DERIVATIVE : Currency & Interest Rate Swaps INTERNATIONAL

FINANCIAL MANAGEMENT This chapter discusses currency and interest rate swaps, which
Chapter Objective: are relatively new instruments for hedging long-term interest rate risk and foreign exchange risk.
Third Edition

Bab ini membahas swap mata uang dan swap tingkat bunga. EUN / RESNICK Swap merupakan instrumen lindung nilai yang relatif baru bagi kepentingan nilai risiko jangka panjang dan risiko valuta asing.
10-0 Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter Outline
 

  

Types of Swaps Size of the Swap Market The Swap Bank Interest Rate Swaps Currency Swaps

   

Jenis Swaps Ukuran Pasar Swap Bank Swap Bank Swap Tingkat Suku Bunga Swap Mata Uang

10-1

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Definitions


In a swap, two counterparties agree to a contractual arrangement wherein they agree to exchange cash flows at periodic intervals. There are two types of interest rate swaps:


Single currency interest rate swap

 Plain

vanilla fixed-for-floating swaps are often just called interest rate swaps.

Cross-Currency interest rate swap

 This

is often called a currency swap; fixed for fixed rate debt service in two (or more) currencies.
Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

10-2

Size of the Swap Market



In 2001 the notational principal of:

Interest rate swaps was $58,897,000,000. Currency swaps was $3,942,000,000

The most popular currencies are:

    
10-3

U.S. dollar Japanese yen Euro Swiss franc British pound sterling
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The Swap Bank

A swap bank is a generic term to describe a financial institution that facilitates swaps between counterparties.  The swap bank can serve as either a broker or a dealer.

 

As a broker, the swap bank matches counterparties but does not assume any of the risks of the swap. As a dealer, the swap bank stands ready to accept either side of a currency swap, and then later lay off their risk, or match it with a counterparty.
Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

10-4

An Example of an Interest Rate Swap



Consider this example of a plain vanilla interest rate swap. Bank A is a AAA-rated international bank located in the U.K. and wishes to raise $10,000,000 to finance floating-rate Eurodollar loans.
 

Bank A is considering issuing 5-year fixed-rate Eurodollar bonds at 10 percent. It would make more sense to for the bank to issue floating-rate notes at LIBOR to finance floating-rate Eurodollar loans.

10-5

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An Example of an Interest Rate Swap



Firm B is a BBB-rated U.S. company. It needs $10,000,000 to finance an investment with a five-year economic life.


Firm B is considering issuing 5-year fixed-rate Eurodollar bonds at 11.75 percent. Alternatively, firm B can raise the money by issuing 5year floating-rate notes at LIBOR + percent. Firm B would prefer to borrow at a fixed rate.
Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

10-6

An Example of an Interest Rate Swap

The borrowing opportunities of the two firms are:
COMPANY B BANK A

Fixed rate Floating rate

11.75% LIBOR + .5%

10% LIBOR

10-7

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An Example of an Interest Rate Swap

Swap
10 3/8% LIBOR 1/8%

ank

Bank A

The swap bank makes this offer to Bank A: You pay LIBOR 1/8 % per year on $10 million for 5 years and we will pay you 10 3/8% on $10 million for 5 years

ix ed ra te lo a ti g ra te I

1 1 .7 5 .5

10 I

10-8

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

An Example of an Interest ate Swap

% of $10,000,000 = $50,000. Thats quite a cost savings per year 10 3/8% for 5 years.

Swap Bank

Heres whats in it for ank A: They can borrow externally at 10 fixed and have a net borrowing position of -10 3/8 10 ( I 1/8) =

LIBOR 1/8%

Bank
10%

I which is better than they can borrow floating without a swap.

ix ed ra te F lo a ti g ra te I

1 1 .7 5 .5

10 I

10-9

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

An Example of an Interest Rate Swap

The swap bank makes this offer to company B: You pay us 10% per year on $10 million for 5 years and we will pay you LIBOR % per year on $10 million for 5 years.
F ix ed ra te F lo a tin g ra te I

Swap Bank
10 % LIBOR %

Company

1 1 .7 5 .5

10 I

10-10

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

An Example of an Interest ate Swap

Heres whats in it for B:
They can borrow externally at I and have a net

Swap Bank

% of $10,000,000 = $50,000 thats quite a cost savings per year for 5 years. 10 %
LIBOR %

borrowing position of )-( I - ) = 11.25% 10 ( I which is % better than they can borrow floating.
F ix ed ra te F lo a tin g ra te I 1 1 .7 5 .5 10 I

Company

LIBOR + %

10-11

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An Example of an Interest Rate Swap

The swap bank makes money too.
10 3/8%

Swap Bank

% of $10 million = $25,000 per year for 5 years.

