: March 28th, 2017 8:29 PM
Author: infuriating foreskin roast beef

you're correct. floating leg of swap should equal floating rate on loan

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940799)



Reply Favorite

Date: March 28th, 2017 7:21 PM
Author: Confused depressive athletic conference

There is no swap payment at closing, typically you just pay monthly scheduled payments

Look up the definition of exposure in paragraph 11 of the credit support Annex. Exposure is basically the price the out of the money party would pay if the deal was terminated. The method of valuation specifically depends on what is negotiated in the isda (whether you need quotes etc )



(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940379)



Reply Favorite

Date: March 28th, 2017 7:27 PM
Author: infuriating foreskin roast beef

correct. the borrower does not pay anything at closing, just the monthly fixed rate scheduled payments.

The lender does get paid, however, it's just by a swap dealer. This payment is passed on to the borrower over the life of the swap in marked-up fixed rate payments.

If LIBOR spikes huge, the borrower wins regardless and the dealer ends up getting screwed. The lender doesn't care--lender got paid on day one by the dealer.

If LIBOR falls off a cliff, the dealer wins big and the borrower ends up paying way more than otherwise would have with the floating rate

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940424)



Reply Favorite

Date: March 28th, 2017 7:31 PM
Author: Trip judgmental crackhouse

is the dealer the same as a swap counterparty? that's usually a different bank right? In my case its the same bank.

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940444)



Reply Favorite

Date: March 28th, 2017 7:33 PM
Author: Tripping tantric hell

Wouldn't it be a deal that the borrower isn't a party to? Bank is just acting like the face of the deal even though broker is the real party in interest?

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940466)



Reply Favorite

Date: March 28th, 2017 7:42 PM
Author: infuriating foreskin roast beef

correct

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940510)



Reply Favorite

Date: March 28th, 2017 7:38 PM
Author: infuriating foreskin roast beef

The "dealer" is in the background. Your client, if I understand correctly, will never have anything to do with the bank I'm calling the "dealer." But the dealer is the reason your lender is pushing the swap--the dealer is how the lender gets paid. It's normal for the "same bank" to do the swap and the loan, as you say is the case here. That's the lender.

Your client is doing a floating rate loan with the lender. Your client is also doing a swap with the lender. The floating rate on the loan will be identical to the floating piece of the swap. Since your client gets PAID the floating piece of the swap, it effectively cancels out with the payment they make on the loan. What's left is the fixed piece of the swap, which they pay to the lender.

It's billed separately though. If the fixed rate is X and the floating rate is L, they'll get a loan bill for L that they have to pay. Then they'll get a swap bill for X minus L that they have to pay. The two bills together add up to X, which is the fixed rate.

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940491)



Reply Favorite

Date: March 28th, 2017 7:48 PM
Author: Trip judgmental crackhouse

so how does this limit the banks floating rate exposure as the counterparty on the swap? The bank gets it money from where?

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940564)



Reply Favorite

Date: March 28th, 2017 7:54 PM
Author: infuriating foreskin roast beef

the bank(lender) gets it's money from a bigger bank(dealer).

When your borrower calls in to do the swap, pledging a fixed rate to the lender in exchange for a floating rate, they are going to get put on hold.

While your borrower is on hold, the lender calls a swap dealer. The lender is going to pledge a fixed rate to the dealer in exchange for a floating rate. The terms will be identical to to the swap your borrower does. The dealer will tell the lender what the fixed rate would be for a present value of zero--that is, the discounted value of all the fixed monthly payments equals the discounted value of all the floating monthly payments--plus a few basis points of profit for the dealer.

The lender will then tell the dealer to mark that rate up about 30 basis points in exchange for cash. The lender is OFFERING to pay a higher fixed rate, in exchange for upfront cash from the dealer. The lender then takes that marked up fixed rate (so the PV-Zero rate, plus a few basis points, plus about 30 basis points), takes your borrower off of hold, tells them that THAT will be the fixed rate, and asks your borrower if they want to do the swap at that rate



(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940592)



Reply Favorite

Date: March 28th, 2017 8:03 PM
Author: Trip judgmental crackhouse

http://d3plit93wdq7ew.cloudfront.net/assets/ir-swap.png

does this diagram illustrate my borrower and the counterparty, or original lender and dealer?

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940633)



Reply Favorite

Date: March 28th, 2017 8:08 PM
Author: infuriating foreskin roast beef

I think this diagram is confusing. It seems to represent a scenario where the counterparties are only swapping a portion of their interest rate obligation, which I've never really seen. (I've seen swaps of partial principal amounts, but not partial interest rates. Six of one/half dozen of other, I guess, but not what this diagram reflects)

If you look at only the top part, so the arrows going left and right, that illustrates the swap between your borrower and the lender. Ignore the arrows pointing down. Imagine your borrower on the left, paying a fixed rate of 7.5% and receiving LIBOR plus .5% and the lender on the right.

