Mastering Swaps Markets: A Step-By-Step Guide to the Products, Applications and Risks - Softcover

Swaps are an integral part of the world of international finance. Their use has permeated almost every aspect of domestic and international capital and money markets. Banks use them to reduce their exposure to the risk of changes in interest rates and currency movements, thereby reducing the potential tax burden on the public which results from the failure of banks. Many governments use swaps as a tool to reduce the cost of international funding. This also helps to reduce the general tax burden. The existence of swaps creates greater choice for consumers in the provision of fixed-rate finance for mortgages, or even of loans with caps or other embedded options.

The arbitrage opportunities which are capitalized in the swap market have resulted in a narrowing of the capital markets bid/offer spread. This means that institutional investors get a better return on their investments and international borrowers pay lower financing costs. This, in turn, results in more competitively priced goods for consumers and in enhanced returns for pensioners. Swaps therefore have an effect on almost all of us yet they remain an arcane derivatives risk management tool, sometimes suspected of providing the international banking system with the tools required to bring about its destruction.

This book traces the development of swaps from the 1970s until today, examining the obstacles to their growth and the hurdles which were jumped in order to ensure their survival. It shows how swaps are used, and by whom, and examines the motives of the counterparties to these transactions as well as the resultant benefits. The exercises and case studies are designed to help readers understand the practical applications of swaps as well as the maths used in the marketplace. All the financial calculations are broken down in a step by step process designed to help those who prefer to see numbers rather than formulae.

The book is aimed at those who work in the financial markets and have regular dealings with the swap markets. This includes traders, salespeople, operational staff, brokers, risk managers, borrowers, investors, auditors, accountants, lawyers, senior managers, IT staff and all those who sell to banks and investment banks and who require a better understanding of their clients' businesses.

The book assumes no prior knowledge of the swaps market and a dedicated reader willing to work through the exercises and case studies will become proficient in the major applications of currency and interest rate swaps, as well as the mathematical techniques employed in arranging, structuring and valuing swaps. The book can also be used by market practitioners who need to explore in detail one aspect of the swap market. Borrowers, investors or arrangers, for example, who need to extend their knowledge of the maths involved in the new issue arbitrage process could use the book to accomplish this.

Readers could use this book as a complete study course in swap market techniques by answering the questions in the text. Alternatively, by reading the text and skimming the exercises the book can be used as a guide to the functioning of the swap market. It can also be used as a reference tool for particular swap market techniques.

Mastering Swaps Markets traces the development of swaps from the 1970s until today, examining both the obstacles to their growth and the hurdles which were jumped in order to ensure their survival.

The book shows how swaps are used, and by whom, and examines the motives of, and benefits to, the counterparties in these transactions. Numerous case studies and exercises encourage an understanding of the practical application of swaps as well as the mathematics used in the marketplace.

Whether you are a trader, broker, risk manager, auditor, accountant, investor, salesperson or market student, this book will give you the ability to manipulate and apply, with speed and confidence, the techniques relevant to your marketplace.

• An Introduction to Swaps Markets
• How Swaps Work
• Swap Market Quotations and Calculations
• The Users and Applications of Swaps
• Market Making, Trading and Structuring Swaps
• Asset and Liability Management
• Managing a Swap Book