Introduction To The Trade Alert Scanner

The currency swap is an agreement between two parties to exchange a specified amount of foreign exchange and mutually commit to regular payments for interest and to get the amount exchanged at a definite time. These swaps are called cross currency swaps or currency interest rate swaps (CIRS).

There are different types of swaps. The export swaps are granted by banks to exporters in some countries. They represent a kind of advance in convertible currency by the Central Bank, that advance will be refunded if the exporter has received payment for sales.

Parallel loan allows both companies located in different countries agree to grant loans in the currency they need for a specific period. At the end of the period, the two companies repay the loans they have towards each other in their respective currencies.

Interest rate swap

An interest rate swap is a financial derivative contract in which two counterparties mutually agree to make financial flows (the legs of the swap) based on a notional amount for a specified period. Thus, when one is paying or borrowing on the basis of a fixed rate swap, it means you pay a fixed rate to receive a floating rate.

Swap two variables may also have legs, then it is a swap basis. If both legs of the swap are not denominated in the same currency, there is a cross currency swap. In practice, institutions manage portfolios of swaps. Often these swaps or portfolios are involved in the management of interest rate risk of banks as shown by the Trade Alert Scanner.

Credit Risk

Counterparties to a swap are exposed to credit risk because in case of movement of the yield curve, significant gain or losses of the underlying may occur. It is therefore important to ensure the financial soundness of a counterparty, before getting an interest rate swap with it.

The International Swaps and Derivatives Association (ISDA) is the professional organization for most of the major players in the financial derivatives markets, whose primary purpose is to provide a reference standard for transactions.

Swaps prices can be viewed by subscribing to specialized information services such as Reuters or Bloomberg LP in real time.

Credit default swap (CDS)

A credit default swap (CDS) is a financial product that consists of a hedging transaction that falls in the category of credit derivatives. This is implemented through a swap contract on a particular credit instrument (typically a bond or loan) in which the buyer of the swap makes a series of periodic payments (called spread) to the seller. In exchange, is paid an amount of money when the instrument that serves as the underlying asset is unpaid when due (issuer default, Trade Alert Scanner).