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Derivatives and Risk Management by Sundaram Janakiramanan

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10

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?

BOX 10.1 IFC Helps TBC Bank Reduce Interest Rate Risks

On March 23, 2010, IFC, a member of the World Bank group and the TBC Bank, the largest bank in Georgia, entered into interest rate swap contracts so that the TBC Bank could offer mortgage loans with 14.5% interest rate. This swap arrangement helped the bank to hedge the U.S. dollar interest rate risk on long-term borrowing. IFC entered into this contract to improve the risk management capabilities of banks in Central and Eastern Europe. ...

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