SWAP Currency and Interest Rate - 现代金融市场概论教学课件PPT.ppt

swap Currency Interest Rate Currency Interest Rate Swaps This chapter discusses currency and interest rate swaps, which are relatively new instruments for hedging long-term interest rate risk and foreign exchange risk. Outline Types of Swaps Size of the Swap Market The Swap Bank Interest Rate Swaps Currency Swaps Outline (continued) Swap Market Quotations Variations of Basic Currency and Interest Rate Swaps Risks of Interest Rate and Currency Swaps Swap Market Efficiency Concluding Points About Swaps Definitions In a swap, two counterparties agree to a contractual arrangement wherein they agree to exchange cash flows at periodic intervals. 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 Market In 2001 the notational principal of: Interest rate swaps was $58,897,000,000. Currency swaps was $3,942,000,000 The most popular currencies are: U.S. dollar Japanese yen Euro Swiss franc British pound sterling The Swap Bank A swap bank is a generic term to describe a financial institution that facilitates swaps between counterparties. The swap bank can serve as either a broker or a dealer. As a broker, the swap bank matches counterparties but does not assume any of the risks of the swap. As a dealer, the swap bank stands ready to accept either side of a currency swap, and then later lay off their risk, or match it with a counterparty. An Example of an Interest Rate Swap Consider this example of a “plain vanilla” interest rate swap. Bank A is a AAA-rated international bank located in the U.K. and wishes to raise $10,000,000 to finance floating-rate Eurodollar loans. Bank A is considering issuing 5-year fixed-rate Eurodollar bonds at 10 percent. It would make more sense for the bank to issue floating-rate