文档介绍：Chapter 8 Currency Swaps & Swaps Markets
Parallel Loans: Necessity is the Mother of Invention
Pros and Cons of Parallel Loans
Swaps to the Rescue
Swaps as Portfolios of Forward Contracts
Currency Swaps
Interest Rate Swaps
Other Types of Swaps
Hedging the Swap Bank’s Financial Risk Exposure
The Benefits of Swaps to the MNC
Summary
Motivation for a currency swap
A small UK firm wants to convert floating-rate £ debt into fixed-rate $ debt to offset its revenues from US sales
The UK firm’s alternatives include
A direct issue in US dollars
A parallel loan that trades floating-rate £ debt for the fixed-rate $ debt of a . company
Parallel loans provided access to new capital markets
Parallel loan: Borrow in your local currency and then trade for the debt of a foreign counterparty
Provided access to new capital markets
Legally circumvented taxes on cross-border currency transactions
Provided foreign-source financing for foreign subsidiaries
May lower the firm’s cost of capital
Problems with parallel loans
The foreign counterparty may have default risk
Parallel loans must be capitalized on the balance sheet
Search costs can be high
The swap contract
Solution: Package the parallel loans into a single legal agreement called the swap contract
Reduced the default risk of parallel loans via the rights of set-off
Swaps need not be capitalized on the balance sheet
High swap volume led to low costs
Currency swaps… “I’ll pay yours if you pay mine”
Currency Swap
An agreement to exchange a principal amount of two currencies and, after a pre-arranged length of time, re-exchange the original principal
Interest payments are also usually swapped during the life of the contract
Interest rate swaps
Interest rate swap
Same as a currency swap, but in a single currency
A difference check is paid during the life of the swap
The notional principal is not usually swapped
Development of the swaps market
1981
Salom