GIDC Rajju Shroff

ROFEL Institute of
Management
Studies
Subject :- SECURITY ANALYSIS AND
PORTFOLIO MANAGEMENT

Topic :- SWAP

Submitted to :- PROFESSOR ZANKHANA ATODARIA

 Submitted by :-

NAME ENROLLMENT NO.

Karishma Jain 197160592020

Bansari Kansara 197160592025
Anisha Kizhuppulli 197160592027
Harshada Lot 197160592029
Kinjal Nayaka 197160592032
Shivani Patel 197160592042
Keerthi Sagadevan 197160592051
Ujali Shah 197160592059
Isha Yadav 197160592072
Swap – Meaning

A Swap is an agreement between

two counter parties to exchange
cash flows in the future.
 INTERSET
RATE SWAP

Use to reduce borowing cost for business

By allowing swap interest rate

TERMINOLOGIES UESD IN SWAP

•SWAP FACILITATORS:

•SWAP BROKER

•NOTIONAL PRINCIPAL

•BASIS POINTS (BP)

•SWAPS COUPON
TYPES OF SWAPS
INTEREST SWAPS
An interest rate swap is a forward contract in which one stream of
future interest payments is exchanged for another based on a
specified principal amount. Interest rate swaps usually involve the
exchange of a fixed interest rate for a floating rate, or vice versa,
to reduce or increase exposure to fluctuations in interest rates or
to obtain a marginally lower interest rate than would have been
possible without the swap.

SPECIFIED
PRINCIPAL
AMOUNT
TYPES OF INTEREST SWAPS

•PLAIN VANILLA SWAP

•ZERO COUPONS TO FLOATING

•ALTERNATIVE FLOATING RATE

•FLOATING TO FLOATING SWAP

•FORWARD SWAP

•RATE CAPPED SWAP

VALUATION INTEREST SWAPS
EQUITY SWAPS
An equity swap is an exchange of future cash flows between two
parties that allows each party to diversify its income for a
specified period of time while still holding its original assets. An
equity swap is similar to an interest rate swap, but rather than
one leg being the "fixed" side, it is based on the return of an
equity index. The two sets of nominally equal cash flows are
exchanged as per the terms of the swap, which may involve an
equity-based cash flow (such as from a stock asset, called the 
reference equity) that is traded for fixed-income cash flow (such
as a benchmark interest rate).
TYPES OF EQUITY SWAPS

•CASH SETTLED EQUITY SWAP

•PHYSICALLY SETTLED EQUITY SWAP

VALUATION EQUITY SWAPS
COMMODITY SWAPS
A commodity swap is a type of derivative contract where two
parties agree to exchange cash flows dependent on the price of
an underlying commodity. A commodity swap is usually used to 
hedge against price swings in the market for a commodity, such
as oil and livestock. 

FIXED PRICE

AVERAGE JET FUEL PRICE

TYPES OF COMMODITY SWAPS

•FIXED - FLOATING SWAP

•COMMODITY FOR INTEREST SWAP

VALUATION COMMODITY SWAPS

1. The cost of hedging

2. The institutional structure of the particular commodity market in

question

3. he liquidity of the underlying commodity market

4. Seasonality and its effects on the underlying commodity market

5. The variability of the futures bid/offer spread

6. Brokerage fees

7. Credit risk, capital costs and administrative costs

 CURRENCY SWAPS
A currency swap, sometimes referred to as a cross-currency swap,
involves the exchange of interest – and sometimes of principal –
in one currency for the same in another currency. Interest
payments are exchanged at fixed dates through the life of the
contract. It is considered to be a foreign exchange transaction and
is not required by law to be shown on a company's balance sheet.

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TYPES OF CURRENCY SWAPS

•FIXED – RATE CURRENCY SWAP

•CURRENCY COUPON SWAP

•DIFF SWAP
VALUATION CURRENCY SWAPS

For currency swaps, an interest rate must be priced for each currency.

Each side of the currency swap has its own notional principal in its own
currency. Therefore, if one side of the swap has a notional set to 1, then the
notional for the other party will be 1/exchange rate.

1.For currency swaps, an interest rate must be priced for each currency.

2.Each side of the currency swap has its own notional principal in its own
currency. Therefore, if one side of the swap has a notional set to 1, then the
notional for the other party will be 1/exchange rate.
FORWARD SWAPS

A forward swap, often called a deferred swap, is an agreement

between two parties to exchange assets on a fixed date in the
future. Interest rate swaps are the most common type of a
forward swap, though it could involve other financial instruments
as well. Other names for a forward swap are 'forward start swap'
and 'delayed start swap'.

FIXED DATE IN
THE FUTURE
SWAPTIONS

•A swaption, also known as a swap option, refers to an option to enter into an

interest rate swap or some other type of swap. In exchange for an 
options premium, the buyer gains the right but not the obligation to enter into a
specified swap agreement with the issuer on a specified future date.

•Swaptions come in two main types: a payer swaption and a receiver

swaption.

• In a payer swaption, the purchaser has the right but not the obligation to enter
into a swap contract where they become the fixed-rate payer and the 
floating-rate receiver.

•A receiver swaption is the opposite i.e. the purchaser has the option to enter
into a swap contract where they will receive the fixed rate and pay the floating
rate.
•Swaptions are over-the-counter contracts and are not standardized, like equity
options or futures contracts. Thus, the buyer and seller need to both agree to the
price of the swaption, the time until expiration of the swaption, the 
notional amount and the fixed/floating rates.

•Beyond these terms, the buyer and seller must also agree whether the swaption
style will be Bermudan, European or American. These style names have nothing to
do with geography; instead referring to the methodology in which the swaption
will be executed.
USES OF SWAP

1. To create either synthetic fixed or floating rate liabilities or assets,

2. To hedge against adverse movements,

3. As an asset liability management tool,

4. To reduce the funding cost by exploiting the comparative advantage that each
counterparty has in the fixed/floating rate markets, and 

5. For trading.
THANK YOU