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Finance & Accounting
Pages 8 (2008 words)
Interest Rate SWAPS Literature Review Derivatives is considered to be a particular instrument or product worth of which is obtained as a result of more than one fundamental variables referred as an underlying asset, value associated with the reference rate and index by way of a contract.
According to Pelsser (2000) the market related to derivative securities has been stated to be perceived similar to an insurance market in relation to the considered financial risks. The rapid rate of globalisation in terms of the capital markets has resulted in a significant rise in the level of volatility related to interest rate across the globe. Numerous companies displayed a preference in favour of purchasing insurance in opposition to the rising improbability and instability with regard to the market linked to interest rate. Owing to this particular rationale, the market related to interest rate derivatives witnessed a sharp rise and development during the past two decades (Crotty & North Carolina State University, 2006). It was stated by Whaley (2006) that interest rate derivatives are referred to those kind of derivatives which are supposed to make available the pay-offs that are ascertained by the way of alterations that takes place in the interest rates. The similar derivative products that were made use of with the intention to handle and deal with the risks related to foreign exchange were found to posses the competence of managing the risks related to interest rates as well (Kohn, 1990). The popular form of derivative product that was found to be used in this context was the interest rate swaps. ...
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