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Level 125

Interest Rate Swaps

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What is an interest rate swap?
You make my interest payments, I'll make yours
Markets for IR swaps
Primary and Secondary markets
Short Term, less than 3 yrs
Larger Wholesale banks deal with ST/LT swaps?
Long Term
Smaller Retail banks deal in ST/LT swaps?
What are IR swaps used for?
Hedging tool to offset volatile IRs
Are IR swaps arbitrage?
No, these are not "riskless" profit opportunities
When is an IR swap profitable?
When the type of funding that the parties want is the one where they have relative disadvantage