Terminologies Used in the Options Market

Following are the terminologies of options: Stock Options Stock options are options on individual stocks. A contract gives the holder the right to buy or sell shares at the specified price. Index Options These options have the index as the …

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Fundamentals of Options

An option is a contract that gives the holder the right, but not the duty, to make a specified transaction for a specified time. Alternatively, the contract may grant the other party the right, but not the obligation, to sell …

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Some Other Types of Swaps

Following are some other types of swaps: Basis Rate Swaps It is a type of swap in which two parties swap variable interest rates based on different money markets. This is usually done to limit the interest-rate risk that a …

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Commodity Swaps

A commodity swap is a swap where exchanged cash flows are dependent on the price of an underlying commodity. This is usually used to hedge against the price of a commodity. A commodity swap is an agreement whereby a floating …

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Equity Swaps

An equity swap is a swap in which at least one party’s payments are based on the rate of return of an equity index, such as the S&P 500. The other party’s payments can be based on a fixed rate, …

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Interest Rate Swaps

An interest rate swap, or simply a rate swap, is an agreement between two parties to exchange a series of interest payments without exchanging the underlying debt. In a typical fixed/floating rate swap, the first party promises to pay to …

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Currency Swaps

Currency swaps are derivative products that help to manage exchange rate and interest rate exposure on long-term liabilities. A currency swap involves the exchange of interest payments denominated in two different currencies for a specified term, along with the exchange …

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Types of Swaps

Following are the types of swap: Currency Swaps Swap contracts also can be arranged across currencies. Such contracts are known as currency swaps and can help to manage both interest rate and exchange rate risk. A currency swap is an …

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Use of Swap

The following gains can be derived by the systematic use of swap: Borrowing at Lower Cost Swap facilitates borrowings at a lower cost. It works on the principle of the theory of comparative cost, as propounded by Ricardo. One borrower …

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Structure of Global Swap Market

The episodic liquidity in many of the swaps markets that they have generally evolved over the past several decades into two-tiered marketplaces for institutional market participants, that is, “dealer-to-customer” (D2C) marketplaces and “dealer-to-dealer” (D2D) marketplaces. Dealer-to-Customer (D2C) In D2C marketplaces, …

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