[Between box A is also paying box B a floating rate of LIBOR plus .5%. That's the loan]

[NOW imagine there's another box FURTHER on the right...counter party C. Counterparty B is in the middle. Imagine the same arrows and the same amounts between boxes B and C as there are between A and B. Counterparty C is the dealer.]

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940656)



Reply Favorite

Date: March 28th, 2017 8:12 PM
Author: Trip judgmental crackhouse

https://en.wikipedia.org/wiki/Interest_rate_swap#/media/File:Vanilla_interest_rate_swap_with_bank.png

this diagram then.

So my original lender in its role as just plain lender is the party at the bottom left receiving the floating, and is also party B...

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940682)



Reply Favorite

Date: March 28th, 2017 8:22 PM
Author: infuriating foreskin roast beef

not party B, but BANK. On this one, ignore box B because it's confusing again. Look at box BANK and box FLOATING. Your lender is both, and the floating rates should be equal. There's a floating payment to your bank at box FLOATING, there's a fixed payment to your borrower from box BANK. Box BANK also pays your borrower, box A, a rate equal to the rate paid A pays out to FLOATING.

I believe these diagrams are for more complex risk management arrangements between financial institutions--or they're just academic. I remember researching them before interviewing and then realizing they don't apply at all to these hedges for business financing.

[I believe these diagrams are illustrating

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940744)



Reply Favorite

Date: March 28th, 2017 7:29 PM
Author: Trip judgmental crackhouse

nobody sent me a credit support annex. all I have is the master agreement, schedule (which is also generic) and a guaranty.

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940433)



Reply Favorite

Date: March 28th, 2017 7:40 PM
Author: infuriating foreskin roast beef

for small(er) commercial non-bank borrowers, there's no separate credit support annex. The credit support annex comes in between banks that are doing these swaps that shuffle collateral back and forth when the exposure changes.

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940496)



Reply Favorite

Date: March 28th, 2017 7:26 PM
Author: Green contagious garrison digit ratio

hehe

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940418)



Reply Favorite

Date: March 28th, 2017 7:44 PM
Author: fighting church fortuitous meteor

lawyers aren't doing math problems to determine the essential financial terms of a swap, derivative or any security.

they deal with the various other terms related to the transaction. An ISDA just contains a bunch of other terms. I don't have a familiarity with them but I think they are interesting in how someone successfully standardized a type of business contract but then lawyers go and ruin it again.

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940523)



Reply Favorite

Date: March 28th, 2017 7:48 PM
Author: Aromatic ticket booth

I understand swaps generally, though I do not deal with interest rate swaps (mainly equity swaps or FX swaps). I do ISDAs all the time. The master doesn't say shit, look at the CSA, schedule and paragraph 13. All that you need to know legally is that you're protected in case of insolvency, how margin is posted (if any), how often the value is marked to market, and netting (both for margin and close out amounts). No lawyer needs to know the knitty gritty of how it actually works, you just need to know some party will owe the other party money on a regular basis and to limit your exposure.

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940561)



Reply Favorite

Date: March 28th, 2017 7:55 PM
Author: infuriating foreskin roast beef

there is no CSA here. Playing small ball

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940596)



Reply Favorite

Date: March 29th, 2017 12:29 AM
Author: Vivacious Grizzly Police Squad

You are a moron.

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32942866)



Reply Favorite

Date: March 28th, 2017 7:56 PM
Author: laughsome juggernaut friendly grandma

earl billing his midlaw client for time spent watching The Big Short to learn about derivatives.

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940600)



Reply Favorite

Date: March 28th, 2017 8:09 PM
Author: Galvanic cumskin library

(xo 2017)

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940659)



Reply Favorite

Date: March 28th, 2017 8:18 PM
Author: scarlet theater

Please explain "shape risk" and "the duck curve".

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940713)



Reply Favorite

Date: March 28th, 2017 8:20 PM
Author: Razzle-dazzle Brass Filthpig Rehab

Finance guy here.

There is a market determined swap rate.you dont need to discount stuff yourself. You can look up the 5 yr swap rate to see what the market considers to be the fixed rate equivalent over five years of paying floating rate over five years. If you dont have access to a bberg terminal try googling.

Add the 3pct spread over that swap rate to arrive at the market determined fixed equivalent in your case

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940728)



Reply Favorite

Date: March 28th, 2017 8:20 PM
Author: indigo private investor

If your client's payment on the loan is not equal to the floating rate it receives under the swap, then it's adding risk (not just getting a synthetic fixed rate) and should beware

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940730)



Reply Favorite

Date: March 28th, 2017 8:24 PM
Author: Trip judgmental crackhouse

where does the profit for the bank come in then?

