Interest rate swaps and economic exposure

The interest rate swap market has grown rapidly. Since the inception of the swap market in 1981, the outstanding notional principal of interest rate swaps has reached a level of $12.81 trillion in 1995. Recent surveys indicate that interest rate swaps are the most commonly used interest rate derivative by nonfinancial firms and that nonfinancial firms are major users of interest rate swaps. In this paper, we provide an economic rationale for the use of interest rate swaps by such nonfinancial firms. In a global economy, given the floating exchange rate regime, nonfinancial firms face economic exposure in the presence of foreign competition. Asymmetric information about economic exposure leads to mispricing of the firms' debt, and the firm chooses either short-term or long-term debt to minimize the cost of debt. We show that when there is a favorable (unfavorable) exchange rate shock, an exposed firm chooses short-term (long-term) debt together with fixed-for-floating (floating-for-fixed) interest rate swaps. Given interest rate expectations, interest rate swaps enable the firm to minimize the cost of fixed or floating rate debt.Interest rates ; International finance ; Risk ; Swaps (Finance)

A Dynamic Equilibrium Model of Real Exchange Rates with General Transaction Costs

We study the behavior of real exchange rates in a two­country dynamic equilibrium model. In this model, consumers can only consume domestic goods but can invest costlessly in capital stocks of both countries. Nevertheless, transporting goods between the two countries is costly and, hence, the rebalancing of the capital stock can only happen finitely often. We propose a realistic cost structure for goods transportation, wherein the total cost increases with the amount of shipment but the unit cost decreases with it due to economies of scale. Given such a cost structure, the optimal decisions on when and how much to transfer need to be determined jointly. The dual decision depends upon the magnitude of economies of scale, the production technology specifications, and the consumer preferences. The model can reconcile the observed large short­term volatility of the real exchange rate with its slow convergence to parity. Further, the drift and diffusion of the real exchange rate are not uniquely determined by the real exchange rate level. The dynamics of the real exchange rate can only be determined by a joint analysis of the real exchange rate and the underlying economic fundamentals such as the capital stock imbalance between the two countries.costs of goods transportation; economies of scale; real exchange rate; purchasing power parity; nonlinearity.

Interest rate swaps and economic exposure

The interest rate swap market has grown rapidly. Since the inception of the swap market in 1981, the outstanding notional principal of interest rate swaps has reached a level of $12.81 trillion in 1995. Recent surveys indicate that interest rate swaps are the most commonly used interest rate derivative by nonfinancial firms and that nonfinancial firms are major users of interest rate swaps. In this paper, we provide an economic rationale for the use of interest rate swaps by such nonfinancial firms. In a global economy, given the floating exchange rate regime, nonfinancial firms face economic exposure in the presence of foreign competition. Asymmetric information about economic exposure leads to mispricing of the firms' debt, and the firm chooses either short-term or long-term debt to minimize the cost of debt. We show that when there is a favorable (unfavorable) exchange rate shock, an exposed firm chooses short-term (long-term) debt together with fixed-for-floating (floating-for-fixed) interest rate swaps. Given interest rate expectations, interest rate swaps enable the firm to minimize the cost of fixed or floating rate debt

A20, a modulator of smooth muscle cell proliferation and apoptosis, prevents and induces regression of neointimal hyperplasia

A20 is a NF‐κB‐dependent gene that has dual anti‐inflammatory and antiapoptotic functions in endothelial cells (EC). The function of A20 in smooth muscle cells (SMC) is unknown. We demonstrate that A20 is induced in SMC in response to inflammatory stimuli and serves an anti‐inflammatory function via blockade of NF‐κB and NF‐κB‐dependent proteins ICAM‐1 and MCP‐1. A20 inhibits SMC proliferation via increased expression of cyclin‐dependent kinase inhibitors p21waf1 and p27kip1. Surprisingly, A20 sensitizes SMC to cytokine‐ and Fas‐mediated apoptosis through a novel NO‐dependent mechanism. In vivo, adenoviral delivery of A20 to medial rat carotid artery SMC after balloon angioplasty prevents neointimal hyperplasia by blocking SMC proliferation and accelerating re‐endothelialization, without causing apoptosis. However, expression of A20 in established neointimal lesions leads to their regression through increased apoptosis. This is the first demonstration that A20 exerts two levels of control of vascular remodeling and healing. A20 prevents neointimal hyperplasia through combined anti‐inflammatory and antiproliferative functions in medial SMC. If SMC evade this first barrier and neointima is formed, A20 has a therapeutic potential by uniquely sensitizing neointimal SMC to apoptosis. A20‐based therapies hold promise for the prevention and treatment of neointimal disease.—Patel, V. I., Daniel, S., Longo, C. R., Shrikhande, G. V., Scali, S. T., Czismadia, E., Groft, C. M., Shukri, T., Motley‐Dore, C., Ramsey, H. E., Fisher, M. D., Grey, S. T., Arvelo, M. B., Ferran, C. A20, a modulator of smooth muscle cell proliferation and apoptosis, prevents and induces regression of neointimal hyperplasia. FASEB J. 20, 1418–1430 (2006)Peer Reviewedhttps://deepblue.lib.umich.edu/bitstream/2027.42/154452/1/fsb2fj054981com.pd

