Swaps (FRM Part 1 2025 – Book 3 – Chapter 10)

For FRM (Part I & Part II) video lessons, study notes, question banks, mock exams, and formula sheets covering all chapters of the FRM syllabus, click on the following link: https://analystprep.com/shop/unlimite...

AnalystPrep is a GARP-Approved Exam Preparation Provider for FRM Exams

After completing this reading, you should be able to:
Explain the mechanics of a plain vanilla interest rate swap and compute its cash flows.
Explain how a plain vanilla interest rate swap can be used to transform an asset or a liability and calculate the resulting cash flows.
Explain the role of financial intermediaries in the swaps market.
Describe the role of the confirmation in a swap transaction.
Describe the comparative advantage argument for the existence of interest rate swaps and evaluate some of the criticisms of this argument.
Explain how the discount rates in a plain vanilla interest rate swap are computed.
Calculate the value of a plain vanilla interest rate swap based on two simultaneous bond positions.
Calculate the value of a plain vanilla interest rate swap from a sequence of forward rate agreements (FRAs).
Explain the mechanics of a currency swap and compute its cash flows.
Explain how a currency swap can be used to transform an asset or liability and calculate the resulting cash flows.
Calculate the value of a currency swap based on two simultaneous bond positions.
Calculate the value of a currency swap based on a sequence of FRAs.
Describe the credit risk exposure in a swap position.
Identify and describe other types of swaps, including commodity, volatility, and exotic swaps.