What is the exchange bank?

Swap Banks are financial institutions that are used as an intermediary agency in carrying out currency or interest exchange between two parties. The swap bank often actively participates in identifying and ensuring these two parties to discuss the conditions of the stock exchange, and also help to perform a real swap. In exchange for a business agreement, the swap bank usually receives some type of compensation from one or both parties.

In order to understand how the exchange bank provides a useful function, it is necessary to define what means currency and interest swaps. Interest swap is a situation where two debt obligations with different payment flows are exchanged, to the mutual advantage of both parties. Each party acquires an obligation that includes the type of interest it wants. For example, interest swap may allow a creditor with a debt that carries a fixed interest rate on the debt for debt that carries the variable rate of interest.

with currency swap includes transactions exchange of cash flows and also the main type of currency with cash flows and principal associated with another currency. Like the interest swap, the idea of ​​a currency swap is to allow two parties to confuse assets to their mutual benefit. Both currency swap and interest swap often include provisions that allow both parties to reverse the stock exchange at a certain point in the future, a process that a swap bank is likely to handle.

There are several advantages of using a swap bank to manage monetary and interest swaps. One has to do with the ability to find parties who are interested in exchange and have financial stability to engage in this process. The bank is able to ensure that there are no problems with ownership of the assets that are exchanged, and each party will be able to fulfill its obligations in connection with trade. This can save any entity that wants to engage in the exchange of great time, and also minimize shaNCE for problems that are to arise later.

Compensation received by the swap bank is often based on the complexity of its own swap itself. Relatively simplistic swaps that require little effort can be compensated with a certain type of bonus related to one or both assets that are exchanged. Some banks prefer to charge flat fees in advance, while others may assess the percentage of the total value of the relevant assets. In many cases, the fees charged by the exchange bank are relatively cheap compared to sources that both parties would spend on trying to find a suitable replacement on their own.