8
Interest Rate and Currency Swaps
LEARNING OBJECTIVES
After completing this chapter, you will be able to answer the following questions:
- What are interest rate swaps, currency swaps, equity swaps, and commodity swaps?
- How are swaps priced?
- How can swaps be used to hedge risks?
In the earlier chapters, we discussed how forward contracts and futures contracts can be used to hedge the risks of changes in commodity prices, interest rates, currency exchange rates, and portfolio values. However, all these contracts are generally short-term contracts and help individuals and institutions to hedge risk in the short term. They can be used to hedge long-term risk by rolling over the contracts from one short term to another, but this strategy can result ...
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