Commodities, Derivatives and Structured Products

Interest Rate & Currency Swap Fundamentals - Part 3



This tutorial focuses on the way in which future credit exposure can be generated, how estimations of the exposure can be made, and how the future exposure can be reduced through different forms of credit enhancement. This tutorial describes the complexities and evolution of the swap settlement and documentation processes. It covers the trade cycle, the participants, and the standard documentation.


On completion of this tutorial, you will be able to:
- Describe how credit exposure is generated in an interest rate or currency swap, and how it is a function of the movement in the underlying market variables
- Outline the complexities involved in measuring the level of credit exposure
- Explain how credit exposure can be reduced
- Describe how credit exposure is priced and managed by different institutions, and the difficulties that these processes generate
- Outline the trade cycle for a swap
- Describe the usual format for standardised swap documentation, the role of ISDA in its development, the functions of a Master Agreement, and a Schedule to that Agreement
- Explain the process of netting in swaps settlement and the difference between the two types of swaps settlement
- Describe the evolution of standardised documentation and settlement, and the role of third parties, such as FpML and Swapswire


Module 1: Swaps - Credit Exposure
Topic 1: Fundamentals of Credit Exposure
Topic 2: Measuring Exposure
Topic 3: Netting & Credit Enhancement
Topic 4: Pricing & Management

Module 2: Swaps - Documentation & Settlement
Topic 1: Executing a Trade Swap
Topic 2: Swap Documentation
Topic 3: Settling Swap Trades

Topic 4: Evolution & Development of Swap Settlement


SFC:2.50, PWMA:2.50