NoNonsense the Money Crisis by Peter Stalker

Author:Peter Stalker [Stalker, Peter]
Language: eng
Format: epub
ISBN: 9781780262420
Publisher: New Internationalist

Swaps seem rather unlikely derivatives but are used quite frequently. A common one is an interest-rate swap. One company which has a 10-year loan at a fixed interest rate could swap this with another company that has a similar loan but at a floating interest rate. Through a swap contract each would agree to pay the other’s interest charges. Why would anyone want to do this? Generally it is because the two parties know more about each other than does the market. If, for example, a US company wants to expand in Europe, where it is not well known, and needs a loan in euros, it may have to accept one from a European bank at an unfavorable floating rate. It may therefore make a swap with a French company that is in a position to negotiate a better, fixed rate.

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