elearning > Asset swaps

Learn about the following:

How asset swaps work. Why investors use asset swaps. Par/par structures. The risks asset swaps produce.

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Course Summary

• 35 minutes
• 8 question multiple choice test
• How asset swaps work
• Why investors use asset swaps
• Par/par structures
• The risks

Asset Swaps - the details

1. The asset swap structure

• Combination of fixed rate bond and interest rate swap
• Why investors do this
• Minimising interest rate risk
• Benefits, interest rate hedging, matching funding costs
• Libor margin
• Bond yield relative to swap rate 

2. Par/par structures

• What they are
• Why investors like this
• Bonds at a premium and bonds at a discount to par
• Up-front payments
• Credit exposures 

3. Strengths & weaknesses

• Enhanced returns
• Credit risk on the asset
• Liquidity of the asset
• Liquidity of the swap
• Structural complexity
• Basis swaps
• Counterparty credit exposure on swap 

4. Summary

5. Test