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As the swap market continues to grow, it is important for students to understand this market. This note provides a brief history of the swap market, and discusses the conditions under which one would use some of the different types of swaps available. To clarify this discussion several numerical examples are also provided.

As the funding requirements for international projects continues to grow, it is becoming increasingly important to understand some of the different tools which exist to raise capital for these projects while maintaining the risk within acceptable bounds. Project finance is a common way of doing this, especially in the mining and oil industries or for the financing of infrastructure developments. This note provides a basic introduction to the topic and discusses this within the context of a simple example.

Compania Minera Antamina S.A. is a consortium of three large multinational Canadian mining companies set up to exploit a very large copper-zinc deposit north central Peru. The project requires about US$2 billion of financing for the development and exploitation of the deposit. The finance committee needs to determine the best means to raise the necessary funds: loans guaranteed by the sponsors or project finance. The costs and benefits are different across alternatives because the project involves both business and political risks to which the exposure for all of the stakeholders is different.

Compania Minera Antamina S.A. is a consortium of three large multinational Canadian mining companies set up to exploit a very large copper-zinc deposit north central Peru. The project requires about US$2 billion of financing for the development and exploitation of the deposit. The finance committee needs to determine the best means to raise the necessary funds: loans guaranteed by the sponsors or project finance. The costs and benefits are different across alternatives because the project involves both business and political risks to which the exposure for all of the stakeholders is different.

The account manager at the Confederation Bank was contemplating a loan request from Peak Roofing, a wholesale and retail distributor of roofing supplies. The funds would be used to add a new branch to its existing three Montreal sites. This was an opportunity to steal Peak Roofing's business from a competitor, but he knew he had to put together a careful analysis of the risks and opportunities to get the deal approved. To do so, he needed to size-up the business, create projected financial statements and structure a deal for both a term and operating loan.

International finance plays a large, although often hidden, role in our lives. As a result, an understanding of this market is essential to understanding the new global economy. In this note, students are provided with a thorough introduction to the foreign exchange market from a Canadian perspective. The history of the Canadian dollar, from confederation until the present is chronicled. Many aspects of the current flexible exchange rate system and the terminology used in the different exchange markets - the spot, forward, future, options and swap markets - are introduced.

Lufthansa, the flagship German airline, was undertaking an aggressive expansion program. The chairman of the board had negotiated a deal with Boeing for the purchase of 20 new aircraft at a cost of US$500 million. The U.S. dollar was at historic highs and he had to decide how much, if any, of the US$500 million purchase price to hedge and best method to use. Since Lufthansa's revenues were mainly in deutsche marks and this amount was payable in one year, he needed to determine how to deal with the resulting foreign exchange risk by examining principle foreign exchange hedging strategies. Covenants restricting Lufthansa to take on new debt made it critical that he be sure of the financing and risk exposure before finalizing the deal.

The financial uncertainty in Hong Kong and Asia from mid-1997 to mid-1998 was caused in part by the Asian flu and the return of Hong Kong to the People's Republic of China. A large North American-based insurance company was faced with the decision of managing its Asian assets in light of this uncertainty, especially the possible breaking of the peg between the Hong Kong dollar and the U.S. dollar. As the vice-president of capital markets at Manulife Financial contemplated what strategy he would recommend to the senior executive group, he considered the concepts of fixed/pegged exchange rates and the use of different strategies to manage the risks, as well as the potential profit opportunities that may arise when a fixed/pegged exchange rate is under attack and may break.