Treasury - Swaps

Swap is a derivative contract in which counterparties exchange certain benefits of one party's financial instrument for those of the other party's financial instrument thereby taking the benefit of comparative advantage.

Bank provides its clients various swap products to help them hedge their foreign currency liabilities / assets or assume foreign currency liability / assets as a cost cutting measure as per their requirements and capacity.

There are four types of swaps:

• Principal only swap (POS),
  A POS is an exchange of principal in two currencies on specific dates with an exchange of fixed interest payments in the two currencies on specific dates. The product is used by customers wishing to cover exchange rate risk on a series of foreign currency cash flows beyond one year.
  We provide this facility to our clients wishing to convert their foreign currency liability into INR liability or vice versa.
• oupon only swap (COS)
  A coupon only swap is a contractual agreement entered into between two counter parties under which each agrees to make periodic payment to the other for an agreed period of time based upon a notional amount of principal where both the legs of cash flows are in different currencies.
  We provide such structures to our clients wishing to swap floating rate liability into fixed rate and vice versa.
• Interest Rate Swap (IRS)
  An Interest Rate Swap is an exchange of one stream of interest flows for another in the same currency. Such contracts generally involve exchange of a `fixed to floating’, ‘ floating to fixed’ or `floating to floating’ rates of interest.
  We provide such structures to our clients wishing to swap floating rate liability into fixed rate and vice versa.
• Currency Swap (CCS)
  A currency swap is a basic instrument used by the clients to hedge against both the interest rate risk and the currency risk. A currency swap involves an exchange of principals and interest payments in two different currencies. The cash-flows are the principal amounts in each currency, and interest on specified principals. The rate of interest could be a fixed rate or a floating rate indexed to some reference rate, most commonly the LIBOR rate.

A Currency Swap is an ideal instrument when a corporate has raised a foreign currency denominated floating rate loan and is now expecting the interest rates to rise and/or the domestic currency to depreciate.