lecture_5swaps(衍生金融工具-人民银行探究院,何佳).ppt

Lecture # 5: Swaps A swap is an agreement between two or more parties to exchange sets of cash flows over a period in the future. The parties that agree to the swap are known as counter-parties. The cash flows that the counter-parties make are generally tired to the value of debt instruments or to the value of foreign currencies. Therefore, the two basic kinds of swaps are interest rate swaps and currency swaps. ·??????? The Swaps Market -???????? Swaps are custom tailored to the needs of the counter-parties. -???????? The swaps market has virtually no government regulation. -???????? Default risk -???????? Value of Outstanding Swaps ($ Billion of Principal) -???????? Plain Vanilla Swaps Interest rate swaps Currency Swaps -???????? Motivations for swaps Commercial needs: As an example of prime candidate for an interest rate swaps, consider a typical savings and loan association. Savings and loan associations accept deposits and lend those funds for long-term mortgages. Because depositors can withdraw their funds on shot notice deposit rates must adjust to changing interest rate conditions. Most mortgagors wish to borrow at a fixed rate for a long time in US. Is there any interest risk? Can swaps contract help? Comparative advantage: In many situations, one firm may have better access to the capital market than another firm. For example, a U.S. firm may be able to borrow easily in the U.S., but it might not have such favorable access to the capital market in Germany. Similarly, a German firm may have good borrowing opportunities domestically but poor opportunities in the States. ·??????? Interest Rate Swaps -???????? Two Parties exchange periodic interest payments over a period. Typically, one partys payments are based on a fixed rate whereas its counterpartys payments are based on a floating rate. Interest payments are computed using a notional principal. -???????? Example: Both A and B need to borrow $100 million for 3 years. The financing rates facing