Understanding Interest Rate Swaps

Across the globe, professional cash, treasury, and portfolio managers, as well as government regulators, are scrutinizing Swaps – innovative, easily customized synthetic investment vehicles that permit savvy users to fine-tune interest rate and currency exposure, manage debt, hedge against geopolitical uncertainty, and dramatically enhance investment portfolio returns. Understanding Interest Rate Swaps presents a clear and compelling picture of the growing $3 trillion Swap market. This hands-on guide keeps readers immediately current with the latest, successful strategies and techniques used by today’s top Swap traders and corporate users. And it takes market watchers on a behind-the-scenes tour of the global Swap bazaar, shedding critical light on questions regulators and industry insiders are currently raising about the security and future of the Swap markets. This striking new guide first explains what Swaps are, introducing key concepts and crucial market terminology. It next traces the development of today’s red-hot Swaps, disclosing how they originated and grew, and sharing inside information about why financial institutions set up Swap desks and how they currently capitalize on these profitable instruments. Using diagramming techniques, the guide then walks you through a series of realistic Swap examples, building from simple “plain vanilla” transactions – the market’s essential building blocks – to nearly two dozen other derivative interest rate products, including Swaptions, Caps, spreadlocks, floors, and collars. You’ll find detailed guidelines for using foreign exchange and commodity Swaps, and discover emerging opportunities in the surging equity derivatives market. Formaximum advantage, Understanding Interest Rate Swaps delivers the systematic, empirical guidance you need to master all the methodologies and calculations used in the international Swap market. You’ll learn how rates are set, how to evaluate competing quotes from traders, and how to best negotiate and execute a profitable Swap trade. When it comes to unwinding a Swap position, the guide shows how to maximize profits by marking a Swap to market, and exploiting sophisticated price refining techniques on your PC or financial calculator. Understanding Interest Rate Swaps also tackles head-on the most serious issues confronting today’s Swap market – the credit crunch, declining margins, the threat of regulation, overcapacity, and the recent scandals involving some of Wall Street’s premier investment houses. Special attention is given to properly documenting all phases of Swap transactions and setting up a reliable risk management program. Amidst the continuous profit taking and storm of controversy, the interest rate Swap market may become unglued. If you’re serious about getting up on the learning curve to handle powerful new financing techniques in your day-to-day responsibilities, here’s the day-to-day guide you need to proceed safely and profitably.