How would an interest rate derivative be used to address the interest cash flow mismatch in...

How would an interest rate derivative be used to address the interest cash flow mismatch in securitization consisting of fixed rate loans in which floating rate securities are issued?

Expert Solution

Interest rate derivative can be used to help the interest cash flows mismatch in securitization consisting of fixed rate loan by entering into interest rate swap which is an example of derivatives and which will be helping in exchanging of the fixed leg of interest payment with the floating leg of interest payment which will be consistently adjust with the prevelant market rate of interest.

Interest rate swaps are a types of derivative which will be helpful in maintenance of exposure related to payments of interest and it can be helpful in adjusting with the the current market scenario and avoiding the excessive fluctuation in the interest rate so these are the swaps which will be entered with the another party and they are exchanging the floating leg of Interest with fixed leg of interest and vice-versa.

So,it can be summarised that the interest rate swaps can be used to address the interest cash flow mismatch in securitization which will be consisting of fixed rate loan.

jeff jeffy answered 1 year ago

What is an opportunity cost rate? How is this rate used in discounted cash flow analysis,...

What is an opportunity cost rate? How is this rate used in discounted cash flow analysis, and where is it shown on a time line? Is the opportunity rate a single number that is used to evaluate all potential investments?

How does one determine the growth rate used in a Free Cash Flow (FCF) forecast for...

How does one determine the growth rate used in a Free Cash Flow (FCF) forecast for a company's revenue? What information is needed to determine this in terms of the first years of FCF?

Inputs: Use 2 inputs: cash flow vector, interest rate. Use values: cash flow = (-10, 2,...

Inputs: Use 2 inputs: cash flow vector, interest rate. Use values: cash flow = (-10, 2, 4, 5, 9, 6), interest rate = 12%. Assume that cash flows start at t=0 and go on year by year. Output: Produce a table containing years, cash flows, PV of cash flows, and a summary with NPV, PI, and Payback. (Rstudio)

What is the present value of the following cash-flow stream if the interest rate is 4%?...

What is the present value of the following cash-flow stream if the interest rate is 4%? You receive 650 at the end of first year, 900 at the end of second year, and 260 at the end of third year. (4% is annual interest rate and given annual compounding) [Please round your answer to the nearest whole number]

1. Find the present value of the following cash flow stream with an interest rate of...

1. Find the present value of the following cash flow stream with an interest rate of 7%: Year 1 = $2,000 Year 2 = $4,000 Year 3 = $1,000 Year 4 = $6,000 2. Find the present value of the following ordinary annuity: $800 per year for 10 years at 6% 3. If you invest $5,000 in an investment which has an annual return of 10% but compounds every 6 months (instead of yearly), how much will it have after...

Create a Free Cash Flow and Discounted Cash Flow Statement. The tax rate and discount rate...

Create a Free Cash Flow and Discounted Cash Flow Statement. The tax rate and discount rate are not given, so the percentage below is an assumption. If there are better assumptions, then feel free to use that with a description as to why it is better. The EBIT is from the company that is trying to bought; their stand alone basis projected income statement and balance sheet. Show all calculations. Would you say the merger is a good idea? 2015...

Find the present values of the following cash flow streams. The appropriate interest rate is 12%....

Find the present values of the following cash flow streams. The appropriate interest rate is 12%. (Hint: It is fairly easy to work this problem dealing with the individual cash flows. However, if you have a financial calculator, read the section of the manual that describes how to enter cash flows such as the ones in this problem. This will take a little time, but the investment will pay huge dividends throughout the course. Note that, when working with the...

Using the following yearly cash flow and an interest rate of 6% /year compounded quarterly

Using the following yearly cash flow and an interest rate of 6% /year compounded quarterly year 0 _______1_______2_______3_______4_______5__ cash flow, $ 5000 6500 8000 determine: The present value (present worth).The equivalent uniform annual amount.How much must be invested each month into an account paying 18% /year compounded monthly to accumulate $200,000 in four years?The bank states that a new car loan with monthly payments is available for three years at an annual interest rate of 9%.What would be the monthly payments on...

Exposure to interest rate or currency movements can add to the volatility of free cash flow....

Exposure to interest rate or currency movements can add to the volatility of free cash flow. Would that add or subtract from the value of a firm? Why? If an increase in interest rates would be costly, how might management reduce that risk? If a rise in the value of the euro over the next six months would eliminate any profits from importing French wine, what might a U.S. wine importer do to avoid those losses?

Find the present values of the following cash flow streams. The appropriate interest rate is 12%....

Find the present values of the following cash flow streams. The appropriate interest rate is 12%. (Hint: It is fairly easy to work this problem dealing with the individual cash flows. However, if you have a financial calculator, read the section of the manual that describes how to enter cash flows such as the ones in this problem. This will take a little time, but the investment will pay huge dividends throughout the course. Note that, when working with the...

Question

How would an interest rate derivative be used to address the interest cash flow mismatch in...

Solutions

Expert Solution

Related Solutions

What is an opportunity cost rate? How is this rate used in discounted cash flow analysis,...

How does one determine the growth rate used in a Free Cash Flow (FCF) forecast for...

Inputs: Use 2 inputs: cash flow vector, interest rate. Use values: cash flow = (-10, 2,...

What is the present value of the following cash-flow stream if the interest rate is 4%?...

1. Find the present value of the following cash flow stream with an interest rate of...

Create a Free Cash Flow and Discounted Cash Flow Statement. The tax rate and discount rate...

Find the present values of the following cash flow streams. The appropriate interest rate is 12%....

Using the following yearly cash flow and an interest rate of 6% /year compounded quarterly

Exposure to interest rate or currency movements can add to the volatility of free cash flow....

Find the present values of the following cash flow streams. The appropriate interest rate is 12%....