FMP 20. Swaps

Learning Objectives

1) Explain the mechanics of a plain vanilla interest rate swap and compute its cash flows.

2) Explain how a plain vanilla interest rate swap can be used to transform an asset or a liability and calculate the resulting cash flows.

3) Explain the role of financial intermediaries in the swaps market.

4) Describe the role of the confirmation in a swap transaction.

5) Describe the comparative advantage argument for the existence of interest rate swaps and evaluate some of the criticisms of this argument.

6) Explain how the discount rates in a plain vanilla interest rate swap are computed.

7) Calculate the value of a plain vanilla interest rate swap based on two simultaneous bond positions.

8) Calculate the value of a plain vanilla interest rate swap from a sequence of FRAs.

9) Explain the mechanics of a currency swap and compute its cash flows.

10) Explain how a currency swap can be used to transform an asset or liability and calculate the resulting cash flows.

11) Calculate the value of a currency swap based on two simultaneous bond positions.

12) Calculate the value of a currency swap based on a sequence of forward exchange rates.

13) Identify and describe other types of swaps, including commodity, volatility, credit default, and exotic swaps.

14) Describe the credit risk exposure in a swap position.