Magazine article American Banker

Do Rate Hikes Throw Cold Water on Swaps Market? Apparently Not

Magazine article American Banker

Do Rate Hikes Throw Cold Water on Swaps Market? Apparently Not

Article excerpt

The worldwide use of interest rate swaps, currency swaps, and related derivatives surged in the first half of 1994 despite the rate hikes that began last February.

The notional principal amount of the contracts outstanding rose nearly 45% during the first half of last year, to $4.2 trillion, according to a semiannual survey by the International Swaps and Derivatives Association.

According to chairman Gay H. Evans, the continued growth in privately negotiated swaps deals "underscores ever wider recognition that they offer a more cost-effective way to better manage risk."

In its semiannual market survey of privately negotiated swaps and related derivatives transactions, the association found that interest rate swaps continued to form the bulk of all swaps transactions.

U.S. dollar-denominated transactions were again the most prevalent, accounting for more than $1 trillion during the first half of the year, an increase of 40.8%. Dollar transactions account for more than one-third of the currency swaps market. Japanese yen transactions rose 31.2% to $592 billion. French franc transactions reached $457 billion, up 58.3%.

Privately negotiated swaps and other derivatives transactions are bilateral agreements under which two parties agree to exchange cash flows. Exchange-traded futures and options are not part of the ISDA survey.

New interest rate swaps written during the first six months of 1994 increased 46.9% to $3.2 trillion in notional principal. Currency swap volume rose 30. …

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