A positive covenant on a $200 MM floating rate loan required Columbia River Pulp (CRP) to hedge a minimum of $100 MM for at least three years at a maximum speed of 12 percent. The alternatives comprised interest rate CAPs, SWAPs and COLLARs.
What is the best hedging construction? Should CRP hedge all its floating rate debt, or just the amount required under the loan agreement? (This case can be used with two related cases bearing exactly the same name, which are 9A95B034 and 9A90B036. In addition, a Microsoft Excel spreadsheet is available to be used with this case, merchandise 7A90B037.)
Learning Objective: The aims of this instance are to introduce the following facets, which are interest rate risk management through the usage of the financial markets, interest rate derivatives (SWAPs, CAPs, and COLLARs), interest rate customs (LIBOR, Prime, U.S., Canada, and Euro).
Publication Date: 01/01/1990
This is just an excerpt. This case is about Finance
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