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FINANCIAL MARKET COURSES

Inverse FRNs

Inverse FRNs (also called reverse or bull FRNs) grew in popularity in the 1980s and 1990s, in response to investors looking to profit from falls in short-term interest rates. This course examines the evolution and construction of inverse FRNs and closely-related structures, where the coupon being paid to investors is a hybrid of different components (such as a fixed part and a floating part). The course analyzes the motivations behind the purchase of such structures, as well as how the value of the structures can change.

  • OBJECTIVES

    On completion of this course, you will be able to:

    Identify the structure of an inverse/reverse FRN, and some of the more common variations

    Describe how the structure is derived from different component pieces

    Explain how the value of the structure (and hence the price to the investor) varies

  • COURSE OUTLINE

    Topic 1: Overview of Inverse FRNs

    What are Inverse FRNs?

    Why Buy an Inverse FRN?

    Inverse FRN Variations

    o Step-Up Inverse FRN

    o Fixed (Deferred) Inverse FRN

    o Leveraged Inverse FRN

    o Superfloater

    Topic 2: Constructing an Inverse FRN

    Decomposition

    Splitting-Out a Fixed Rate Bond

    Delicate Balancing Acts

    Topic 3: Inverse FRN Validation

    Introduction To Inverse FRN Valuation

    Inverse Floater ‘Liquidity’

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    75 Minutes

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