Hedging Swaps: Interest Rate Swaps and Risk

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Gewinne aus dem Forex-Handel als Devisenhändler in Deutschland versteuern. In diesem Fall ist der Trader nicht der Besitzer einer Fremdwährung sondern hat den Anspruch auf eine sogenannte Partizipation, die durch eine Ausgleichszahlung erfolgt. Wenn der Broker keine Zahlstelle ist, die mit den deutschen Finanzbehörden verbunden ist, dann wird die Steuer nicht automatisch abgeführt. Financial institutions in nations with exchange restrictions use NDSs to hedge their foreign currency loan exposure. It therefore enters into a currency swap with an overseas counterparty on the following terms:.


The spread expresses the three-month premium paid over anticipated central bank rates, or Over night Index Swap rates, and is seen as a gauge of banks' willingness to lend to each other - a wider spread is seen as an indication of decreased inclination to lend.

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That may be important, for example, if the portfolio contains swap options. In categorizing the risk of the swaps portfolio, the dealer must look at different types of yield curve risk, including parallel shifts in the yield curve , non-parallel shifts in the yield curve and changes in swap spreads. Sophisticated dealers may incorporate some assumptions about the correlation between swap spreads and interest rates in doing their scenario analysis.

It may be reasonable to believe that swap spreads will widen out if interest rates back up, for example, because of degrading credit conditions.

The dealer may also carry a proprietary position in one or more aspects of the risk. If, for example, he thinks that interest rates are going to fall in the two-year to three-year bucket, he may be happy to continue received fixed interest payments for that period. One of the more difficult aspects of a hedging swaps portfolio is managing the short-term cash flows, or the floating rate cash flows, for the following reasons:.

Consider a hedge that was entered into two years ago to hedge a two-year fixed-floating plain vanilla interest rate swap where the hedge transaction took place a week after the initial customer transaction. Unless the dealer matched the dates precisely at the time he conducted the hedge transaction, there can be a mismatch of cash flows. If the correlation between the two indices used to hedge the transaction changes, then the swap portfolio is exposed to refunding risk.

Commercial banks will sometimes try to hedge their floating rate cash flows by establishing a separate book dedicated to hedging such risks.

The book will participate actively in futures markets such as the IMM Eurodollar market and takes aggressive positions in short-term interest rates. They can also pay the hedging costs necessary for closing out the mismatches, but this can get expensive. With the increased commoditization of global derivatives markets, dealers are losing much of their pricing edge, which makes paying for outside hedging more difficult. Join the FinPipe community and get the latest updates right to your inbox!

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