Slide 1AgendaHistory of SwapsSwaps PopulationRole of IntermediaryTypes of SwapsSwap VariationsInterest Rate OptionsSecondary Market for SwapsConclusionQ&AJune 2, 2005 Duangporn Wattanasukchai 1Development of Development of Swaps MarketSwaps MarketJune 2, 2005 Duangporn Wattanasukchai 2AgendaAgenda•History of Swaps and Swaps Population•Role of Intermediary•Types of Swaps and Swaps Variation•Interest Rate Options•Secondary Market for Swaps•Conclusion•Q&AHistoryRoleTypes of SwapInt. Options Secondary Mkt ConclusionJune 2, 2005 Duangporn Wattanasukchai 3History of SwapsHistory of Swaps•The world’s monetary leaders suspended the Bretton Woods agreement in 1971•The Chicago Mercantile Exchange introduced foreign currency futures contracts in 1972•Salomon Brothers brokered the first currency swap in 1981.•Interest rate swaps first developed in late 1981•Sallie Mae engaging in the first contract in 1982•Establishment of the International Swaps and Derivatives Association (ISDA) and ISDA associated with most swaps as master agreements since 1985HistoryRoleTypes of SwapInt. Options Secondary Mkt Conclusion19711972198119821985June 2, 2005 Duangporn Wattanasukchai 4Swaps PopulationSwaps PopulationTrillions of dollars outstanding in swap agreementsHistoryRoleTypes of SwapInt. Options Secondary Mkt ConclusionJune 2, 2005 Duangporn Wattanasukchai 5Role of IntermediaryRole of Intermediary•Commercial banks and investment banks are intermediary in an interest rate swap.•Early, being as brokers and taking the opposite side of a swap.•Later, acting as dealersHistoryRoleTypes of SwapInt. Options Secondary Mkt ConclusionJune 2, 2005 Duangporn Wattanasukchai 6Types of SwapsTypes of Swaps•Interest Rate Swaps•Foreign Currency Swaps•Circus SwapsHistoryRoleTypes of SwapInt. Options Secondary Mkt ConclusionJune 2, 2005 Duangporn Wattanasukchai 7Swap VariationsSwap Variations•Deferred Swap•Floating for Floating Swap•Amortizing Swap•Accreting SwapHistoryRoleTypes of SwapInt. Options Secondary Mkt ConclusionJune 2, 2005 Duangporn Wattanasukchai 8Interest Rate OptionsInterest Rate Options•Interest Rate Cap•Interest Rate Floor•Interest Rate Collar•SwaptionHistoryRoleTypes of SwapInt. Options Secondary Mkt ConclusionJune 2, 2005 Duangporn Wattanasukchai 9Secondary Market for SwapsSecondary Market for Swaps•Mirror Swap (Swap Reversal)•Swap Sale (Swap Assignment)•Swap Buy BackHistoryRoleTypes of SwapInt. Options Secondary Mkt ConclusionJune 2, 2005 Duangporn Wattanasukchai 10ConclusionConclusion•Swaps are one of three broad types of derivatives.•There are 2 major types of swaps.•The market outstanding of swaps is around $2 trillions.•ISDA is a master agreement for swap.•There are 3 ways for getting out of swaps.HistoryRoleTypes of SwapInt. Options Secondary Mkt ConclusionJune 2, 2005 Duangporn Wattanasukchai
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