Development of Swaps Market

1
Development of Swaps Market
2
Agenda
Int. Options
Secondary Mkt
Conclusion
History
Role
Types of Swap

• History of Swaps and Swaps Population
• Role of Intermediary
• Types of Swaps and Swaps Variation
• Interest Rate Options
• Secondary Market for Swaps
• Conclusion
• QA

3
History of Swaps
Int. Options
Secondary Mkt
Conclusion
History
Role
Types of Swap
1972
1982
1971
1981
1985

• The worlds monetary leaders suspended the
  Bretton Woods agreement in 1971
• The Chicago Mercantile Exchange introduced
  foreign currency futures contracts in 1972
• Salomon Brothers brokered the first currency swap
  in 1981.
• Interest rate swaps first developed in late 1981
• Sallie Mae engaging in the first contract in 1982
• Establishment of the International Swaps and
  Derivatives Association (ISDA) and ISDA
  associated with most swaps as master agreements
  since 1985

4
Swaps Population
Int. Options
Secondary Mkt
Conclusion
History
Role
Types of Swap

• Trillions of dollars outstanding in swap
  agreements

5
Role of Intermediary
Int. Options
Secondary Mkt
Conclusion
History
Role
Types of Swap

• Commercial banks and investment banks are
  intermediary in an interest rate swap.
• Early, being as brokers and taking the opposite
  side of a swap.
• Later, acting as dealers

6
Types of Swaps
Int. Options
Secondary Mkt
Conclusion
History
Role
Types of Swap

• Interest Rate Swaps
• Foreign Currency Swaps
• Circus Swaps

7
Swap Variations
Int. Options
Secondary Mkt
Conclusion
History
Role
Types of Swap

• Deferred Swap
• Floating for Floating Swap
• Amortizing Swap
• Accreting Swap

8
Interest Rate Options
Int. Options
Secondary Mkt
Conclusion
History
Role
Types of Swap

• Interest Rate Cap
• Interest Rate Floor
• Interest Rate Collar
• Swaption

9
Secondary Market for Swaps
Int. Options
Secondary Mkt
Conclusion
History
Role
Types of Swap

• Mirror Swap (Swap Reversal)
• Swap Sale (Swap Assignment)
• Swap Buy Back

10
Conclusion
Int. Options
Secondary Mkt
Conclusion
History
Role
Types of Swap

• Swaps are one of three broad types of
  derivatives.
• There are 2 major types of swaps.
• The market outstanding of swaps is around 2
  trillions.
• ISDA is a master agreement for swap.
• There are 3 ways for getting out of swaps.

11
QA