Join Mailing List

For latest news and information about Treasury and Financial Markets, enter your details below:

elearning > Total return swaps

Print Preview Send to a Friend Share

Learn about the following:

How a total return swap works. How banks make money from total return swaps. Why total return swaps are used. The risks total return swaps generate.

Register for free or login to view the full publication

Course Summary

Total return swaps menuTotal return swaps how they workTotal return swaps payments

Total return swaps fundingTotal return swaps riskTotal return swaps risk 2

  • 30 minutes
  • 8 question multiple choice
  • How a total return swap works
  • How banks make money from total return swaps
  • Why total return swaps are used
  • The risks total return swaps generate

Total Return Swaps - the details

1. How total return swaps work

  • Role of bank and customer
  • Example of trade
  • Risk transfer, (credit and market risk)

2. Why firms enter total return swaps

  • How banks make money
  • An unfunded risk for the customer
  • How the customer gains or loses
  • Why the bank is hedged
  • What happens if there is a credit event

3. The risks total return swaps create

  • Credit risk for customer (credit protection seller)
  • Credit risk for bank on customer (credit protection buyer)
  • Reducing counterparty credit risk, margins and collateral
  • Maturity of total return swap and risk

4. Summary

5. Test

Related Documents

Free to ViewTraining Courses > Interest Rate & Currency Swaps 100% relevant


Free to ViewWrite Mortgages, Wrong Price? 76% relevant

11th September 2020

Selling mortgages with interest rates of between 1% and 4% may seem like an opportunity too good to miss, particularly now Bank rate is 0.10%, but is this too good to be true? Let’s see.


Free to ViewCapital Question 76% relevant

6th October 2020

Capital adequacy is right up there in terms of importance and quite rightly too as it’s a measure of the ability to absorb losses. What’s a lot harder to nail down is the way we manage the interest rate risk on capital and that is what this article addresses.


Free to ViewShort courses>Currency swaps & basis swaps 66% relevant


Registration RequiredMarket Guides > Interest rate swaps 33% relevant

20th September 2009

When two parties agree to enter an interest rate swap (IRS) one party pays a fixed rate of interest and the other a variable rate. The variable rate is often referenced to Libor or Euribor. The interest payments are based on a notional amount, (with IRS no principal amount changes hands). In the market there are conventions for calculating the interest payments. For example USD IRS use an annual actual 360 interest rate calculation for the fixed payment and a quarterly or semi annual actual 360 calculation for the floating payment. Maturities are normally between 2 and 20 years but it is possible to trade swaps that have maturities exceeding 50 years. Customers using swaps to hedge can expect a dealer to quote a dealing spread. The dealer will want to receive a higher fixed rate than the one they pay. It's one way the dealer makes money from trading. Dealers will insist before trading that the appropriate documentation is signed. For swaps standard documentation is provided by the International Swaps and Derivatives Association (ISDA). This document is called a master agreement. It covers all swaps between the two parties. Individual transactions are then agreed by confirmation which refers to the master agreement.


Registration RequiredAsset Swaps 33% relevant