Swap (economy)

A swap ( english (training) Exchange ) is the finance of Anglizismus for derivative financial instruments , which all share in exchange of future cash flows ( cash flows is).

General

The market participants exchange opposing cash flows, namely a receivable or other asset and a liability . These can be denominated in various foreign currencies . Almost any type of payment flow can be exchanged with swaps. In this way, financial risks in financing , in the balance sheet structure or in securing a portfolio can be reduced in a targeted manner. Swaps may be more easily tradable and their markets may be more liquid than the markets of their underlying assets . In addition, like other derivatives, swaps allow risks to be traded individually and separately from the underlying assets.

Swaps belong to the over- the -counter transactions . The swap transaction is a standardized financial contract that can be concluded on the basis of the model contracts of the International Swaps and Derivatives Association (ISDA). The contracts determine how the payments are to be calculated and the terms or due dates structured .

species

A distinction is made between the following types of swaps:

• Interest rate swap
  • Fixed rate / variable rate
  • variable rate / fixed rate
  • variable interest rate / variable interest rate
  • Special forms such as constant maturity swap , total return swap or total rate of return swap ;
• Currency swap
  • Fixed rate / fixed rate
  • Fixed rate / variable rate
  • variable interest rate / variable interest rate;
• Special forms: asset swap , credit default swap , currency swap , equity swaps (such as the debt equity swap , subordinated risk swap ), swaptions .

There are also other swaps, such as derivatives on weather events or commodities . Financial innovations like the spread ladder swap (an interest rate swap) are adding to the expansion of the types of swap.

There is also an exchange with every conventional forward transaction . The difference to the swap, however, is that there is usually only one exchange date in the futures business. In addition, there is no physical fulfillment in the case of a swap.

Swap rate

The swap rate is an interest rate that has to be paid by one of the counterparties as transaction costs . Since spot and forward rates generally do not match, the swap rate for interest-related financial products is calculated as the relative difference between the forward rate and the spot rate ( percent per annum ) based on the spot rate :

${\displaystyle {\text{Swapsatz}}={\frac {{\text{Terminkurs}}-{\text{Kassakurs}}}{\text{Kassakurs}}}\cdot {\frac {\text{360}}{\text{1}}}\cdot 100}$.

This difference is also known as the hedging costs . If the difference between the spot rate and the forward rate is greater than the swap rate, there are arbitrage opportunities - which in the case of commodities are reduced by offsetting storage costs . The difference between the spot rate and the forward rate grows - with the exception of a remaining margin of indifference - until arbitrage is no longer worthwhile.

This difference between spot and forward rates depends on the term of the swap, the interest rate difference between two countries, the risk premium and the expected value . If the forward rate in quantity rate under the spot rate, then the difference as Deport ( tee , English discount ) denotes:

${\displaystyle {\text{Deport}}={\text{Terminkurs}}<{\text{Kassakurs}}}$.

In this case, the comparable interest rates abroad are lower than in Germany and a devaluation of the foreign currency is expected. If the forward rate is higher than the spot rate, it is a report ( premium , English premium ):

${\displaystyle {\text{Report}}={\text{Terminkurs}}>{\text{Kassakurs}}}$.

The foreign interest level is higher than in Germany, an appreciation of the foreign currency is expected. The situation is reversed when quoted prices .

Swap market

The swap market is a segment of the financial market on which swaps are traded in interbank trading or between credit institutions and non-banks , especially multinational companies . The motives of these market participants can be speculation or hedging transactions.

The ESCB can also act on the swap market within the swap policy, offering currency swaps as part of fine-tuning operations .

Swap policy

The swap policy is an external economic approach to monetary policy in order to be able to influence the money supply and interest in an economy with swaps . Money imports and exports can be made more or less attractive by changing the official swap rates of the central banks . In this way, unwanted foreign exchange transactions can be hindered and desired transactions promoted. In addition, the exchange rate and thus the money supply in the country is influenced. The money supply of a country is also regulated through the procurement or absorption of liquidity.

In the course of the financial crisis that began in 2007 , the central banks concluded a temporary foreign exchange swap agreement as a framework agreement at the end of 2007 . The European Central Bank (ECB), the US Federal Reserve , the Bank of Japan , the Bank of England , the Bank of Canada and the Swiss National Bank announced in October 2013 that they would set up these swap agreements on a permanent basis.

Special rules for credit institutions

Most swaps are concluded by credit institutions - among themselves or with non-banks. Under Article 286 para. 2a Kapitaladäquanzverordnung credit institutions to the creditworthiness of its counterparties ( counterparties ) a credit check undergo. Credit decisions must lead to the granting of internal credit lines for counterparties in order to limit the business volume for each individual counterparty. The particular risk for banks lies in the term of the swap transaction because the market value of the swap transaction can change during this term . The counterparty is at risk of default if the swap transaction has a positive replacement value and, from the point of view of the bank, a claim against the counterparty arises as a result of market developments .

Individual evidence

1. ^ Alois Geyer / Michael Hanke, Fundamentals of Financing , 3rd edition, 2009, p. 271 ff.
2. ↑ Sybille Molzahn, Accounting for structured products according to IFRS in the European consolidated financial statements , 2008, p. 115
3. ^ John Maynard Keynes , A Tract on Monetary Reform , 1923, p. 127
4. ↑ Hannes Enthofer / Patrick Haas, Handbuch Treasury / Treasurer's Handbook , 2012, p. 561
5. ↑ Jürgen Krumnow / Ludwig Gramlich / Thomas A. Lange / Thomas M. Dewner (eds.), Gabler Bank-Lexikon: Bank - Börse - Financing , 2002, p. 1233 f.
6. ↑ Introduction to swap politics
7. ↑ Philip Plickert / Patrick Welter / Jürgen Dunsch, in: faz.net of October 31, 2013, central banks permanently borrow foreign currency
8. ↑ Burkhard Vamholt, Credit Risk Management , 1997, p. 141.

Please note the information on legal issues!