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Presented to:
Sir Abdul Aziz Niazi

Presented by:
Iqra Bano
MS13MBA038
MS in Banking ,2nd semester

Interest Rate
Swaps
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Swaps: Origin

Interest Rate Swap Market

Trillions Of Dollars Swaps
Fixed-rate Loans
Floating-rate Loans

Swap: Origin
Financial Institutions And Corporations
Swap Market
Hedge More Efficiently
Synthetic Fixed- Or Floating-rate Assets Or
Liabilities
Synthetic Fixed- Or Floating-rate Liabilities
Direct Liabilities

Swap

Exchange Of Cash Flows

Two Counterparties
Contractual Arrangement
Periodic Intervals

Swaps: Types
Interest Rate Swaps
Currency Swaps
Cross-currency Swaps
Credit Default Swaps

Interest Rate Swap

Used By Companies And Banks
Fixed Or Floating-rate Debt
Swapping Fixed-for-floating Interest
Payments
Interest Payments Are Exchanged

Interest Rate Swaps: Terms

1.Counterparties
Fixed-Rate Payer
Floating-Rate Payer
2.Rates
Fixed Rate
Floating Rate

Interest Rate Swaps: Terms

3.Reset Frequency
4.Principal
No exchange of principal
5.Notional Principal (NP)
used for calculating the swap payments.

Interest Rate Swaps: Terms

6.Maturity
Ranges Between 3 And 10 Years
7.Dates
Arrears On A Semiannual Basic
Effective Date
Payment Date

Interest Rate Swaps: Terms

8.Documentation
International Swap Dealer Association
(ISDA)
British Bankers Association
Book Of Definitions
Standardize Swap Contracts

Interest rate Swap

Terminology
Fixed-rate Payer
Floating-rate Receiver
Long Position
Floating-rate Payer
Fixed-rate Receiver
Short Position

Interest Rate Swap

Swap
Bank

Pay floating

Company A
prefers floating
Issue fixed

Receive
fixed

Pay fixed

Receive
Floating

Company B
prefers fixed
Issue floating
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An Example of an Interest
Rate Swap
Bank A
AAA-rated international bank
floating-rate Eurodollar loans
5-year fixed-rate Eurodollar bonds

Firm B
BBB-rated U.S. company
five-year economic life
5-year fixed-rate Eurodollar bonds
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Interest Rate Swap

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References
www.investopedia.com/terms/i/interestrateswa
p.asp
www.treasurer.ca.gov/cdiac/publications/math.
pdf
www.isda.org/educat/pdf/IRS-Diagram1.pdf
www.xavier.edu/williams/centers/trading.../03_
InterestRateSwaps.
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