Study Notes: Swaps

Chapter 20. Swaps Study Notes contain 25 pages covering the following learning objectives:

* Explain the mechanics of a plain vanilla interest rate swap and compute its cash flows.
* Explain how a plain vanilla interest rate swap can be used to transform an asset or a liability and calculate the resulting cash flows.
* Explain the role of financial intermediaries in the swaps market.
* Describe the role of the confirmation in a swap transaction.
* Describe the comparative advantage argument for the existence of interest rate swaps and evaluate some of the criticisms of this argument.
* Explain how the discount rates in a plain vanilla interest rate swap are computed.
* Calculate the value of a plain vanilla interest rate swap based on two simultaneous bond positions.
* Calculate the value of a plain vanilla interest rate swap from a sequence of forward rate agreements (FRAs).
* Explain the mechanics of a currency swap and compute its cash flows.
* Explain how a currency swap can be used to transform an asset or liability and calculate the resulting cash flows.
* Calculate the value of a currency swap based on two simultaneous bond positions.
* Calculate the value of a currency swap based on a sequence of forward exchange rates.
* Identify and describe other types of swaps, including commodity, volatility, credit default, and exotic swaps.
* Describe the credit risk exposure in a swap position.

After reviewing the notes, you will be able to apply what you learned with practice questions.

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