HEADGING STRATEGY

Essay specific features

 

Issue:

Business

 

Written by:

David G

 

Date added:

May 2, 2013

 

Level:

University

 

Grade:

A

 

No of pages / words:

4 / 1012

 

Was viewed:

3786 times

 

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Essay content:

In this alternative An 11-year loan of $10 million is negotiated between the bank and TSD, at the beginning of year 5, subsequently the amount is invested at money market rate for 12 months, thereby hedging the interest rate. The main advantage in this alternative is the guarantee in regards to the availability of the fund needed from the bank...
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However, unlike under alternatives (e.g. Swap), in the event of a possible reduction in interest rate, there will be no profit for TSD another possible disadvantage associated to this is increases in debt ratio. The cost , when compared to swaps, is relatively higher. Delayed Cap (Alternative 2) In this alternative, the maximum interest costs are fixed from year 6 and it is not affected by possible decreases in interest rate...
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