In the swap market, which position potentially carries greater risks, broker or dealer? They are the same swaps, therefore the same risks. measured by notational principal and over 23 trillion dollars.
A major risk faced by a swap dealer is mismatch risk. This is the difficulty in finding a second counterparty for a swap that the bank has agreed to take with another party. A major risk that can be eliminated through a swap is exchange rate risk. But only to the extent that a foreign counterparty will not default in a currency swap. Nice work!
Since Y has a poor credit rating, it would not be a participant in the swap market. Company X should demand most of the QSD in any swap with Y as compensation for default risk, and Company X should more readily agree to a swap involving Y if there is also a swap bank providing credit risk intermediation. Nice work! You just studied 32 terms!
Firm B does 2 swaps with the swap bank, $ at ask and € at bid. Firms A and B would each save 90bp and the swap bank would earn 20bp. A is a U.S.-based MNC with AAA credit; B is an Italian firm with AAA credit. Firm A wants to borrow €1,000,000 for one year and B wants to borrow $2,000,000 for one year.
A major risk faced by a swap dealer is mismatch risk. This is. the difficulty in finding a second counterparty for a swap that the bank has agreed to take with another party. A major risk that can be eliminated through a swap is exchange rate risk.
A major risk faced by a swap dealer is sovereign risk. This is. the probability that a country will impose exchange restrictions on a currency involved in an existing swap.
Company X has a AAA credit rating , but company Y's credit standing is considerably lower. Company X should demand most of the QSD in any swap with Y as compensation for default risk, and Company X should more readily agree to a swap involving Y if there is also a swap bank providing credit risk intermediation.
can act as a broker, bringing together counterparties to a swap. can act as a broker, bringing together counterparties to a swap and standing ready to buy and sell swaps. can act as a dealer, standing ready to buy and sell swaps.
The swap bank could just sell the company X side of the swap. If the swap bank has already contracted one leg of the swap, they should be anxious to offer better terms to company Y to just get the deal done, and the swap bank could just sell the company X side of the swap. Company X should lobby Y to "get on board.".
Company X should demand most of the QSD in any swap with Y as compensation for default risk, and Company X should more readily agree to a swap involving Y if there is also a swap bank providing credit risk intermediation. Since Y has a poor credit rating, it would not be a participant in the swap market.
If the swap bank has already contracted one leg of the swap, they should be anxious to offer better terms to company Y to just get the deal done, and the swap bank could just sell the company X side of the swap.
An interest-only single currency interest rate swap. all of the options . (is also known as an interest rate swap, is also known as a plain vanilla swap, is about as simple as swaps can get) With regard to a swap bank acting as a dealer in swap transactions, mismatch risk refers to.