The disadvantages of interest rate swaps Interest rate swaps are financial instruments used by big investors. The interest rate swap is a financial mechanism used by investors, manage risk and speculation of future market performance. Interest rate swaps, an investment group committed to pay a fixed interest rate and a variable interest rate in exchange for the same amount of money to invest to another. This allows speculators to help other investors to consolidate its investment.
Disadvantages of interest rate swaps others are reading to exchange debt for equity risk survey of rate increases return on investment due to floating interest rates fluctuate with the market, they are more difficult to manage than the fixed-rate investments. Fund managers frequently exchange floating interest rates for fixed rate interest rate swaps to lock in the rate, and allows planning. If the terms of the floating interest rate rise in the interest rate swaps consultation, the original owner of the amount of flow lost increased interest income to boost prices, but only the difference between the agreed rate out of each other in floating. For example, if in a 6.7% interest rate swap negotiations, the floating rate rose to 6.9%, the original investors in non-interest bearing 0.2% interest rate differentials.
Speculators the rate speculative investors trading the predictability and safety of fixed-rate revenue stream flow forecasting interest rates will rise in floating interest rate volatility, the more lucrative investment value of floating rate over the initial fees. If the floating rate decreased to reduce the investment value of speculators, investors lose money. For example, a thousand dollars floating rate flow down to 6% (pay an annual value of $ 60) resulting in a net loss of 5 dollar speculators transactions per year interest rate of 6.5% revenue streams (worth $ 65 a year) 1,000 a Australian dollars.
Currency fluctuations, interest rate the swap mechanism more complex form of transaction value of the two currencies interest rate and currency combination. These strategies bring the same investigators and the risk of speculators – whether it is to lose the extra income the value of one currency rises or lose money when it falls – foreign currency exchange and interest rate forecasts, making the international interest rate swaps period a complex proposition.
Source: http://www.howmoneyarticles.com/archives/20130407/the-disadvantage-of-the-interest-rate-swaps.html
Disadvantages of interest rate swaps others are reading to exchange debt for equity risk survey of rate increases return on investment due to floating interest rates fluctuate with the market, they are more difficult to manage than the fixed-rate investments. Fund managers frequently exchange floating interest rates for fixed rate interest rate swaps to lock in the rate, and allows planning. If the terms of the floating interest rate rise in the interest rate swaps consultation, the original owner of the amount of flow lost increased interest income to boost prices, but only the difference between the agreed rate out of each other in floating. For example, if in a 6.7% interest rate swap negotiations, the floating rate rose to 6.9%, the original investors in non-interest bearing 0.2% interest rate differentials.
Speculators the rate speculative investors trading the predictability and safety of fixed-rate revenue stream flow forecasting interest rates will rise in floating interest rate volatility, the more lucrative investment value of floating rate over the initial fees. If the floating rate decreased to reduce the investment value of speculators, investors lose money. For example, a thousand dollars floating rate flow down to 6% (pay an annual value of $ 60) resulting in a net loss of 5 dollar speculators transactions per year interest rate of 6.5% revenue streams (worth $ 65 a year) 1,000 a Australian dollars.
Currency fluctuations, interest rate the swap mechanism more complex form of transaction value of the two currencies interest rate and currency combination. These strategies bring the same investigators and the risk of speculators – whether it is to lose the extra income the value of one currency rises or lose money when it falls – foreign currency exchange and interest rate forecasts, making the international interest rate swaps period a complex proposition.
Source: http://www.howmoneyarticles.com/archives/20130407/the-disadvantage-of-the-interest-rate-swaps.html
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