An Empirical Test of Hedge Strategy Using Interest Rate Sawps:The Case of Formosa Plastics Group

• Main Authors: Alex Chang, 張清添
• Other Authors: 詹錦宏
• Format: Others
• Language: zh-TW
• Published: 2003
• Online Access: http://ndltd.ncl.edu.tw/handle/01764989933614668273

碩士 === 長庚大學 === 企業管理研究所 === 91 === During the operation process, the corporation will face all kinds of risk. Generally, we can separate in two types: one is operation risk; the other is financial risk. The corporation will hedge the risk to minimize the uncertainty. Hedging means when the company has an asset position, it will use the financial instrument to reduce or eliminate the unexpected risks. Most companies will use financial leverage, the most popular strategy to hedge the interest risk is IRS (interest rate swap). An IRS is a contractual agreement between two counterparties under which each agrees to make periodic payment to the other for an agreed period time. For the purpose of discussing the application of IRS strategies; this thesis uses the case study of Formosa Plastics Group as the example. It applies the valuation model of IRS to prove the conformity of IRS implement to theoretical basis, analyze the correlation between realized profits/losses and calculated outcomes, and study the relationship among realized profits/losses, differentials of fixed and flexible interest rates in various periods , and trend of yield curve for government bonds. As the outcomes of research demonstrate, it is better for the corporation to base the IRS deal on the theoretical groundwork of valuation model. Through the statistical analyses, the realized profits/losses of IRS deal have a linear relationship with theoretically calculated profits/losses and keep a close proximity with fixed-flexible interest rate differentials semi-annually and annually, respectively. The trend of yield curve for government bonds may be used as a benchmark in the implementation of IRS so as to achieve the goal of hedging.