A20 Modulates Lipid Metabolism and Energy Production to Promote Liver Regeneration

Background: Liver Regeneration is clinically of major importance in the setting of liver injury, resection or transplantation. We have demonstrated that the NF-$\kappa$B inhibitory protein A20 significantly improves recovery of liver function and mass following extended liver resection (LR) in mice. In this study, we explored the Systems Biology modulated by A20 following extended LR in mice. Methodology and Principal Findings: We performed transcriptional profiling using Affymetrix-Mouse 430.2 arrays on liver mRNA retrieved from recombinant adenovirus A20 (rAd.A20) and rAd.$\beta$galactosidase treated livers, before and 24 hours after 78% LR. A20 overexpression impacted 1595 genes that were enriched for biological processes related to inflammatory and immune responses, cellular proliferation, energy production, oxidoreductase activity, and lipid and fatty acid metabolism. These pathways were modulated by A20 in a manner that favored decreased inflammation, heightened proliferation, and optimized metabolic control and energy production. Promoter analysis identified several transcriptional factors that implemented the effects of A20, including NF-$\kappa$B, CEBPA, OCT-1, OCT-4 and EGR1. Interactive scale-free network analysis captured the key genes that delivered the specific functions of A20. Most of these genes were affected at basal level and after resection. We validated a number of A20's target genes by real-time PCR, including p21, the mitochondrial solute carriers SLC25a10 and SLC25a13, and the fatty acid metabolism regulator, peroxisome proliferator activated receptor alpha. This resulted in greater energy production in A20-expressing livers following LR, as demonstrated by increased enzymatic activity of cytochrome c oxidase, or mitochondrial complex IV. Conclusion: This Systems Biology-based analysis unravels novel mechanisms supporting the pro-regenerative function of A20 in the liver, by optimizing energy production through improved lipid/fatty acid metabolism, and down-regulated inflammation. These findings support pursuit of A20-based therapies to improve patients' outcomes in the context of extreme liver injury and extensive LR for tumor treatment or donation

O-Glycosylation Regulates Ubiquitination and Degradation of the Anti-Inflammatory Protein A20 to Accelerate Atherosclerosis in Diabetic ApoE-Null Mice

Background: Accelerated atherosclerosis is the leading cause of morbidity and mortality in diabetic patients. Hyperglycemia is a recognized independent risk factor for heightened atherogenesis in diabetes mellitus (DM). However, our understanding of the mechanisms underlying glucose damage to the vasculature remains incomplete. Methodology/Principal Findings: High glucose and hyperglycemia reduced upregulation of the NF-κB inhibitory and atheroprotective protein A20 in human coronary endothelial (EC) and smooth muscle cell (SMC) cultures challenged with Tumor Necrosis Factor alpha (TNF), aortae of diabetic mice following Lipopolysaccharide (LPS) injection used as an inflammatory insult and in failed vein-grafts of diabetic patients. Decreased vascular expression of A20 did not relate to defective transcription, as A20 mRNA levels were similar or even higher in EC/SMC cultured in high glucose, in vessels of diabetic C57BL/6 and FBV/N mice, and in failed vein grafts of diabetic patients, when compared to controls. Rather, decreased A20 expression correlated with post-translational O-Glucosamine-N-Acetylation (O-GlcNAcylation) and ubiquitination of A20, targeting it for proteasomal degradation. Restoring A20 levels by inhibiting O-GlcNAcylation, blocking proteasome activity, or overexpressing A20, blocked upregulation of the receptor for advanced glycation end-products (RAGE) and phosphorylation of PKCβII, two prime atherogenic signals triggered by high glucose in EC/SMC. A20 gene transfer to the aortic arch of diabetic ApoE null mice that develop accelerated atherosclerosis, attenuated vascular expression of RAGE and phospho-PKCβII, significantly reducing atherosclerosis. Conclusions: High glucose/hyperglycemia regulate vascular A20 expression via O-GlcNAcylation-dependent ubiquitination and proteasomal degradation. This could be key to the pathogenesis of accelerated atherosclerosis in diabetes

A Dynamic Equilibrium Model of Real Exchange Rates with General Transaction Costs

We study the behavior of real exchange rates in a two-country dynamic equilibrium model. In this model, consumers can only consume domestic goods but can invest costlessly in capital stocks of both countries. Nevertheless, transporting goods between the two countries is costly and, hence, the rebalancing of the capital stock can only happen finitely often. We propose a realistic cost structure for goods transportation, wherein the total cost increases with the amount of shipment but the unit cost decreases with it due to economies of scale. Given such a cost structure, the optimal decisions on when and how much to transfer need to be determined jointly. The dual decision depends upon the magnitude of economies of scale, the production technology specifications, and the consumer preferences. The model can reconcile the observed large short-term volatility of the real exchange rate with its slow convergence to parity. Further, the drift and diffusion of the real exchange rate are not uniquely determined by the real exchange rate level. The dynamics of the real exchange rate can only be determined by a joint analysis of the real exchange rate and the underlying economic fundamentals such as the capital stock imbalance between the two countries