Swaps Introduction - Forex Management

Exchange rate instability and the collapse of the Bretton Woods System and particularly the control over the movement of the capital internationally, paved the way for the origin of the financial swaps market. To day swaps are at the centre of the global financial revolution. The growth is such that sometimes it looks like unbelievable but it is true. Though its growth will continue or not is doubtful. Already the shaking has started. In the “plain vanilla” dollar sector , the profits for brokers and market makers, after costs and allocation of risk capital, are measured in fewer than five basis points. This is before the regulators catch up and force disclosure and capital haircuts. At these spreads, the more highly paid must move on to currency swaps, tax-driven deals, tailored structures and schlock swaps.
The fact which is certain is that, although the excitement may diminish, swaps will stay. Already, swaps have had a major macro economic impact forging the linkage between the euro and the domestic markets, flattening the cash yield curves, and reducing central bank monopoly influence on markets. We are all swappers now. And remember the saying “beware of honey offered on a sharp knife” when you are offered sweet deals. The problem in following the chaotic process of this very important market is quite simply that “he who knows does not speak, he who speaks does not know.”

All rights reserved © 2020 Wisdom IT Services India Pvt. Ltd DMCA.com Protection Status

Forex Management Topics