Interest rate swap

[gaabsmrr]

Thanks for MY time?! It was the best explenation I ever heard and it saved me hours of reading ;) So thank YOU for YOUR time! :)

[bionicturtledotcom]

@gaabsmrr ha, i am so glad it is helpful. THANK YOU for your comment, I can thank you for that, right? :)

[gaabsmrr]

@bionicturtledotcom Haha, yes, that's okey ;)

[cutoff2015]

Plain Vanilla Swap;

Rfix=[1-d(0,N)]/[Σ(n=1,N)d(0,n­)τ]

[MegaVenerable]

Que lástima que no pongas subtítulos en español, pues parece interesante la explicación

[The5starSTUNNNA]

@MegaVenerable learn english

[MrVeon33]

Thanks, I was studying this interest swap in my CPA Financial Risk Management module. Your explanation is 1000x better than the CPA materials.

[htuosm]

I really like your illustration. One thing that I think could improve it (and this is often the case with these kinds of things), is an explanation of the motivation of the parties. Is it like this: One company has a fixed rate and they think the LIBOR is likely to go down, so they wish they were paying LIBOR. And the other company is paying LIBOR and doesn't want to be exposed to the risk of LIBOR rising so they make an agreement to pay fixed if the other guy will pay their LIBOR.

[ForgedInASupernova]

I love you man. I'm a high school student and the amount I've learned from your videos is staggering and has truly put me on a great track to success one day. Thanks so much sir.

[The5starSTUNNNA]

@ForgedInASupernova fUCK U MOTHER FUCKER

[ICHECBasher]

So basically instead of paying a fixed i. rate for your loan, it's the counterparty who pays that fixed interest rate for you AND in exchange you pay the float rate of your counterparty???

If I understood well, in order to make a swap you need similar types of loans on both sides BUT different expectations from both counterparties???

[kangal1999]

bionicturtle,

Thanks for the effort. I am part of a team implementing derivative contracts in a data warehouse.

You saved me hours of reading, your presentation and the subject you cover has cleared all my question.

One request do you have any video on SWAPTION, especially as to how the option pricing is done. Thanks

[MultiAngryRussian]

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[MultiAngryRussian]

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[many9662]

Thank you for sharing.

[saijai587]

This video is great.

[minami935]

This video is very informative

[jasperwillis5385]

When talking about interest rate, when does interest rate rise?

[claircote4416]

Good video.

[MultiAngryRussian]

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[MultiAngryRussian]

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[MultiAngryRussian]

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[MultiAngryRussian]

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[MultiAngryRussian]

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[MultiAngryRussian]

i think i gave 300 views

[shingshong69]

I'm obviously being fairly obtuse here, but what are the two companies paying their new interest rate on? Do they both need to owe the same principal amount? If company A is now paying LIBOR, is this LIBOR on the amount that it owes or the amount that company B owes? The way I see it, either company A is paying interest on an amount greater than it itself owes, or company B's creditor is receiving less than it should. Thanks for an illuminating video.

[peaschek1986]

this sucks

[yvesO301]

thank you very much, an oral explanation is so much more comprehendable than a written one. i would say this was very clear and instructive

[ADbaby]

solid video! thanks

[belatanify]

good video, although the 1,5 bps are difficult to see which direction they are going and where they stay. the figures could be improved for that.

[conia]

great video, this helped a lot.

[queeninjun]

Yes, IRS use an intermediary. Possibly the bank is the writer of the derivative and finds the two counterparties. Also, the 1.5 b.p. is an given as pro forma. The bank intermediary will always charge a b.p. fee for handling the swap and that b.p. figure is determined based on the going spreads in the market at the time of the swap.

[queeninjun]

Actually, this is a very good and very simple explanation of the swap concept. I am finishing up my masters in finance, and last semester, my professor did a horrible job of explaining this. This is probably one of the best explanations I have seen on the web.

[RufioDeLaRocha]

Quick question...does the net cash flow always net out to zero? as it is shown in your table

[RufioDeLaRocha]

Quick question...does the net cash flow always net out to zero? as it is shown in your table

[deeejey1]

IRS is an OTC derivative. Does it involve intermediary? i believe no.

[jasentay]

Hi, I like the illustration of the interest rate swap. Simple and straightforward. However, I got lost towards the second part of the tutorial where you demonstrated the notional principal. Great effort on this!

I do have a question: It is possible if the LIBOR rate is higher than the fixed payout for B, in this case, A would lose out by paying higher than it's fixed obligation of 5%?

[borghese84]

For those who complained...i'm sorry guys but cannot get easier than that. David, as usual, is doing a fantastic job, and plain vanilla interest swap rate is pretty intuitive to get...Maybe u should start questioning ur abilities

[dimpleinso007]

I dont agree with others,

I am an MBA Final Year student and I did understand everything,

coz I am writing notes on my notebook and Revising it.

