448 Planning and Forecasting
size and direction of the cash f lows are determined by an agreed upon formula spelled out in the swap agreement—a formula that is contingent on the performance of other underlying instruments. Due to this contingency on other underlying assets, swaps are considered derivatives. One easy type of swap to understand is the equity swap. Suppose Back Bay Investment Management owns a large block of Standard & Poor’s 500 stocks. Suppose another firm, Capital Bank owns a large block of NASDAQ stocks.
The prices established and offered in such transactions are generally disseminated and quoted
throughout the United States and foreign countries and constitute a basis for determining and
establishing the prices at which securities are bought and sold, the amount of certain taxes owing
to the United States and to the several States by owners, buyers, and sellers of securities, and the
value of collateral for bank loans.
The term "person" means an individual, a corporation, a partnership, an association, a joint-
stock company, a trust, any unincorporated organization, or a government or political
subdivision thereof. As used in this paragraph the term "trust" shall include only a trust
where the interest or interests of the beneficiary or beneficiaries are evidenced by a
Corporations must cope with fluctuations in interest rates, commodity prices, and exchange rates. This chapter discusses how they do it, with particular attention paid to financial instruments such as futures contracts, options, and swap agreements.
Sector Approaches and Sector Programmes have been
labelled over time in different ways: SIPs (Sector
Investment Programmes), SDPs (Sector Development
Programmes), Sector Expenditure Programmes, and
more recently SWAp (Sector Wide Approach). In spite
of the varied terminology, there are key principles on
which there is agreement in the international donor
Firstly, it is accepted that they should be led by
partner governments. Secondly, they have the
common goal of improving the efficiency and
effectiveness with which internal and external
resources are utilised.
The Company on behalf of a sub-fund may enter into transactions in over-the-counter markets, which will expose the sub-fund to the
credit of its counterparties and their ability to satisfy the terms of such contracts.
For example, the Company on behalf of the sub-fund may enter into repurchase agreements, forward contracts, options and swap
arrangements or other derivative techniques, each of which expose the sub-fund to the risk that the counterparty may default on its
obligations to perform under the relevant contract.
Another notable increase occurred in the forward-rate agreement (FRA) usage. FRA
is a contract that determines the rate of interest, or currency exchange rate, to be paid or
received on an obligation beginning at some future date. At the end of 1996, 9.02 percent of
the sample banks report using FRAs. By the end of 2004, the percentage using FRAs more
than doubled. While the percentage of banks participating in the swaps and forwards
increased over the sample period, the proportion of banks using interest-rate options fell.