10 % LIBOR %

LIBOR 1/8%

Bank A

LIBOR 1/8 [LIBOR ]= 1/8 10 - 10 3/8 = 1/8

F ix ed ra te F lo a tin g ra te I 1 1 .7 5 .5 10 I

Company

10-12

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An Example of an Interest Rate Swap

The swap bank makes % Swap
10 3/8%

Bank
10 % LIBOR %

LIBOR 1/8%

Bank A A saves %
F ix ed ra te F lo a tin g ra te I 1 1 .7 5 .5 10 I

Company

B B saves %

10-13

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An Example of a Currency Swap



Suppose a U.S. MNC wants to finance a 10,000,000 expansion of a British plant. They could borrow dollars in the U.S. where they are well known and exchange for dollars for pounds.


This will give them exchange rate risk: financing a sterling project with dollars.

They could borrow pounds in the international bond market, but pay a premium since they are not as well known abroad.
10-14 Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

An Example of a Currency Swap



If they can find a British MNC with a mirrorimage financing need they may both benefit from a swap. If the spot exchange rate is S0($/) = $1.60/, the U.S. firm needs to find a British firm wanting to finance dollar borrowing in the amount of $16,000,000.

10-15

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An Example of a Currency Swap

Consider two firms A and B: firm A is a U.S.based multinational and firm B is a U.K.based multinational. Both firms wish to finance a project in each others country of the same size. Their borrowing opportunities are given in the table below.
$ C om pany A C om pany B
10-16

8.0% 10.0%

11.6% 12.0%

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

An Example of a Currency Swap

Swap Bank
$8% 11% $8% $9.4% 12%

Firm A
$ om pany om pany 8.0 10.0 11.6 12.0

Firm B

12%

10-17

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An Example of a Currency Swap

As net position is to borrow at 11%
$8% 11% $8%

Swap Bank
$9.4% 12%

Firm A A saves .6%

$ om pany C om pany 8.0 10.0 11.6 12.0

Firm B

12%

10-18

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

An Example of a Currency Swap

Bs net position is to borrow at $9.4%
$8% 11% $8%

Swap Bank
$9.4% 12%

Firm A
$ C om pany C om pany 8.0 10.0 11.6 12.0

Firm B

12%

B saves $.6%

10-19

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

An Example of a Currency Swap

The swap bank makes money too:
$8% 11% $8%

Swap Bank
$9.4% 12%

Firm A
$ C om pany C om pany 8.0 10.0 11.6 12.0

Firm

12%

B The swap bank faces exchange rate risk, but maybe they can lay it off (in another swap).

10-20

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The QSD


The Quality Spread Differential represents the potential gains from the swap that can be shared between the counterparties and the swap bank. There is no reason to presume that the gains will be shared equally. In the above example, company B is less creditworthy than bank A, so they probably would have gotten less of the QSD, in order to compensate the swap bank for the default risk.
10-21 Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Comparative Advantage as the Basis for Swaps

A is the more credit-worthy of the two firms. A pays 2% less to borrow in dollars than B A pays .4% less to borrow in pounds than B:
$ C om pany C om pany

8.0 10.0

11.6 12.0

A has a comparative advantage in borrowing in dollars. B has a comparative advantage in borrowing in pounds.
10-22 Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Comparative Advantage as the Basis for Swaps

B has a comparative advantage in borrowing in . pays 2 more to borrow in dollars than A
$ C om pany C om pany

8.0 10.0

11.6 12.0

B pays only .4% more to borrow in pounds than A:

10-23 Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Comparative Advantage as the Basis for Swaps

A has a comparative advantage in borrowing in dollars. B has a comparative advantage in borrowing in pounds. If they borrow according to their comparative advantage and then swap, there will be gains for both parties.
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SWAP


Kedua belah pihak sepakat melakukan perjanjin untuk menukar cash flow di masa yang akan datang pada periode yang akan datang. Bank Swap bertindak sebagai broker atau dealer atau perantara untuk menswap transaksi dua perusahaan

10-25

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Tipe Swap


Interest Rate Swap



Dua belah pihak sepakat menukar mata uangnya. Dua belah pihak sepakat menukar dua mata uang yang berbeda

