INTEREST RATE SWAPS

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SUMMARY

This module enables participants to identify the structure of an interest rate swap and how it achieves goals of interest rate exposure management. Interest rate swaps as arbitrage tools in financial management are reviewed.

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OBJECTIVES

Upon completion of this module, participants will be able to:

1. Describe an interest rate swap.

2. Identify the basic structure of an interest rate swap.

3. Discuss the benefits of interest rate swaps.

4. Identify the quoting conventions of interest rate swaps.

5. Calculate the basis spreads and their allocation to the parties in an interest rate swap.

6. Discuss how interest rate swaps permit users to arbitrage the yield curve.

7. Calculate the cost of matched and mismatched swaps.

8. Identify the benefits and risks of matched and mismatched swaps.

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