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Published by: IBS Case Development Center
Published in: 2011

Abstract

The case study Currency Rate Swap Between IBM and World Bank, discusses the first ever standard currency swap deal between IBM and World Bank. The case study explains how appreciation in dollar during the late 1980s against European currencies gave an opportunity to IBM to earn capital gains on the existing loans in Swiss Franc (CHF) and German Mark (DEM). However, it was possible only if IBM swapped its existing loans in CHF and DEM with someone. For this, Salomon Brothers started looking for a party on behalf of IBM. At last, it could find World Bank was the right candidate for the proposed swap. After few initial hurdles, World Bank and IBM agreed for the first ever standard swap transaction planned by Salomon Brothers. The case will help the students to: 1) Explain the mechanism of currency swaps in the special context of the first ever currency swap deal between IBM and World Bank; 2) Demonstrate the importance of an intermediary in swaps deals; 3) Explain the advantages of swap deals; 4) Understand the complexity involved in currency swaps deals; 5) Examine the need for currency swap deals in international trade. The case is meant for MBA/MS level students as part of a financial risk management curriculum.
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Abstract

The case study Currency Rate Swap Between IBM and World Bank, discusses the first ever standard currency swap deal between IBM and World Bank. The case study explains how appreciation in dollar during the late 1980s against European currencies gave an opportunity to IBM to earn capital gains on the existing loans in Swiss Franc (CHF) and German Mark (DEM). However, it was possible only if IBM swapped its existing loans in CHF and DEM with someone. For this, Salomon Brothers started looking for a party on behalf of IBM. At last, it could find World Bank was the right candidate for the proposed swap. After few initial hurdles, World Bank and IBM agreed for the first ever standard swap transaction planned by Salomon Brothers. The case will help the students to: 1) Explain the mechanism of currency swaps in the special context of the first ever currency swap deal between IBM and World Bank; 2) Demonstrate the importance of an intermediary in swaps deals; 3) Explain the advantages of swap deals; 4) Understand the complexity involved in currency swaps deals; 5) Examine the need for currency swap deals in international trade. The case is meant for MBA/MS level students as part of a financial risk management curriculum.

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