Cross Currency Swap



10-26

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Kasus 1


Telkom butuh dana $10.000.000 (Rating AAA). Telkom boleh mengeluarkan obligasi dengan tingkat bunga fixed 10% atau pada tingkat suku bunga mengambang pada level JIBOR (boleh meminjam). PT PN butuh dana $10.000.000 (Rating BBB). PT PN boleh mengeluarkan obligasi dengan tingkat bunga fixed 11,75% atau pada tingkat suku bunga mengambang pada level JIBOR + %.
10-27 Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Solusi 1


Bank Swap menawarkan Telkom JIBOR 1/8% dan bank akan membayar Telkom sebesar 10 3/8%. Bank Swap akan menawarkan PT PN 10 % dan bank akan membayar JIBOR %

10-28

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Solusi 1
Peluang meminjam untuk kedua perusahaan adalah sebagai berikut:
PT PN PT TELKOM

Fixed rate Floating rate

11.75% JIBOR + .5%

10% JIBOR

10-29

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Solusi 1
Swap Bank
10 3/8% JIBOR 1/8%
Bank Swap memberikan penawaran terhadap PT TELKOM, sebagai berikut: PT TELKOM membayar (kepada Bank Swap) LIBOR 1/8% per tahun selama 5 tahun untuk pinjaman sebesar $10.000.000 Bank Swap akan memberikan pinjaman kepada PT TELKOM sebesar 10 3/8% (dari total pinjaman) selama 5 tahun untuk pinjaman sebesar $10.000.000

PT TELKOM
PT PN Fixed rate Floating rate
10-30

11.75% JIBOR + .5%

PT TELKOM 10% JIBOR

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Solusi 1
% of $10,000,000 = Swap $50,000. Angka ini merupakan biaya yang Bank dapat dihemat oleh PT 10 3/8% TELKOM setiap tahunnya selama periode JIBOR 1/8% 5 tahun.

PT TELKOM: PT TELKOM dapat meminjam pada tingkat suku bunga tetap sebesar 10% dan memiliki keuntungan pinjaman Swap sebesar: -10 3/8 + 10 + (JIBOR 1/8) = JIBOR % dimana % lebih baik dibandingkan meminjam dengan tingkat suku bunga mengambang tanpa Swap (JIBOR). PT TELKOM 10%
JIBOR

10%

PT TELKOM
PT PN Fixed rate Floating rate 11.75% JIBOR + .5%

10-31

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Solusi 1
Bank Swap memberikan penawaran terhadap PT PN: PT PN membayar Bank Swap 10% setiap tahun untuk pinjaman sebesar $10 million selama 5 years dan Bank Swap akan membayar PT PN JIBOR % per tahun untuk pinjaman selama 5 tahun

Swap Bank
10 % JIBOR %

PT PN

PT PN Fixed rate Floating rate

10-32

11.75% JIBOR + .5%

PT TELKOM 10% JIBOR

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Solusi 1
Penawaran Swap untuk PTPN:
PT PN dapat meminjam pada tingkat suku bunga JIBOR + % dan memiliki net position pinjaman 10 + (JIBOR + ) (JIBOR - ) = 11.25% dimana lebih rendah % dibandingkan tingkat suku bunga tetap pinjaman biasa.
Fixed rate Floating rate
10-33

Swap Bank

% dari $10,000,000 = $50,000 , merupakan biaya yang dapat dihemat per tahun selama periode 5 10 % tahun. JIBOR %

PT PN
PT PN
11.75% JIBOR + .5%

LIBOR + %

PT TELKOM 10%
JIBOR

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Solusi 1
Bank Swap memperoleh keuntungan juga % dari $10.000.000= Bank $25,000 per tahun 10 3/8% 10 %untuk periode 5 tahun. LIBOR 1/8% LIBOR % PT Swap
LIBOR 1/8 [LIBOR ]= 1/8 10 - 10 3/8 = 1/8 PT PN Fixed rate Floating rate
10-34

PT TELKOM

PN

11.75% JIBOR + .5%

PT TELKOM 10% JIBOR

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

An Example of an Interest Rate Swap

Bank Swap memperoleh keuntungan % Swap
10 3/8%

Bank
10 % JIBOR %

JIBOR 1/8%

PT TELKOM
PT TELKOM menghemat %
Fixed rate Floating rate
10-35

PT PN
PTPN menghemat %
PT PN
11.75% JIBOR + .5%

PT TELKOM 10%
JIBOR

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Offsetting Spot Position (Proporsi)

