These factors put downward pressure on fixed interest-rate swap
rates, narrowing their spread to U.S.
Quirk's essay "How Goldman Sachs Is Swindling Americas Cities" (American Proscenium, July), Professor Quirk evidences profound misunderstanding of what is happening in an interest-rate swap
in 2008, LCH.Clearnet Group Ltd., owner of the world's largest interest-rate swap
clearinghouse, had to manage the risk of the defunct bank's 66,390 rate swaps in five currencies that had tenors as long as 30 years, according to Dan Maguire, head of U.S.
Hedging involves the use of a derivative instrument (e.g., an interest-rate swap
) to offset the effect of market changes on a given asset, liability, or future cash flow (e.g., the anticipated future purchase of commodities).
Trading on the Swedish interest-rate swap
market averaged daily about $12 billion during April 2007 according to the Bank for International Settlements.
One common way to do that is to put on an interest-rate swap
that lengthens the duration of the plan's assets to bring it closer to the duration of the liabilities.
Singleton, 1997, "An Econometric Model of the Term Structure of Interest-Rate Swap
Yields." Journal of Finance, 52, 1287-1321.
2002-71 addressed a situation in which an interest-rate swap
hedged only a portion of the debt instrument's entire term.
Like most engineers, Rice, when asked to define derivatives in general and the basic concept of a fixed-to-floating interest-rate swap
in particular, literally draws a picture of the transaction on a napkin--his engineering background coming into play, he says.
And the authoritative accounting rules are virtually silent on the multitudes of financial instruments, such as interest-rate swaps
, that companies use to create "synthetic instruments." For example, a company needing fixed-rate financing may choose to issue variable-rate debt converted to a fixed-rate exposure by executing an interest-rate swap
, which requires the company to make periodic fixed payments and receive periodic floating rate-based payments.