高顿名师讲解2013年ACCA考试P4 Swap知识点
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高顿名师讲解2013年ACCA考试P4 Swap知识点本文由高顿ACCA整理发布，转载请注明出处Swap- Relevant to paper P4Risk management is a compulsory session of P4 study. Swap is a strategy of risk management of foreign exchange risk and interest rate risk. Therefore, this article will introduce the definition and types of swap risk management, and then discuss the details of swap bank, market and etc.DefinitionsWhat are interest rate and currency swaps?They are methods used to hedge long-term interest rate risk and foreign exchange risk (unlike forward, future, option and money market hedging which are short-term methods) §What is an interest rate swap financing?A contract in which two counterparts make arrangements to exchange cash flows at intermittent intervals.Swap BankA Financial Institution that facilitates swaps between counterparties.It can be an international commerce bank, an investment bank, amerchant bank or an independent operator.It serves in two different ways:l Swap broker. It matches counterparties but does not assumeany risk of the swap.It receives a commission for the service.l Swap dealer or Market maker. It accepts either side of acurrency swap, and then later dismiss it, or match it with acounterparty. This is more risky.As a result of the higher risk taken on, it receives a part of thecash flows passed through.Most of swap banks nowadays are swap dealers/market makersSwap Market quotationsSwap banks work:- making a market in basic interest rate swaps (known as“plain vanilla” )- personalizing the terms of interest rate and currency swapsto customers’ needs.- providing current market quotations applicable tocounterparties with Aa or Aaa credit ratings (extremelyfinancially reliable counterparties).Conventional quotations:Interest rate swap rates for a currency against a local standardreference in the same currencyCurrency swap rates against dollar LIBOROther types of Interest rate and Currency swaps (1)1. Zero-Coupon-for-floating-rate swapZero Coupon for floating the floating-rate payer makes the standard periodic floating-ratepayments over the life of the swap, while the fixed-rate payermakes a single payment at the end of the swap2. Floating-for-floating-interest rate swapeach counterparty is tied to a different floating-rate index or adifferent frequency of the same index. For a swap to be possible,a QSD must still exist!3. Fixed-for floating currency rateone counterparty is tied to a fixed-rate whereas the other is tiedto floating-rate. The debt service obligations are denominated indifferent currencies4. Floating-for-floating currency rateboth the counterparties are tied to a floating-rate. The debtservice obligations are denominated in different currencies5. Amortizing currency swapthey incorporate an amortization feature in which periodically theamortized portions of the notional principals are re-exchanged.Risks of Interest rate and Currency swapsBelonging to swap bank1. Interest rate riskrisk of interest rates changing unfavorably before the swap bankcan lay off on an opposing counterparty the other of aninterest rate swap2. Basis riskrisk of a situation in which the counterparties are tied to differentfloating-rates. The difference in the indexes is known as thebasis. Since the indexes are not perfectly correlated the swapmay not always be profitable for the bank3. Exchange rate riskrefers to the risk that a swap bank faces from fluctuatingexchange rates during the time it takes for the bank to lay off aswap it undertakes with one counterparty with an oppositecounterparty4. Credit riskthe major risk: it refers to the possibility that a counterparty willdefault. The swap bank that stays between the two counterpartiesis obligated only to the no defaulting counterparty5. Mismatch riskis the problem of finding an opponent for a swap which the bankhas agreed to take. The mismatch may be with respect to the sizeof the principal sums, the maturity dates or the debt service dates.6. Sovereign riskthe possibility that a country will impose exchange restrictions on acurrency involved in a swapEfficiency of Swap MarketCurrency swap.The reasons to use it are:to obtain debt financing at the swapped currency at a lowerinterest cost brought about through comparative advantageseach counterparty has in its national capital market to hedge long-run exchange rate exposureInterest rate swap.The reasons to use it are:better match maturities of assets and liabilitiesto obtain a cost saving due to the quality spread differential.In efficient markets it is difficult to accept the existence ofQSD: it implies the presence of an arbitrage opportunity dueto some mispricing of the default risk premiums on differenttypes of debt instruments. BUT not all types of debtinstruments are regularly available for all borrowers, so theinterest rate swap market helps tailoring the more suitablePrepared by Golden ACCA R&D CenterDecember, 2012 更多ACCA资讯请关注高顿ACCA官网：。