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940758)



Reply Favorite

Date: March 28th, 2017 8:27 PM
Author: infuriating foreskin roast beef

he means the actual floating rate itself should be equal on the swap and the loan. he's not talking about future values. He's right. If your loan is LIBOR + 2%, your swap floating rate should be LIBOR + 2%

Profit for the bank comes from a payment from the dealer on a mirrored trade your borrower is NOT a party to

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940779)



Reply Favorite

Date: March 28th, 2017 8:31 PM
Author: indigo private investor

Not just LIBOR to LIBOR, but it needs to be 1mL in both cases or whatever. If borrower's loan payment is based on 1mL but they want to write a swap with a floating leg at 3mL (or god forbid, some different index entirely), it's a RISK ON trade for your borrower

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940822)



Reply Favorite

Date: March 28th, 2017 8:32 PM
Author: infuriating foreskin roast beef

yes exactly, this is correct, the tenor on LIBOR should be equal as well. 1 month is just so common at my level that I omitted it.

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940833)



Reply Favorite

Date: March 28th, 2017 8:34 PM
Author: Trip judgmental crackhouse

That makes sense. So my client is paying 1mL + 3% on the loan.

The swap arrangement should result in them getting paid 1mL + 3% and paying some fixed rate that is calculated magically.

I got hung up because my client thought he could calculate the fixed rate for a 5 year LIBOR contract and do comparison shopping himself by adding the 300 bps spread to the 5 year LIBOR, which did not make sense to me, but I could not articulate why that was wrong - basically apples and oranges.

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940855)



Reply Favorite

Date: March 29th, 2017 2:11 AM
Author: Boyish House Corn Cake

When you followed up with your client, did you refer to poasting as checking with a colleague?

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32943401)



Reply Favorite

Date: March 28th, 2017 8:31 PM
Author: Galvanic cumskin library

I don't follow. if loan is, say, libor + 3, and the swap payment is just libor, why does that add risk? I get there is still a net cost of 3, but I don't see where the additional risk comes from

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940826)



Reply Favorite

Date: March 28th, 2017 8:36 PM
Author: Trip judgmental crackhouse

the swap payment is libor + 3 in exchange for a fixed rate. so basically my client is saved from the risk of interest rates sending libor + 3 above the fixed rate by paying a fixed rate that is the expected value of libor + 3 over 5 years plus whatever vig the (((dealer))) and (((counterparty))) takes.

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940874)



Reply Favorite

Date: March 28th, 2017 8:37 PM
Author: infuriating foreskin roast beef

this is often done when the floating rate on the loan is variable--contingent on fundamental ratios over time or some shit. the floating leg on is just made LIBOR plus zero.

You're right, there's no more exposure. but no reason to do this unless something is funky with the floating rate

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940880)



Reply Favorite

Date: March 28th, 2017 8:30 PM
Author: Trip judgmental crackhouse

Thank you everyone, especially Wilbur. I owe him 3 shots of tequila.

I am more confused than I was before in one way, but that's because I expected the wikipedia entry to make some sense.



(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940810)



Reply Favorite

Date: March 28th, 2017 8:34 PM
Author: infuriating foreskin roast beef

jfc alcohol = poison

if you have any more trouble email xowilburmercer@gmail.com

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32940853)



Reply Favorite

Date: March 28th, 2017 11:54 PM
Author: clear haunted graveyard blood rage

Earl, no homo, but this is why you are partner material.

Not that your digging into the details is important in this particular case. But I get the feeling that you are legitimately curious about the clients you serve and go the extra mile. When I'm dropping a few hundo an hour to talk to counsel, that's exactly what I want.

Grab yourself a Starbucks croissant tomorrow. It's breakfast, on me. And FFS sell that Accord and buy an M240i like you know you want. Get the 6-speed. :D

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32942619)



Reply Favorite

Date: March 29th, 2017 12:16 AM
Author: Spruce beta boltzmann



(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32942781)



Reply Favorite

Date: March 29th, 2017 2:13 AM
Author: Boyish House Corn Cake

Did you miss the leasing thread?

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32943406)



Reply Favorite

Date: August 14th, 2019 1:37 PM
Author: massive meetinghouse

jfc

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#38686051)



Reply Favorite

Date: March 29th, 2017 12:38 AM
Author: Lilac scourge upon the earth ape

what client and matter number do i bill reading this thread to?

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32942924)



Reply Favorite

Date: March 29th, 2017 12:56 AM
Author: alcoholic brindle circlehead love of her life

Looks like a lot of smart people here. Does anyone know how a retail guy like me can hedge interest rates or get a floating to fixed swap?

I have several million of credit lines that are floating interest rate loans, and I would really prefer to swap them into fixed than take the risk that LIBOR/Prime keep going up. I am not quite at the $10 million market yet in notional exposure, so is there anything retail I could buy?

