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Swap Market In India

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Swaps have been growing at a increasing rate. The market is designing creative and complex structures to provide tailor-made solutions. The regulators are unable to design systems to effectively assess risks involved in these transactions. Today the term “swap financing” is used to describe a funding and a currency exposure management technique. It enables corporations, agencies and institutions to cope with the problems of fluctuating rates, imperfect capital markets, restrictive exchange control regulations and accounting standards. Swaps are derivatives, which involve a private agreement between two parties to exchange cash flows in the future according to a prearranged formula. The underlying instruments are liabilities or assets with interest expenses or incomes. Swap is essentially a derivative used for hedging and risk management.
Historically, swaps had been arranged opportunistically when two companies had requirements, which are exactly equal and opposite. The first recorded swaps were negotiated in 1982. Since then, the markets have grown very rapidly. The expansion in the swap market has occurred in response to the challenging phenomena, which have characterized financial markets today – arbitrage opportunities, tax regulations, capital controls, etc., as a result of market imperfection, need for protection against interest rate and exchange rate risk, improvements in computer technology and increasing integration of world capital markets. Thus, swaps are powerful tool propelling global capital market integration.
The diverse requirements of corporate treasurers, bank liability managers, finance minister and portfolio manage account for the rapid growth of the swap market. A currency swap involves exchange of principal and interest payments in two different currencies between two different parties. Swaps are privately negotiated customized transactions; swaps are off balance sheet transactions and have grown at a phenomenal rate. In a currency swap, one party agrees to exchange principal and make regular interest payments in one currency to a counter party for principal and periodic interest payments in another currency. Swaps are useful in hedging exchange rate and interest rate risks by taking advantages of arbitrage opportunities that arise due to the prevailing imperfections in the capital market.
The interest rate swap market, in which borrowers contract to exchange interest rate payments, has grown substantially in recent years. These instruments are used by financial managers to reduce borrowing costs, increase asset returns, or hedge interest rate risk. Major market participants include commercial and investment banks, which both use and deal in swaps, securities firms, savings and loan institutions, corporations and government agencies.

Number of Pages of Project Report: 58
Package Includes: Project Report
Project Format: Document (.doc)

Table of Contents of Project Report:
Chapter 1: Introduction
Chapter 2: Literature Review
Chapter 3: Conceptual Framework
3.1 Basic Swap Structure
3.2 Evolution of Swap
3.3 Interest Rate Swap
3.4 Currency Swap
Chapter 4: Research Methodology
Chapter 5: Research Findings and Discussion
Chapter 6: Conclusion & Recommendations

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