Currency swaps, hedging, and the exchange of collateral

Arie L. Melnik; Steven E. Plaut

doi:10.1016/0261-5606(92)90011-L

Currency swaps, hedging, and the exchange of collateral

Research output: Contribution to journal › Article › peer-review

Abstract

A model of currency swaps is developed where swaps provide superior hedging capabilities. Under the swap two parties in effect 'lease' assets that they own to one another for use as collateral, creating supewrior loan-collateral matching. This superior matching is reflected in lower borrowing costs to both agents (creating a dominant borrowing and hedging method). The swap contract is self-enforcing due to a mutual double bonding arrangement, where each side has an interest in the continuation of the exchange relationship. (JEL G2, F3).

Original language	English
Pages (from-to)	446-461
Number of pages	16
Journal	Journal of International Money and Finance
Volume	11
Issue number	5
DOIs	https://doi.org/10.1016/0261-5606(92)90011-L
State	Published - Oct 1992

ASJC Scopus subject areas

Finance
Economics and Econometrics

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abstract = "A model of currency swaps is developed where swaps provide superior hedging capabilities. Under the swap two parties in effect 'lease' assets that they own to one another for use as collateral, creating supewrior loan-collateral matching. This superior matching is reflected in lower borrowing costs to both agents (creating a dominant borrowing and hedging method). The swap contract is self-enforcing due to a mutual double bonding arrangement, where each side has an interest in the continuation of the exchange relationship. (JEL G2, F3).",

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Currency swaps, hedging, and the exchange of collateral

Abstract

ASJC Scopus subject areas

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