Читать книгу The Trade Lifecycle - Baker Robert P. - Страница 25

Loans are common in everyday life. If we are the borrower (the purchaser of the loan) then we receive money now and pay back that money plus interest at a fixed time in the future. If the agreed interest rate is fixed, say 5 % per year, then the size of the two cashflows is defined from the beginning.

Figure 3.4 depicts our cashflows if we borrow money for future repayment at a fixed interest rate.

Figure 3.4 Cashflows on fixed loan

Some loans can be based on floating rate interest, as in Figure 3.5. This means the parties agree that the interest rate will be based on some reference index plus an agreed margin on top as shown in Figure 3.5. For example, LIBOR plus 200 basis points (one basis point is 0.01 % so 200 basis points is 2 %). The size of the repayment cashflow will not be determined until just before it is due. At a pre-agreed time known as the fixing date (say 11am two business days before repayment is due), the parties will look at the prevailing LIBOR rate (this is a published figure) and determine the size of the repayment. For example:

■ Size of loan: GBP 10,000,000

■ LIBOR rate at fixing: 3.45%

■ Size of repayment will be: 10,000,000 × 5.45 % = GBP 545,000.

Figure 3.5 Cashflows on floating loan