Differences Between Swap Broker And Swap Swaps Essay
The main differences between a swap broker and a swap dealer are:
• A swap broker links a swap between two different parties for a fee agreed on without assuming the risks that might encounter the parties involved in the agreement.
• A swap dealer serves as a market mover. In fact, the swap dealer takes responsibility of making sure that all the requirements mentioned in the contract that links the different parties.
2. What is the necessary condition for a fixed-for-floating interest rate swap to be possible?
For a fixed-for-floating interest rate swap to be possible it is necessary for one counterparty to exchange the interest payment of a floating-rate interest obligations for the fixed-rate interest payments of the other counterparty. (Eun & Resnick, pp. 350). Noting that, both payments must be in the same currency.
3. Discuss the basic motivations for a counterparty to enter into a currency swap.
The main motivation for a counterparty to enter into a currency swap is the interest rate. In fact, one party can evaluate and analysis the capability of the other party in terms of financial funds ' interest rate level. Reasonably, one party should obtain financial funds at a lower interest rate from the other party, rather than obtaining it on its own.
4. Briefly discuss some variants of the basic interest rate and currency swaps diagramed in the chapter.
Some variants of the basic interest rate and…