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Interest Rates and Derivatives

Interest Rates and Derivatives

Forwards, Swaps and Options

Hedging solutions for your balance sheet and currency exposure

Overview

OIS -Overnight Index Swaps are Rupee Interest Rate derivatives where floating leg is linked to NSE Overnight Mibor and fixed leg is derived at the beginning of the trade. This trade is used to hedge general rupee interest rate risk arising out of interest rate movement.

MIOIS - MIOIS trades are another rupee interest rate derivatives where floating leg is linked to 1M OIS, 3M OIS, 6M OIS and 1Y OIS and fixed leg is derived at the start of the trade. This trade hedges interest rate risk and also has a benefit of having fixing in advance which helps in determining the net cash flow well before the payments.

Features and Benefits

Benefits - Used to hedge General Rupee Interest Rate Risk by moving to floating or fixed Index based on INR interest rate view. This hedges interest rate risk arising out of economic cycle.

User: Entities with Rates Exposure.

How it Works

OIS: One counterparty pays overnight MIBOR and other receives fixed.

MIOIS: One counterparty pays shorter tenure OIS and other receives fixed.

Hedging solutions for your balance sheet and currency exposure

Overview

A Cross Currency Swap moves Interest rates and foreign exchange exposure from one currency to another based on cost advantage and hedging rationale. A client can hedge its USD liability by moving to INR. Cross Currency Swap hedges both currency risk and interest rate risk. 

Features and Benefits

A client can hedge its USD liability by moving to INR. Cross Currency Swap hedges both currency risk and interest rate risk. 

User: Entities with Rupee or Foreign Currency Loan.

How it Works

One Counterparty receives fixed or floating in one currency and other pays floating or fixed in another Currency.

It can be Principal Only Swap, Coupon Only Swap or Full Currency Swap.

Hedging solutions for your balance sheet and currency exposure

Overview

Long Tenure Forwards are used to hedge Currency exposure for a tenure of more than one year. A client can hedge its single big cash flows far in the future by fixing the exchange rate today. This way a client gets rid of exchange rate volatility that may impact the cash flows adversely in the future.
User: Exporter, Importer and Entities with Foreign Currency Balance Sheet exposure.

How it works

Exchange rate on Currency pair is determined at the start of the trade and exchanged at end of the tenure between the counterparties.

Client either receives or pays premium on the spot value based on tenure of the trade. Typically for more than 1Year Tenure.

Hedging solutions for your balance sheet and currency exposure

Overview

Interest rate swaps hedges interest rate risk arising out of loan taken on floating rates. By fixing the interest rate a client gets rid of losses due to rise in interest rates in the future. Interest Rate caps and floors work similarly and a client needs to pay premium to get the right  but not obligation to either  pay or receive a fixed rate called strike rate or let the option expire worthless and pay or receive prevailing market rate.
User: Entities with Floating Index Loan in Foreign Currency.

How it works

In Swaps one counterparty pays floating while other receive fixed in same currency. Interest Rate options provides a buyer a right but not obligation to exchange interest at a pre-decided rate.
Cap, Floors, Spreads only for hedging purpose.

Hedge credit risk arising out of lending

Overview

Credit Default Swaps (CDS) are used to hedge credit risk arising out of lending to or investing in other organization by paying regular premium. A buyer of the CDS is paid an amount equivalent to loss in the value of investment when a corporate goes bankrupt or any other  credit event happens thus eliminating  the credit risk on the corporate.

Users: Entities with Credit Exposure

How it works

Buyer of CDS pays premium on regular basis based on its credit spread on underlying obligation.
Client stops paying premium once credit event happens the seller compensates for loss in value of underlying.

Hedging solutions for your balance sheet and currency exposure

Overview

Foreign Exchange Options gives a buyer a right but not obligation to exchange currency pairs at a specified rate by paying upfront premium. This is helpful in hedging the currency risk that arises out of exchanging currency pair at a future date. A buyer either pays or receives a fixed rate called strike rate or let the option expire worthless and buys or sells the currency pair in the market

Users: Entities with currency exposures

How it works

FX Options provides right but not obligation to the buyer to exchange a currency pair at a pre-decided rate. Vanilla structures like call, put and exotics like barrier, digital, touch, TARF etc. can be done.