Bài giảng "International financial management - Chapter nine: Currency swaps" has contents: Interest rate swap can reduce interest rate risk, a swap can convert a floating rate loan into a fixed rate loan and vice versa. | CHAPTER NINE INTEREST RATE SWAP • Interest rate swap can reduce interest rate risk CURRENCY SWAPS • A swap can convert a floating rate loan into a fixed rate loan and vice versa 1 DEBT RATING BY MOODY’S INVESTORS SERVICE & STANDARD AND POOR’S CORPORATION GENERAL DESCRIPTION Moody’s High quality Upper medium grade Lower medium grade DEBT RATING BY MOODY’S INVESTORS SERVICE & STANDARD AND POOR’S CORPORATION GENERAL DESCRIPTION S&P’s Moody’s S&P’s Low grade, speculator Ba1 BB+ Highly speculator Ba2 Ba3 B1 B2 B3 BB BBB+ B BCCC+ CCC CCCCC C D NONINVESTMENT GRADE INVESTMENT GRADE Maximum safety 2 Aaa AAA Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 AA+ AA AAA+ A ABBB+ BBB BBB- Substantial risk Caa Extremely speculative Very extremely speculative Default 3 Ca C 4 1 DEBT RATING BY MOODY’S INVESTORS SERVICE & STANDARD AND POOR’S CORPORATION Moody’s Aaa S&P AAA Aa A Baa Ba AA A BBB BB DEBT RATING BY MOODY’S INVESTORS SERVICE & STANDARD AND POOR’S CORPORATION Debt rated Aaa& AAA has the highest rating. Capacity to pay interest and principal is extremely strong A very strong capacity to pay interest and repay principal A strong capacity to pay interest and repay principal Having an adequate capacity to pay interest and repay principal Debt rate in these categories us regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB & Ba indicate the lowest degree of speculation, and CC and Ca the highest degree of speculation B B Caa CCC Ca CC C C No interest is being paid D D Payment of interest and/or repayment of principal is arrears Very high quality High quality Speculator Very poor S&P’S AAA, AA A, BBB BB, B CCC, D Moody’s Aaa, Aa A, Baa Ba, B Caa, C 5 • • • 6 SWAP TRANSACTION SWAP TRANSACTION Situations confronting counterpart A before swap Situations confronting counterpart B before swap Counterparty a: BBB .
