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Rate Swap Refund

Rate Swap Refund



Rate Swap Refund - Help You Build Strong Rate Swap Claims

Rate Swap Refund - Help You Build Strong Rate Swap Claims



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    Rate Swap Refund Rate Swap Refund Presentation Transcript

    • Interest Rate Swaps(IRS) is a reference tofinancial instruments knownas hedgesand derivatives.To hedge somethingis to evade or “dodge”something.
    • When you hedge your bets youare insuring yourself againstlosing.In essence that is whatan interest rate swapis; it is a hedge againstthe movement ofinterest rates.
    • In its most basic form there isa vanilla interest rate swap.Like all interest rateswaps, you “swap” interestrates with the provider of theinterest rate swap.
    • One party (you, known ascounterparty A) will pay a fixedrate.Counterpart B(the bank) will pay avariable rate.
    • When interest rates (either Bank ofEngland base rate, your lendingbank’s base rate or LIBOR) go abovea predetermined Level CounterpartyB(the bank) pays Counterparty A(you) money.
    • When the rate fall below thislevel Counterparty A willpay Counterparty B.
    • The financial effect of this is thatyou will have a fixed rate.If interest rates increase above theset rate the amountspayable under the loanwill increase, but thebank will compensateyou for it.
    • If the interest rates fall below the setrate the amounts payable under theloan will fall but youwill make up thedifference by payingthe bank under theswap.
    • The net off-set ofpayments meansthat you will alwayshave the samecontingent liabilityfor the repaymentsunder the underlyingloan facility andswap.
    • Interest rate swapping can then beused in a many ways, limited onlyby the imagination.
    • For a capped rate a ceiling limit willbe set. Counterparty A can thenbenefit from interest ratesfluctuating, but will never payabove the set rate.
    • That gives the abilityto enjoy ratesdropping, but alwaysknowing that you willnever pay above acertain set interestrate.
    • There can be a cap and afloor, meaning that Counterparty Acan know for certain that they willonly pay a variable rate within setparameters.
    • The interest rate can be set using avariety of indicators including, butnot limited to LIBOR (the London Inter-Bank Offered Rate),Bank of Englandbase rate and theLending bank’s base rate.
    • Hedging can be very beneficial toa business when usedappropriately.However, they are very complexfinancial instruments.
    • Choosing the right level to set therates means finding the perfectbalance.
    • If the rate is set wrong aproduct designed tohelp the business canlead to, at worst, theinsolvency of thatbusiness.
    • What the banks andbusinesses alike did notappreciate before 2008was that interest rateswould drop to 0.5%.
    • It certainly could not have beenappreciated by anyone thatinterest rates would remain at0.5% for so long, and no-onecould have predicted the currentpossibility of a furtherdrop to 0.25%.
    • A feature of some of the swaps isthat if the set rate fell below aspecified point, say 3%, thenCounter party A would pay Counterparty B additional sums.This came as a surpriseto the parties subjectto these strictures.
    • While the rest of the countrybenefited from cheaper lendingfacilities businesses subject to thesekinds of swaps were being crippledby increased payments.
    • Their businesses had been hit hardby the deep recession but thenfound that their cash flow wastaken up paying money to thebank under the swap.
    • Whilst business was indecline, those who werebound by swap agreementswere having to payincreased outgoings to theirbanks.
    • As stated, “interest rate swaps” is aterm used to cover all swaps.There are also LIBORswaps, knock in floor,caps, structured collars,debt default swaps,foreign currency swapsand many more.
    • If you have any kindof swapagreement, we canassist you.
    • We have found that as a result of thefall in currency levels clientssubjected to foreign currency swapshave been unable to compete in themarket because they are fixedin to a set currencyexchange rate, but thecost of exiting theSwap is large.
    • Contact Rate Swap Refundstoday for a no obligationdiscussion, regardless the formof swap you have.