Recent developments in the swap market

Quarterly Bulletin 1987 Q1
Published on 01 March 1987

Over the past five years, one of the most rapidly growing and innovative areas in the international capital market has been the swap market-comprising interest rate swaps, currency swaps and, more recently, asset swaps. The market is estimated to have grown from about $5 billion in 1982 to some $400 billion at end-1986.

Swaps provide a mechanism for exploiting market imperfections and are also a valuable technique for managing financial flows-on both the liability and the asset side. As such they are widely used by all kinds of institution in the financial, corporate and government sectors.

This article has several aims: to explain the mechanics of different types of swap and the basic principles underlying the transactions; to consider the origins and evolution of the market; to present empirical data on the size and nature of the swap market; and to discuss the prospects for the market.

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