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32943078)



Reply Favorite

Date: March 29th, 2017 1:01 AM
Author: clear haunted graveyard blood rage

You can probably trade CME Treasury futures and Eurodollar (not EUR/USD, but short-term interest rates on USD) futures in some combination to offset your rate exposure.

Or call a bank's fixed income dealing desk and ask them to make you a price on the swap.

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32943098)



Reply Favorite

Date: March 29th, 2017 1:17 AM
Author: alcoholic brindle circlehead love of her life

Can you explain a bit - how can I trade CME Treasury futures and Eurodollar using my retail brokerage account? Or could I open something at say Interactive Brokers or a more advanced shop and do this?

I've called my private bankers and they are useless, said I am too small and they don't deal in retail.



(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32943187)



Reply Favorite

Date: March 29th, 2017 1:49 AM
Author: Buff sadistic regret

Ha, this thread was timely

IB offers treasury futures (and options on treasury futures)

https://www.interactivebrokers.com/en/index.php?f=2222&ns=T&exch=ecbot

I found this example from the CME to be instructive (http://www.cmegroup.com/trading/interest-rates/files/basics-of-us-treasury-futures.pdf):

Example 1: A trader believes that the US economy is strengthening and intermediate Treasury yields will increase (5-Yr and 10-Yr).

This trader sells 10 contracts of March 2014 5-year US Treasury Note futures at 120 25/32. The trader’s view proves correct. The economic numbers continue to show that the US economy is strengthening. 5-Yr

Treasury yields rise, and the March 2014 5-year T-Note futures price declines. The trader buys back the 100 March 2014 5-year T-Note futures contracts at 120 03/32.

Profit on this example trade = 10 * (120 25/32 – 120 03/32) * $1000 = $6,875 (Profit or Loss = Number of contracts * Change in price * $1000)

The profit calculation in this example can also be expressed in terms of minimum ticks or simply referred to as ticks. The tick size for 5-year contract is ¼ of 1/32nd of 1 point.

The $ value for minimum tic of the 5-year contract is $7.8125.

Number of ticks made on the trade = (25/32 – 3/32) * 4 = 88 Ticks

Profit on this example trade = 10 Contracts X 88 Ticks X $7.8125 = $6875.

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32943307)



Reply Favorite

Date: March 29th, 2017 6:28 AM
Author: Razzle-dazzle Brass Filthpig Rehab

You can just open an account with Interactive brokers. As the guy above said, you can just short eurodollar futures.

If rates rise your short eurodollar futures will make money, while your variable interest rate expense on your loans will increase.

The trick is to short enough notional value in eurodollar futures such that the gain on the futures position off sets the increase in interest costs on your loans.

You don't need to hedge all of it, maybe just having some short position to hedge some of the risk would be enough for you.

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32943655)



Reply Favorite

Date: March 29th, 2017 9:37 AM
Author: alcoholic brindle circlehead love of her life

What's the right rule of thumb? Hedge half my notional exposure?

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32944045)



Reply Favorite

Date: March 29th, 2017 2:17 AM
Author: Boyish House Corn Cake

*asks Wells Fargo teller in Safeway for a swap*

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32943413)



Reply Favorite

Date: March 29th, 2017 6:10 AM
Author: slimy irate ceo

(xo 2017)

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32943643)



Reply Favorite

Date: March 29th, 2017 6:17 AM
Author: amethyst sanctuary

The questions I have are do all of these flavors of assets offer more options along the risk reward curve that can't be offered with simpler vehicles? Are they useful for transforming one asset to another, and thus improving liquidity?

Because if the answer to those questions is no I don't know why people deal in such opaque investments unless the opacity is intended to con the less knowledgeable.

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32943649)



Reply Favorite

Date: March 29th, 2017 6:19 AM
Author: slimy irate ceo

A lot of these are useful for dealing with risks as opposed to making $$$

For example, if you need financing and want a fixed rate, but the only places willing or able to provide the amount of money you're looking to borrow are doing it at a floating rate, then you can use an interest rate swap to synthetically get the financing package you want ($X at a fixed rate)

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32943651)



Reply Favorite

Date: March 29th, 2017 6:24 AM
Author: amethyst sanctuary

How is the risk not transformed then, with a matching transformation of the cost of the loan? Who pays for this shifting of risk?

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32943653)



Reply Favorite

Date: March 29th, 2017 9:39 AM
Author: Purple very tactful cruise ship hunting ground

Lol cq. My boomer sec reg prof spent multiple classes trying to teach us derivatives, it finally became clear he didn't know what the fuck they were either.

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32944051)



Reply Favorite

Date: March 29th, 2017 1:09 PM
Author: stubborn goyim public bath

Impressive thread

(http://www.autoadmit.com/thread.php?thread_id=3566945&forum_id=2#32945570)