For organizations exposed to fluctuations in interest rates, this chapter discusses interest rate derivatives including caps and floors, forward rate agreements
, swaps, and related instruments.
Forward rate agreements
(FRAs) provide a directly observable expression of (average) market interest rate expectations.
For example, the London Clearing House plans to introduce clearing of interest rate swaps and forward rate agreements
in the second half of 1999, and several entities are developing electronic trading systems for interest rate and foreign exchange contracts.
By using graphs to depict the impact of a range of future interest rates on cost of funds, a useful framework is provided for comparing bank loans, note issues, swaps, forward rate agreements
, futures, and caps.
Interest rate swaps, forward rate agreements
and securitization are among the more popular techniques used today.
Although there are no specific regulations or instructions regarding ISDA documentation, the CBK issued an instruction in 2006 whereby licensed Kuwaiti banks may enter into options, financial futures, interest rate futures and forward rate agreements
both for hedging and trading purposes.
Eurodollar futures are forward rate agreements
that allow market participants to speculate on or hedge against movements in short-term interest rates.
The systems provided ADIC employees with an effective way to handle different types of transactions, varying from dealing room; namely, foreign exchange Co spot, forward and swaps, money markets Co acceptances and placements, Forward Rate Agreements
(FRAs), Interest Rate Swaps (IRS), futures, options, commodities, corporate banking, securities Co bonds, Mortgage Backed Securities (MBS), Asset Backed Securities (ABS), equities proprietary trading and brokerage, local shareC* It also provides more than 400 different standardized and customized reports for all levels of users.
The survey also covers interest rate derivative products, such as forward rate agreements
and interest rate swaps.