Analyze and propose the major differences of interest rates swaps and currency swaps.
Instructions
Analyze and propose the major differences of interest rates swaps and currency swaps.
Answer
Interest Rate Swap versus Currency SwapWith the interest rate swap, two counterparties are involved in making binding commitments for exchanging one stream of upcoming interest payments for each other. These exchanges are usually under a certain principle amount. Additionally, interest rate swap is a derivative contract usually involving particular financial assets or a range of assets. There is usually a fixed-rate exchange, in many scenarios, for a floating interest rate (Jermann & Yue, 2018). Still, these swaps are not exchangeable in public stock places- they are only exchanged across the counter. It is important to also note that; with interest rate swaps, one of the involved parties that are accorded risk shield of a fixed-rate. The other, however, enjoys the potential profitabi...
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