[bionicturtledotcom]

@dimpleinso007 thanks i appreciate that. I am sure the criticisms have some validity, but i'm glad it's at least useful to some

[premalp24]

because you're writing notes in your notebook and revising shouldn't be capitalized. where are you doing your MBA?

[avanikav]

Much Agreement!

I have an exam on Fixed Income Security tomorrow, and you have *no* idea just how much you've helped me!

[ackballa]

sorry if this is a repetitive question but how do you know how much company b has to pay to the financial intermediary as far as libor and when does qsd come into play?

[frederikonjobu]

Thanks a lot! I am a first year student in Economics and Political Science but I did understand everything, and the visual aid was actually helpful!

[cherronecarter19]

what's up folks

i myself just get back this game and it's

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got it here dlhub .(.)net

[boddunah]

these are interest rate swaps. Plain vanilla swap = swap interest only , no principle swap because it's in the same currency. you can do interest netting

[boddunah]

these are interest rate swaps. Plain vanilla swap = swap interest only , no principle swap because it's in the same currency.

[s00000z1]

thanks for this vid! it was helpful

[TheMalaysianBoy]

I am sorry. As a student of finance, I think your explanation is rather too complicated, and the visual aid is not helpful.

[bionicturtledotcom]

@TheMalaysianBoy thanks for you feedback

[sc083127]

@TheMalaysianBoy I agree. As an Analyst (and recent finance grad) I am working on my first swap loan and came here for clarity. I just wish these tutorials felt less like a classroom or not like I am listening to that professor who knows a lot but can't communicate his/her knowledge.

[kangal1999]

@TheMalaysianBoy ,

Rather than just whining and complaining. Why don't you say what part you did not understand.

I think the video presenter has done a excellent job.

[khanpreston1]

what do these swaps(currency or interest rate)do good to the banks?what is the advantage for the banks to contract swaps?

[sandyorange]

great explanation but what does the bank mean when they quote us 4.00%-4.25% on a 5 yr USD IRS to a customer?

[mfur0860]

@sandyorange That means they would accept entering into a swap where they pay fixed 4 pct OR a swap where they recieve a 4.25 pct. The 0.25 difference is known as the spread and is the banks profit.

[mo0rie]

gr8 vid cheers mate

[TheRainbow009]

the concept is simple but explanation is complicated.

[geoxlee]

Thanks for the video, David! You state the purpose of the swap, the motivation of each player, and how it actually works. I have read several text, and your short seven minute video explains better than reading hours of text.

[magicskyfairy69]

CFA L2 won't have transaction costs. this is making it a bit more complicated than it needs to be, and usually it takes the perspective of the fixed payer, floating receiver, rather than trying to describe both simultaneously ( just easier to show it that way).

[juggles24]

Co A's net obligation after the SWAP would be LIBOR + 18.5 bps and not 21.5 bps. This is because it PAYS 5.2% to the bond holders and receives 5.015% from the FI. 5.2(-)5.015 = 0.185 = 18.5 bps.

[obsdj]

@juggles24

wrong. look again, it receives 5-0.015 = 4.985% and not 5+0.015=5.015%, and pays 5.2%, thus netting 5.2-4.985= 0.215% or 21.5bps!

[marr1977]

@juggles24 It doesn't receive 5.015%, it receives 5% - 1.5 BP = 4,985% Company B pays 5% + 1.5BP. The spread, 3 BP, is the broker's margin.

[adamish1134]

As an econ major I need to say that it sickens me to see the level of complication which our banking system has attained just to survive. We're seriously fucked.

[lovethyANGELS]

@adamish1134 this guy is a dunce. He is making this more complicated then it needs to be.

[khanpreston1]

what is LIBOR?how is it paid?what is basis point?do we pay basis point?

[brunetto345]

libor = london interbank offer rate

100 basis points = 1%

[rndllhllw]

Nice work. keep it up. mean time come for social media marketing for esteembpo**com

[chinvildoso]

Thank you so much for posting this. It helped to clear some doubts I had.

[soncheeba]

Hi Bionic, quick check here - isn't company A now paying (5% + 20 bps) - (5% + 1.5bps) + Libor ie Libor + 18.5 bps. Thanks

[soncheeba]

aah nevermind, you had a negative sign on company A's income from the FI. ignore me - i clearly need glasses ( or a hearing aid!)

[gudi1982]

financial institution needs to be paid, it's called spread

[chotukutty]

no company A receives (5%-1.5 bps), you made a mistake with the sign, so that is Libor +21.5. Otherwise you are right with what you typed.

[kiepie85]

Thanks for the explanation.

[cachanboy]

Well done! It helps a lot.

Congratulations!

[charlybrown1000]

Que grande!

Good job!