Interest RateandCurrency SwapsChapter Eleven
Chapter OutlineTypes of SwapsSize of the Swap MarketSwap Market QuotationsInterest Rate SwapsCurrencySwapsRisks of Interest Rate and Currency Swaps
Chapter Outline ❖Types of Swaps ❖Size of the Swap Market ❖Swap Market Quotations ❖Interest Rate Swaps ❖Currency Swaps ❖Risks of Interest Rate and Currency Swaps
DefinitionsIn a swap, two counterparties agree to acontractual arrangement wherein theyagree to exchange cash flows at periodicintervals.Reading: P338 "The world bank's firstcurrency swap
Definitions ❖In a swap, two counterparties agree to a contractual arrangement wherein they agree to exchange cash flows at periodic intervals. ❖Reading: P338 “The world bank’s first currency swap
There are two types of interest rate swaps:Single currency interest rate swap."Plain vanilla" fixed-for-floating swaps are oftenjust called interest rate swaps. Cross-Currency interest rate swap? This is often called a currency swap; fixed for fixedrate debt service in two (or more) currencies
❖There are two types of interest rate swaps: ▪ Single currency interest rate swap •“Plain vanilla” fixed-for-floating swaps are often just called interest rate swaps. ▪ Cross-Currency interest rate swap •This is often called a currency swap; fixed for fixed rate debt service in two (or more) currencies
Size of the Swap MarketIn 2009 the notational principal of:Interest rate swaps was $349.2 trillion USD Currency swaps was $16.5 trillion USD.The most popular currencies are: U.S. dollarJapanese yenEuroSwiss francBritish pound sterling
Size of the Swap Market ❖In 2009 the notational principal of: ▪ Interest rate swaps was $349.2 trillion USD. ▪ Currency swaps was $16.5 trillion USD. ❖The most popular currencies are: ▪ U.S. dollar ▪ Japanese yen ▪ Euro ▪ Swiss franc ▪ British pound sterling