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Quality Spread Differential
Quality spread differential (QSD) arises during an interest rate swap in which two parties of different levels of creditworthiness experience different levels of interest rates of debt obligations. A positive QSD means that a swap (finance), swap is in the interest of both parties. A QSD is the difference between the default-risk premium differential on the fixed- rate debt and the default-risk premium differential on the floating-rate debt. In general, the former is greater than the latter. Example If Company A can borrow at a fixed rate of 12% or at LIBOR+2%, while Company B can borrow at a fixed rate of 10% or at LIBOR+1%, then there is a difference of 2% in fixed rate borrowings, but of only 1% in floating rate borrowings. A difference of 1% therefore exists as the QSD, and a swap would benefit both parties. The benefits are experienced as, although Company B has an absolute advantage over Company A, Company A has a comparative advantage at floating borrowing. Assuming Company A ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Interest Rate Swap
In finance, an interest rate swap (IRS) is an interest rate derivative (IRD). It involves exchange of interest rates between two parties. In particular it is a "linear" IRD and one of the most liquid, benchmark products. It has associations with forward rate agreements (FRAs), and with zero coupon swaps (ZCSs). In its December 2014 statistics release, the Bank for International Settlements reported that interest rate swaps were the largest component of the global OTC derivative market, representing 60%, with the notional amount outstanding in OTC interest rate swaps of $381 trillion, and the gross market value of $14 trillion. Interest rate swaps can be traded as an index through the FTSE MTIRS Index. Interest rate swaps General description An interest rate swap's (IRS's) effective description is a derivative contract, agreed between two counterparties, which specifies the nature of an exchange of payments benchmarked against an interest rate index. The most common IRS ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
