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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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Mechanics of Swap

Swaps are bilateral agreements between two parties, called counterparties, in which the parties agree to make a series of payments to each other. This agreement or contract is evidenced by a document called a master swap agreement. All swaps regardless …

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Termination of Swap

The different ways in which a swap can be terminated are as follows: By Mutual Agreement or as per Contract Details When a swap contract is initiated, it has zero value. However, as time passes and circumstances change, the swap …

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Characteristics of Swap Contracts

The following are the important characteristics of swap contracts: Basically a Forward A swap is nothing but a combination of forwards. So, it has all the properties of a forwarding contract. Double Coincidence of Wants A swap requires that two …

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Concept of Swap

A swap is an agreement to a future exchange of one asset for another, one liability for another, or more specifically, one stream of cash flows for another. A swap is a private agreement between two parties in which both …

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Basis & Convergence in Futures Contract

The two most important concepts in futures trading are basis and convergence. Basis The relationship between the cash and futures price is known as the basis. In marketing, basis generally refers to the difference between a price in a particular …

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