Credit Derivative Swap Index Tranche: School-To-College

imagesWe all have heard of CDS (Credit Derivative Swap) But, how many of us have the real idea & concept of CDS cleared with us? I guess very few people. So, here we are ready with our today`s blog which will talk about CDS, its basic concept & origin with its structurally enhanced form/product known as CDX-“Credit Derivative Index Tranche” .

Meaning: In finance, a credit derivative refers to any instrument and technique designed to separate and then transfer the credit risk of the underlying loan. It is a securitized derivative whereby the credit risk is transferred to an entity other than the lender. Continue reading “Credit Derivative Swap Index Tranche: School-To-College”

Equity-Linked Swap: School-To-College

imagesContinuing with our last blog, today we will discuss in detail about “Equity-Linked Swap” under Structured derivative class.

Meaning: A swap for which payments on one or both sides are linked to the performance of equities or an equity index. Sometimes used to avoid withholding taxes, obtain leverage, or enjoy the returns from ownership without actually owning equity.

Definition: An equity swap is a financial derivative contract (a swap) where a set of future cash flows are agreed to be exchanged between two counterparties at set dates in the future. Continue reading “Equity-Linked Swap: School-To-College”

SWAPTION- Constructed And Executed By William Lawton in 1983: Back To School

download (1)Today, I was thinking, what to write on and was confused whether to discuss on some current market situation or to go with some basic concept again for our finance freshers.  And, finally decided to write on SWAPTION, so as to add a thought again to our “back to School Series”.

Swaption was first introduced by William Lawton in 1983 while he was facilitating First Interstate Bank in Los Angeles as the Head Trader for Fixed Income Derivatives.

Continue reading “SWAPTION- Constructed And Executed By William Lawton in 1983: Back To School”

SWAPS : Foreign Currency Swaps (Back to school)

A swap can be defined as simultaneously purchase and sale of equivalent amount of base currency for 2 different maturities, essentially its a simultaneously borrowing and lending of 2 currencies between 2 banks for specific period express in the form of purchase and sell transactions. The interest rate differential payable or receivables by one of the parties is factored into exchange rates applied for the 2 components of transactions. Therefore the difference between Continue reading “SWAPS : Foreign Currency Swaps (Back to school)”