Essays on Underwriter

QUESTION A

Credit Default Swap It is a financial instrument lenders use to hedge default risk. The lender acquires a CDS and pays premiums to the CDS seller who takes the default risk (Lasher 200). If the borrower defaults, then the CDS seller pays the par value of the loan to the lender. The CDS seller also pays the protection buyer accrued interests on the loan during the intervening period.

Cash flows in case of no default

Annual CDS premium = 4% × 1,000,000 = $40,000 Quarterly payments = 40,000/4 = $10,000 A will pay quarterly CDS premiums to B for the three years. At the end of ...

QUESTION A

Definition of Credit Default Swaps A CDS is an instrument used to transfer the risk of default or credit exposure between two or more parties (Fabozzi and Kothari, 2008). It protects the lender from the possible loss of default by the borrower. The lender (protection buyer) pays premiums to the CDS seller. In return, the CDS seller guarantees to pay the lender the face value of the loan plus interests due in the intervening period if the borrower defaults.

Cash flows

Annual CDS premium = 4% × 1,000,000 = $40,000 Quarterly payments = 40,000/4 = $10,000 The borrower does not default ...

QUESTION A

A Credit Default Swap is a swap that protects the lender from the risk of loss resulting from the default by the borrower. The protection buyer of the CDS (the lender) makes periodic income payments (CDS premiums) to the protection seller who in return guarantees to pay the lender the principal in case the borrower defaults.

Cash flows when there is no default

Notional amount = $1 million Annual CDS premium = 4% × 1,000,000 = $40,000 Quarterly CDS premium = $10,000 If the borrower does not default, the protection seller will make a profit of $120,000 at the end of the third year ($10,000 ...

Careers in Finance

The variety of choice of the profession in the field of finance opens a lot of great opportunities for a person. In order to become successful in this area you must have not only high intellectual skills, but also creativity. I have chosen two professions for the consideration which, in my opinion, are unusual and very interesting.

Financial Analyst

Information has already become an essential product of market relations. But the acquisition of some information is only the first stage. It is important to analyze the facts and extract the necessary data. Such work is a fairly complicated process. Only a ...

Reflection Paper

The concept of insurance may have started a long time ago through informal risk sharing practices. Modern insurance is a more recent development that began in the 16th Century. However, the impact and the essence of insurance only became of interest to the financial market over 100 years ago and it has grown to be an immense international business. The insurance theory is applied in a number of ways including the Affordable Health Care Act, compensation of workers, liability, and property. The insurance theory also has a wide array of functions in claims administration, underwriting, marketing and in companies ...

Crazy Eddie, Inc. was established in 1969 by Eddie Antar who was a 21 year old high school dropout from Brooklyn. The company became a market leader in the retail consumer electronics business in a short span of 18 years. It had a total turnover of more than $350 million and a collective market value of $600 million by 1987. Crazy Eddie’s empire soon collapsed when a major financial scandal was uncovered at the end of 1987. Eddie Antar and his associates were found to be fraudulently involved in the overstatement of inventory and profits and the understatement ...

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External analysis (Porter’s Five Forces) Risk of Entry By Potential Competitors In the insurance industry, one important indicator for its attractiveness to new players is insurance density, which is the average amount of insurance premium paid per capita. The US is sixth in the world with $5,965 with Canada and Luxembourg having $ 57,520 and $11,174. In terms of penetration, which is the ratio of the total premiums held in the country to its GDP; the US has 11% which is again 6th in the world. In comparison, Luxembourg and Ireland has 44% ...

GLENCORE IPO

Objectives of the IPO

Increasing its market dominance in the mining sector was the main reason behind the IPO of the company. The price of 545 pence was strategically set to ensure that enough funds would be secured in order to achieve this fete. Therefore, the company managers believed that the IPO would adequately position the company for Growth. Another objective in this case also included the fact that the company’s partners would have the ability of selling their equity without any need of selling its assets to deplete the working capital. The Company also wanted to increase ...

The following are some of the rules and regulation that applies to Kuwait application of debentures to the investors; the first requirement is that it must be licensed by the Kuwait Ministry of Commerce and Industry. The Ministries has a responsibility to supervise the issuing of the debenture by the Central bank of Kuwait. The Commercials Companies Law requires that company capital subscribed be paid in full and does not allow issuing of debentures that more than the capital paid up. The holder must pass the resolution authorized by the Kuwait issuers. Once the debenture holders are issued with the ...