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Template:M intro isda a swap as a loan: Difference between revisions
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Revision as of 11:49, 15 December 2023
, 15 December 2023→Derivatives as engines of hypothesis
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[[a swap as a loan|During]] a [[The bilaterality, or not, of the ISDA| | {{smallcaps|[[a swap as a loan|During]] a typically}} [[The bilaterality, or not, of the ISDA|turgid disquisition]] about the ostensible “bilaterality” of the {{isdama}}, the JC remarked rashly that despite ''looking like'' a bilateral, even-stevens, un-[[loansome]] sort of a thing, in practical fact most swaps are ''implied financing arrangements''. | ||
Hotly justifying this stance sidetracked the original article, so we have “[[Let’s take it offline|taken things offline]]” and started a whole new article where the JC can properly make a tit of himself without spoiling the a perfectly pointless ululation about [[The bilaterality, or not, of the ISDA|Party A and Party B]]. | Hotly justifying this stance sidetracked the original article, so we have “[[Let’s take it offline|taken things offline]]” and started a whole new article where the JC can properly make a tit of himself without spoiling the a perfectly pointless ululation about [[The bilaterality, or not, of the ISDA|Party A and Party B]]. | ||
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The JC is blessed in that his friends are inclined to charity. “Oh, well, I suppose you ''could'' analyse an [[Interest rate swap mis-selling scandal|interest rate swap]] as a pair of off-setting loans,” they are prone to say. “Yes, that seems strictly true. But, dear fellow, it is rather to miss the point, isn’t it? Seeing as the same amount of principal in the same currency flows in both directions at the same time, the principal flows cancel each other out. So, loans, sure. But ''two'' loans, going in opposite directions. They cancel each other out. The parties to a swap are not ''really'' lending to each other, old thing.” | The JC is blessed in that his friends are inclined to charity. “Oh, well, I suppose you ''could'' analyse an [[Interest rate swap mis-selling scandal|interest rate swap]] as a pair of off-setting loans,” they are prone to say. “Yes, that seems strictly true. But, dear fellow, it is rather to miss the point, isn’t it? Seeing as the same amount of principal in the same currency flows in both directions at the same time, the principal flows cancel each other out. So, loans, sure. But ''two'' loans, going in opposite directions. They cancel each other out. The parties to a swap are not ''really'' lending to each other, old thing.” | ||
====Customers and dealers==== | ====Customers and dealers==== | ||
But this is not what the JC means. He means to say, economically, a dealer lends, outright, to a customer. One way. | {{smallcaps|But this is}} not what the JC means. He means to say, economically, a dealer lends, outright, to a customer. One way. | ||
Now, far out in space, beyond the Oort cloud of the cramped star system of inter-dealer relationships, there is a boundless universe of “end user” swaps. Here, one party is a “dealer” and the other — the “end user” — is a “customer”. This is the great majority of all swap arrangements in the known universe. Hence, the expressions “[[sell side|sell-side]]” — the dealers — and “[[buy side|buy-side]]” — their customers. | Now, far out in space, beyond the Oort cloud of the cramped star system of inter-dealer relationships, there is a boundless universe of “end user” swaps. Here, one party is a “dealer” and the other — the “end user” — is a “customer”. This is the great majority of all swap arrangements in the known universe. Hence, the expressions “[[sell side|sell-side]]” — the dealers — and “[[buy side|buy-side]]” — their customers. | ||
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:—{{buchstein}}, {{dsh}} | :—{{buchstein}}, {{dsh}} | ||
}} | }} | ||
Ok; that’s a delta-one equity swap. But [[synthetic equity swap|synthetic prime brokerage]] is, surely, an unusual use case? | {{smallcaps|Ok; that’s a}} [[delta-one]] equity swap. But [[synthetic equity swap|synthetic prime brokerage]] is, surely, an unusual use case? | ||
Aren’t “''normal''” swaps truly bilateral? How about a good old fashioned [[interest rate swap]]? Surely ''paying'' a [[fixed rate]], and ''receiving'' a [[floating rate]], has none of these same characteristics of borrowership about it? | Aren’t “''normal''” swaps truly bilateral? How about a good old fashioned [[interest rate swap]]? Surely ''paying'' a [[fixed rate]], and ''receiving'' a [[floating rate]], has none of these same characteristics of borrowership about it? | ||
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Do swaps change all that? No: because at some point, swaps must be ''based in the reality from which they are derived''. | Do swaps change all that? No: because at some point, swaps must be ''based in the reality from which they are derived''. | ||
====Derivatives as “engines of hypothesis”==== | ====Derivatives as “engines of hypothesis”==== | ||
{{quote| | {{quote| | ||
{{D|Derivative|/dɪˈrɪvətɪv/|n}} | {{D|Derivative|/dɪˈrɪvətɪv/|n}} | ||