PT TELKOM
Borrows (Received) (fx) -10 3/8% Pays (fx) 10 % Pay (fl) JIBOR 1/8 % Net JIBOR - 1/2% Untung (JIBOR ) (JIBOR %) = % Proporsi = / (1/2 + + ) = 40%

PT PN
Borrows (Received) (fl) - (JIBOR %) Pays (fl) JIBOR + 1/2% Pay (fx) 10 1/2 % Net 11,25 % Untung 11,75% - 11,25 % = % Proporsi = / (1/2 + + ) = 40%

Bank Swap

Received (fx) 10 1/2% (a) Pays (fx) 10 3/8% (b) Received (fl) JIBOR 1/8% (c) Pays (fl) JIBOR 1/4 % (d) Net (a-b)+(c-d) 1/8% + 1/8%= % Proporsi = 1/4 / (1/2 + + ) = 20%
10-36 Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Fungsi Bank Swap

    

Menghitung Spread Mencari keunggulan komparative Membagi proporsi keuntungan Membuat mekanisme Swap Mengecek keuntungan

10-37

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Kasus 2


  

Jika soalnya sama tetapi proporsi yang diinginkan adalah: PT TELKOM = 20% = 0,25 PT PN = 20% = 0,25 Bank Swap = 60% = 0,75

10-38

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Solusi 2: Offsetting Spot Position

PT TELKOM PT PN
Proporsi = 1/4 / (1/4 + 1/4 + 3/4) = 20% Proporsi = 1/4 / (1/4 + 1/4 + 3/4) = 20% Untung (JIBOR ) (JIBOR 1/4%) = Untung 11,75% - 11,50 % = 1/4% 1/4% Borrows (Received) (fl) - (JIBOR 1/2%) Borrows (Received) (fx) - 10 % Pays (fl) JIBOR + 1/2% Pays (fx) 10 % Pay (fx) 10 1/2 % Pay (fl) JIBOR 1/4 % Net 11,50 % Net JIBOR - 1/4% Bank Swap
Proporsi = 3/4 / (1/4 + + ) = 60% Received (fx) 10 1/2% (a) Pays (fx) 10 % (b) Received (fl) JIBOR 1/4% (c) Pays (fl) JIBOR % (d) Net (a-b)+(c-d) % + %= %
10-39 Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Solusi 2
Bank Swap memperoleh keuntungan % (60%) Swap
10 %

Bank
10 % JIBOR %

JIBOR 1/4%

PT TELKOM
PT TELKOM menghemat % (20%)
Fixed rate Floating rate
10-40

PT PN
PT PN
11.75% JIBOR + .5%

PTPN menghemat % (20%) PT

TELKOM 10%
JIBOR

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Kasus 3


  

Jika soalnya sama tetapi proporsi yang diinginkan adalah: PT TELKOM = 30% = 0,3 PT PN = 30% = 0,3 Bank Swap = 40% = 0,4

10-41

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Solusi 2: Offsetting Spot Position

PT TELKOM
Proporsi = 0,3 / (0,3+ 0,3+ 0,4) = 30% Untung (JIBOR ) (JIBOR 0,3) = 0,3

PT PN
Proporsi = 0,3/ (0,3 + 0,3 + 0,4) = 30% Untung 11,75% - 11,45 % = 0,3 Borrows (Received) (fl) - (JIBOR 0,45 % )

Borrows (Received) (fx) - 10 % Pays (fx) 10 % Pay (fl) JIBOR 0,3 % Net JIBOR - 0,3%

Pays (fl) Pay (fx) Net

JIBOR + 0,5 % 10 1/2 % 11,45 %

Bank Swap
Proporsi = 0,4 / (0,3 + 0,3 + 0,4) = 40% Received (fx) 10 1/2% (a) Pays (fx) 10 % (b) Received (fl) JIBOR 0,3 (c) Pays (fl) JIBOR 0,45(d)
Net (a-b)+(c-d) 0,5 % - 0,15 %= 0,35 % atau dibulatkan 0,4 % Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

10-42

Solusi 2
Bank Swap memperoleh keuntungan 0,4 % (40%) Swap
10 %

Bank
10 % JIBOR 0,45 %

JIBOR 0,3%

PT TELKOM
PT TELKOM menghemat 0,3 % (30%)
Fixed rate Floating rate
10-43

PT PN
PT PN
11.75% JIBOR + .5%

PTPN menghemat 0,3 % (30%) PT

TELKOM 10%
JIBOR

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.