it is addressed frequently that swaps are a zero-sum game.
However, i notice from an example on scheweser notes that by fixed-for-fixed currency swap, both parties gain. i.e., they both managed to lend at a lower rate.
Is that an exception or i got it wrong?作者: nitoha 时间: 2011-7-11 17:44
I think this could be referencing the comparative advantage that can be achieved depending on which market they are entering作者: spartanag07 时间: 2011-7-11 17:44
im not sure which example you are referring to, but swaps by definition have to be zero sum. Both sides of a xccy swap can gain from the transaction as a whole (ie swap vs their domestic funding), but on the swap alone their payoff/pnl must be zero sum
by the way i havnt done any CFA yet (or started studying) so my explanation may differ from the readings作者: farrukhsadiq 时间: 2011-7-11 17:44
thanks, that explains a little, can i just put it this way: alothough both parties paid less using swaps, no wealth has been created, the banks lending the money received the exact amount of interest they expected?作者: JPSem 时间: 2011-7-11 17:44
the gain is from the interest at the risk free rate.作者: marsilni 时间: 2011-7-11 17:44
Stephaniez: Excellent question.
Both parties gain because they effectively gain access to a loan in a foreign country at a more competitive rate. Currency swaps are an exception in that sense.
