Multinational Business Finance: Interest Rate Risk and Swaps

A collection of flashcards covering key terms and concepts related to interest rate risk and financial derivatives in multinational business finance.

Interest Rate Risk

The risk that changes in interest rates will affect the value of financial instruments.

LIBOR

London Interbank Offered Rate; a benchmark interest rate used to calculate rates on various financial products.

Sovereign Debt

Debt issued by a national government in its own currency.

Credit Risk Premium

The additional yield over the risk-free rate demanded by investors to compensate for the risk of default.

Forward Rate Agreement (FRA)

An interbank-traded contract that allows buyers to lock in a future interest rate.

Interest Rate Swap

A contractual agreement to exchange interest rate cash flows, typically exchanging a fixed rate for a floating rate.

Floating-Rate Loan

A loan with an interest rate that fluctuates based on changes in a benchmark rate.

Reference Rate

The interest rate used in financial products for quoting, loan agreements, or derivative valuations.

Repricing Risk

The risk that interest rates will change at the time a financial contract's rate is reset.

Counterparty Risk

The risk that the other party in a financial transaction may not fulfill their contractual obligations.