61113 – Assignment backgroundThe global financial crisis has

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Assignment financial has exposed several weaknesses in a rangeof financial products and instruments. Amongst these is LIBOR, whichis expected to be replaced as we speak. CNN business has recentlystated that “LIBOR is … a rate at which banks can lend to each other.It is also the benchmark rate for trillions of US dollar-denominatedcontracts and loans, such as floating rate mortgages.” Clearly, thereis so much dependence on LIBOR, but the time has come to replace it.Your tackles such changes in financial and theirpotential impact on valuing financial products. It is on a casethat discovers aspects of benchmark rates and on that youwill undertake to provide informed views when answering a range ofrecent and important questions that are faced by many practitioners inthe market right now.It is important that you build market-relevant skills while you are atuni. Good luck.Case description:In April 2016, a large U.S. proprietary trading group in New York,with a significant fixed-income portfolio, was debating what discountrate to use to value the group’s interest-rate swap portfolio. Thecounterparties to these swaps were major banks, and the deals werecollateralized. Criticisms about the use of the London interbankoffered rate (LIBOR) as a benchmark for valuing these swaps werecirculating, and there were reports that LIBOR was being manipulated.There was talk about an alternative, nearly -risk-free- reference ratethat could potentially be launched during 2016. Was it time for thetrading group to substitute some of its maturing LIBOR-basedinterest-rate swaps with overnight index swaps?The case requires personal copyrights that will be provided to you. Itis available for purchase at:https://www.iveycases.com/ProductView.aspx?id=81257#You need to register as a user to get the low price.Alternative link:https://store.hbr.org/product/has-libor-lost-its-stature-in-derivatives-markets/W16695ORhttps://www.thecasecentre.org/students/products/view?id=139558For you not to be confused and execute early, I provided you withquestions that guide your thought below.Assignment questions:1- Compare LIBOR and OIS as benchmark rates that could be used invaluing interest rate swaps?2- Evaluate whether these rates (LIBOR and OIS) are risk-free?3- Use the data provided in the case study (in text and tables)to evaluate an interest rate swap based on the two rates? Show allcalculations in detail.Justify the similarity or differences in your valuation.4- Argue, after reading the case, whether the value of interestrate swaps depends on who the counterparty is and whether the contractis collateralized.You are expected to use the provided the case study andcollect 2 research papers (used to evaluate/discuss theory and/ormodels, or where relevant findings), 2 professional papers (marketparticipants views/ experience), or market commentaries which supportideas you may raise in answering the assignment questions.The library databases are your access point to such articles. There isa range of high-quality finance journals in the databases which areavailable at this link:https://www.latrobe.edu.au/library/databases?s=000000816

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