Swaps and Swaptions - Interest Rate Caps - Example - video Dailymotion

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00:00So let's discuss the example for interest rate caps.

00:06A company has borrowed 1000 lakhs on floating basis. Floating basis 3 years.

00:13The interest rates are reset every year.

00:18The spread over Libar is 25 basis points. Libar plus 25 basis points.

00:32Call percentage. 10 percentage 10.25 percentage will be taken.

00:38The company buys 3 year cap on a 1 year Libar with a strike rate of 9 percentage.

00:46Libar one of the 9 percentage will be managed.

00:49If you want to make a strike rate, strike rate.

00:569 percentage. Cap.

01:00Right. Having the same face value of it is 1000 lakhs.

01:05The cap carries a premium of 2 percentage of the face value or 20 lakhs.

01:11The premium is 2 percentage.

01:15Or 20 lakhs.

01:171000 lakhs to be 2 percentage of the face value is 20 lakhs.

01:20That's why you mean it is 20 lakhs.

01:212 percentage on the value.

01:23That's simply 20 lakhs.

01:25Current 1 year Libar rate is 9 percentage.

01:291st year Sine.

01:309 percentage.

01:311st year 2nd year 3rd year 3rd year 9.5.

01:332nd year 8.5.

01:343rd year 10 percentage.

01:35What is the cash flow from cap each year?

01:36Oh, cash flow from cap each year.

01:37Oh, cash flow is 8.5.

01:382nd year 8.5.

01:393rd year 10 percentage.

01:40What is the cash flow from cap each year?

01:41Oh, cash flow is 8.5.

01:42So, year year 1, year 2, year 3.

01:54Libar rate is 9.5 percentage.

01:59Here is 8.5 percentage.

02:01Here is 10 percentage.

02:04Okay.

02:05Cash inflow from, cash inflow from caps.

02:10Caps inflow.

02:11Epa over?

02:12Strike rate on the 9 percentage.

02:14So, if it is more than 9 percentage, we will get.

02:19So, 1st scenario, 0.5 percentage.

02:220.5 percentage.

02:25Apa 1000 lakhs irkku 0.5 percentage puttikna 5 lakhs will be inflow of cash.

02:362nd year 8.5.

02:38Strike rate akkur liuk kambi airukku we don't get anything.

02:403rd year 10.

02:42Strike rate anna 9 ikku meela 1 percentage irukkabin chun akkur.

02:461 percentage on the face value 1000 lakhs puttikna avada varudhu 10 lakhs vorum.

02:53Here is caps nal vandu cash inflow.

02:55Caps nal vandu cash inflow.

02:56Caps nal vandu cash inflow.

02:58Caps nal vandu cash inflow.

02:59Okay.

03:00Cap nal vandu cash inflow in percentage in amount.

03:05Right.

03:09Here is cash inflow.

03:11Cap premium cuttikna engel liya.

03:14That is the cash outflow then.

03:1920 lakhs is the outflow.

03:2220 lakhs is the outflow for 3 years. You can amortize over the 3 years period to go to club.

03:26Year on year, 6.67 lakhs, 6.66 lakhs, 6.66 lakhs, this is the outflow for interest.

03:42Cash outflow for interest. Interest with outflow? Are you interested?

03:48Interest rate, Libar rate, basis points cut in 0.25.

03:52JASI, 9.75% you cut.

03:56First year. Second year, 8.5.25% you cut.

04:0610.25% you cut.

04:10Cash outflow in terms of rupees, interest outflow.

04:16Interest outflow. Interest outflow. Interest outflow.

04:20Percentage, this is rupees.

04:241,000 to 9.75% you cut.

04:3097.5 for the first case.

04:32Lakhs.

04:34This is 87.5 lakhs.

04:38This is 102.5 lakhs.

04:42Now, my question is, what is the cash outflow year on year?

04:48First year, 97.5 outflow plus 6.67 outflow, give inflow.

04:56Now, we have to subtract outflow.

04:5897.5 plus premium outflow.

05:02That is actually the first year.

05:04Year on year, we have to assume that.

05:06So, 97.5 outflow, 6.67 outflow.

05:12This is inflow.

05:145 subtracting, the ultimate value being.

05:1699.17 lakhs.

05:20Second year, 87.5, 6.67.

05:22One percent inflow,

05:2494.17 is the outflow.

05:28That is the answer.

05:30That is the answer.

05:32102.5 plus 6.66 minus 10.5.

05:3610 lakhs.

05:3899.17.

05:40So, this is the answer.

05:42Rate of interest,

05:44100% or 20%

05:46We have to go to 99.17.

05:48We have to go to 99.17.

05:50We have to go to 99.17.

05:52So, this is the answer.

05:54Outflow is the answer.

05:56Okay.

05:58How much is that?

06:00Yeah, last one.

06:02Loan or repayment.

06:04You got to stop.

06:06This is the logic of caps.

06:10This is the logic of caps.

06:12Come on, make a note of it.

06:26You've got to do something.

06:28Well, I talked over and terminate the supray.

06:32Googleurs are awesome.

06:34You shut up.

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