Joey D, need your help again :)

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bigwilly

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Joey, quick Q for you. If I do an annual LIBOR/Russell 2000 Total Return SWAP, and say LIBOR is my benchmark, would the two LIBORs cancel each other out?? I want to say not exactly b/c the Libor rate is determined at the beginning of the SWAP so say 5%. But if Libor increases or decreases during the year, then the Libor return for the year will be different than 5%. If Libor did not change then yes, it would be 5%, but if it does change than it will not be 5%, correct? Unless i guess if you do a floating Libor/R2000 Total return SWAP, right? I'm being told that Libor cancels out Libor, but I think that's a a perfect world scenario. Thanks for your help and advice :).

Edit:

But now that I think about it, if Libor increases/decreases I guess that would increase/decrease teh value of your swap, so that might offset the gain or loss, correct????? I guess I need to do an example in excel or something...



Edited 1 time(s). Last edit at Thursday, June 28, 2007 at 07:27AM by bigwilly.
 
I think that as long as your benchmark matches the terms of the swap, they cancel out.
 
Ok. I think I'm just overthinking this too much. Thanks.
 
Actually I am "Willy". Big Willy is my more corpulent cousin.

Willy
 
They are a number of different LIBOR indexes. As long as the same LIBOR rate is used, they would float together and cancel out. If you're exposed to 30 day LIBOR and swap out the LIBOR Market Index or 90 day LIBOR, you'll have some noise, but probably not too much.
 
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