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Who needs a swap contract and why?
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Dear Clients,
Transactions on this derivative, as a rule, are OTC, have no strict
standards (protocol, term,
volume), but they are considered key operations in any market.
Swap-contract (interest rate, foreign exchange, commodity) a financial
contract under which, at the
same time as the sale of an asset, the parties agree to buy it back at a
fixed price.
Swap-assets have been used as hedging instruments since the early 80s of the
last century. The most
understandable for traders swap-transactions are used on the interbank
market: these are contracts
for interest rates or the exchange of payments at floating and fixed
interest rates. The actual
delivery of the asset is not expected; only the «estimated» difference in
price is exchanged.
Participants in swap-contracts: banks, industrial and financial companies,
investment funds, as well
as private exchange players, who are called «local» in the US, and
«independent traders on the
floor» in France.
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Main tasks
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risk hedging;
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optimization of investments and tax payments by terms and/or
profitability;
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loans in different currencies and / or at different interest rates;
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optimization of the liquidity of a company or enterprise;
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transfer of a position in the currency and money markets;
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other «fantasies» of speculators that are constantly evolving.
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The swap-contract mechanism is used for secured financing or, conversely,
for the loan of securities
for their delivery under the contract, for example, in case of opening a
short position. Do you
recognize? Yes, these are familiar REPO. Each of the parties can withdraw
from the contract if it
finds a different buyer, although the secondary market for swap operations
is not yet sufficiently
developed. The range of amounts is from $0.5 mln. to $500 mln., but swap
assets become effective
from about $10 mln.
There is no standard scheme, each transaction is individual so that one side
can take advantage of
the capabilities of the other side. Both participants benefit, and the
ability to earn on swap
assets is «cherry on the cake» in the financial market.
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