18FutureContracts,OptionsandSwaps解析.ppt

Listening Text 18.3 Swaps Listen carefully to the third part of the text and then try to translate some sentences. Swaps are contracts to exchange cash (flows) on or before a specified future date based on the underlying value of currencies/ exchange rates, bonds/interest rates, commodities, stocks or other assets. Text : Text : TYPES OF SWAPS WHO WOULD USE A SWAP? EXITING A SWAP AGREEMENT TYPES OF SWAPS A swap is an agreement between two parties to exchange sequences of cash flows for a set period of time. Usually, at the time the contract is initiated, at least one of these series of cash flows is determined by a random or uncertain variable, such as an interest rate, foreign exchange rate, equity price or commodity price. Conceptually, one may view a swap as either a portfolio of forward contracts, or as a long position in one bond coupled with a short position in another bond. Text : Unlike most standardized options and futures contracts, swaps are not exchange-traded instruments. Instead, swaps are customized contracts that are traded in the over-the-counter (OTC) market between private parties. Firms and financial institutions dominate the swaps market, with few (if any) individuals ever participating. Because swaps occur on the OTC market, there is always the risk of a counterparty defaulting on the swap. We will discuss the two most common and most basic types of swaps: the plain vanilla interest rate and currency swaps. Text : Plain Vanilla Interest Rate Swap The most common and simplest swap is a plain vanilla interest rate swap. In this swap, Party A agrees to pay Party B a predetermined, fixed rate of interest on a notional principal on specific dates for a specified period of time. Concurrently, Party B agrees to make payments based on a floating interest rate to Party A on that same notional principal on the same specified dates for the same specified time period. Text : In a plain vanilla swap, the two cash flows are paid in the same c