7
Swaps
Basic swap concepts and applications
INTRODUCTION
As mentioned in the introduction, derivatives products can be split into single settlement and multiple settlement products. FRAs, covered in the previous chapter, are single settlement securities that provide protection against fluctuations in an underlying interest rate for a short period of time. If a longer period needs to be covered, a FRA strip can be purchased, but liquidity of far-dated contracts might make this strategy impractical. An alternative is an interest rate swap.
BASIC SWAP CONCEPTS AND APPLICATIONS
Swaps are OTC products, specifically tailored to customer needs, but typical periods ...
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