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READING 34:
RISK MANAGEMENT APPLICATION OF SWAPS STRATEGIES (34.2 USING…
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Convert a floating-rate liability to fixed-rate as a hedge
=> convert from visible CF risk to less visible market value risk
=> as exchange a low duration liability for a high duration liability
=> the market value of liability will fluctuate more with interest change
=> affect the market value of equity and EV
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Don't confuse with an interest rate swap ! In the swap based on bond returns, there is an interest component and capital gain component just as there is an equity swap.
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