A Total Return Swap is a swap agreement in which one party makes payments based on a set rate, either fixed or variable, while the other party makes payments based on the return of an underlying asset, which includes both the income it generates and any capital gains. In total return swaps, the underlying asset, referred to as the reference asset, is usually an equity index, … [Read more...]
Archives for March 2010
Interest Rate Swaps in Stock Market
An interest rate swap is a derivative in which one party exchanges a stream of interest payments for another party's stream of cash flows. Interest rate swaps can be used by hedgers to manage their fixed or floating assets and liabilities. Unlike corporate bonds, interest rate swaps do not involve risk on the principal amount[1]. They can also be used by speculators to … [Read more...]
What is Zero Coupon Inflation Swaps?
The most regularly traded structure in the inflation-linked swaps market, and particularly in the inter-dealer market, is the zero coupon inflation swap. One counterparty agrees to pay the cumulative percentage increase in the price index over the tenor of the swap (with some lag on the reference index, similar to cash securities), and the other pays a compounded fixed rate. … [Read more...]
Inflation Swap in Stock Market
An inflation swap is the linear form of an inflation derivative, an over-the-counter and exchange-traded derivatives that is used to transfer inflation risk from one counterparty to another. There are three main types of inflation swap. In a standard interbank inflation-linked swap, or zero-coupon inflation-linked swap, cash flow is exchanged on the maturity date. This swap … [Read more...]
Forex Swap
A Forex swap is a type of foreign exchange swap consisting of two parts, completed at the same time. One part is a foreign exchange spot trade, and the other is a foreign exchange forward transaction. Forex swaps are most often used by investors for either hedging or speculation purposes. In finance, a forex swap (or FX swap) is a simultaneous purchase and sale of identical … [Read more...]