Interest rate swaps
You'll learn how interest rate swaps work as a hedging tool to manage interest rate risk and reduce borrowing costs. This lesson covers the mechanics of swaps, including how two parties exchange fixed and floating rate payments, the benefits and risks involved, and how to calculate the effective interest rate each
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In this lesson
- 0:00 Interest rate swaps explained
- 1:00 Benefits and risks of swaps
- 2:15 Swap scenario setup
- 4:07 Calculating the swap gain
- 5:30 Building the swap arrangement table
- 6:50 Finalising effective interest rates
About this lesson
party pays after the swap. You'll work through a practical example showing how to identify the gain from the swap, split it between parties, and structure the exchange to achieve the desired rate exposure. This is essential knowledge for FM, AFM, and strategic papers where you need to understand derivative instruments and financial risk management.
Duration: 8m
Transcript
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