ABSTRACT
This chapter introduces interest rate derivatives as a financial instrument that can be used in the shipping industry. It provides a number of practical examples to illustrate the use of these contracts in the shipping industry. A bond is a debt financial instrument that allows the bond issuer to borrow capital from investors holding the bond, the so-called bondholders. The United States (US) Treasury notes (T-Notes) and Treasury bonds (T-Bonds) are debt issues of the US Federal government that promise semi-annual coupon payments and are issued at or near par value. The Yield-to-Maturity (YTM) of a bond issue is a measure of the average rate of return to an investor who purchases the bond for the asked price and holds it until its maturity date. The yield curve is a graphic depiction of the yields on bonds of the same credit quality but with different maturities.
