198 1 year, IBM and the World Bank conducted currency swap transactions between Swiss francs and German marks and US dollars. At that time, the World Bank was able to raise dollars in eurodollar market under favorable conditions, but what it actually needed was Swiss francs and German marks. At this time, IBM, which holds Swiss francs and Deutsche Mark funds, just wants to change these two currency forms into dollars to avoid interest rate risks. Under the intermediary of salomon brothers Company, the World Bank provided the US dollar funds raised at low interest rates to IBM Company, and IBM Company provided its own Swiss francs and Deutsche Mark funds to the World Bank. Through this swap transaction, the World Bank raised the required Swiss francs and German marks on more favorable terms than its own funds, while IBM avoided the exchange rate risk and raised the US dollar funds at low cost. This is the first officially announced currency swap transaction in the world so far. Through this swap transaction, the World Bank and IBM raised the required funds at low cost without changing the legal relationship with the original creditors.
1982 Deutsche Bank conducted an interest rate swap transaction. Deutsche Bank provides a long-term floating interest rate loan to an enterprise. At that time, Deutsche Bank needed to raise long-term funds for long-term loans, and at the same time judged that interest rates would rise, so it might be more beneficial to raise long-term funds in the form of fixed interest rates. Deutsche Bank raises long-term funds by issuing long-term fixed-rate bonds, converts fixed interest rates into floating interest rates through interest rate swaps, and then issues long-term floating-rate loans to enterprises. This transaction is considered to be the first formal interest rate swap transaction.
Under the background of the trend of international financial market integration, as a flexible and effective hedging and derivative tool of integrated asset-liability management, futures trading has been paid more and more attention by the international financial community, with its increasingly extensive use and rapid increase in trading volume. Recently. This form of transaction has gradually expanded to areas other than exchange rate and interest rate, such as commodities and stocks. Due to the complexity of swap contracts, they usually take the form of one-to-one direct transactions between the two parties, lacking an active secondary market and openness of transactions, which has greater credit risk and market risk. Therefore, most of the people engaged in swap transactions are international financial institutions with strong strength and strong risk control ability, and the swap market is basically an inter-bank market. In recent years, the Bank for International Settlements (BIS) and the International Association of Swap Dealers (ISDA), both self-regulatory organizations of swap dealers, have successively formulated a series of guidelines and standards for regulating swap transactions, and their risk management has been paid more and more attention by traders and regulators.
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There is a market behavior called "swap", which depends heavily on the price structure of forward contracts. "Swap" means buying and selling the same metal contract with different delivery periods at the same time. Monotonous trading includes two aspects: buying and selling. If you buy a recent contract, it is called a loan swap; If the recent contract is sold, it is called a loan swap.
The difference between the recent contract and the forward contract is the transaction cost, which will be borne by the lender in the forward premium market and the borrower in the forward discount market. The following table illustrates the influence of price structure on swap transactions.
Forward premium forward discount
Borrow and exchange to make money/lose money/cost
Costs of loans and rescheduling at loss/profit/profit.
If we borrow money, we only buy in the near future and sell in the long term. If the market is a forward premium, it means that we buy low and sell high, so we make money; If the market is a forward discount, it means that we buy high and sell low, so we lose money. To make it easier to remember, we can write it as "BBC" (Bor-row in a back-cost).
If we are short of cash, we can meet the demand by borrowing and adjusting the term. However, the longer the swap period, the higher the capital cost. Therefore, the above two factors should be considered comprehensively when choosing.
Futures swaps are often used to adjust the delivery date of futures and obtain interest income. In addition, the LME settlement system implements the settlement rule of contract maturity date, which leads to the increase of financial expenses, which is also the reason for swap transactions. As the swap transaction includes two contracts with different delivery periods, the two contracts will be settled separately at different times. The buyer of the recent contract will have to pay the full contract price when the recent contract expires, and will not receive the full price of the selling contract before the expiration of the forward contract. Here we haven't considered whether the swap itself is a profit or a loss.
The purpose of swap transactions is mainly inventory financing and moving positions.
Inventory financing. If the warehouse receipt holder doesn't need the metal immediately, he can lend it through swap transaction, so as to obtain funds and revitalize the assets for a period of time. If it is a forward discount market, you can also earn the difference between the recent contract and the forward contract, which may be considerable.
Earn interest income. This refers to the forward premium market to profit by borrowing swap transactions. This kind of investment can often get a rate of return much higher than the normal interest rate. However, the opportunity of operation is fleeting, because other investors are always ready to seize such a profitable and safer investment opportunity, and their actions will narrow the forward premium.
Move one position. Some investors may hold an LME contract with a certain expiration date, but for some reason, he feels that this expiration date is not suitable, so it is better to change it. This often happens, especially when the maturity date of the hedging position is set to match the spot pricing date. At this time, swap transactions will be used as follows:
Originally holding long positions, originally holding short positions.
Need to postpone loan swap, loan swap
Need to borrow swap in advance, borrow swap.