Supermart Interest Rate Swap Trade

To simplify the hedging discussion for the Supermart interest rate swap trade from Chapter 4, we will change the example slightly. Instead of Supermart doing a cross-currency swap from floating US dollars to fixed UK pounds, Supermart will simply do a US interest rate swap from floating to fixed (Figure 6.3).

FIGURE 6.3 Supermart interest rate swap trade overview.


A standard US dollar interest rate swap is an exchange of a fixed rate for a floating rate. The floating rate is often Libor, which resets quarterly. For the purposes of this book we will use a 12-month Libor to make the examples easier to discuss ...

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