Topic 11: IRS Flashcards
1
Q
What are the types of interest rate swaps
A
coupon swap
basis swap
2
Q
What are the advantages of interest rate swap
A
hedge against risk
cost savings
change interest profile
3
Q
What are the disadvantages of interest rate swap
A
direct credit exposure (no bank)
Resultant exposure to bank
Termination or sale difficult
4
Q
What are the risks of swaps
A
credit risk
market risk
5
Q
Why do anomalies arise?
A
differences in information
differences in risk aversion of lenders across markets
