Template:M intro isda a swap as a loan: Difference between revisions

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-In the course pof a disquisition about the bilaterality of the {{isdama}} the JC made a rash, off-the-cuff remark: despite ''looking like'' this bilateral, non-[[loansome]] thing, most swaps really are implied financing arrangements.
+During a typically turgid disquisition about the ostensible “[[The bilaterality, or not, of the ISDA|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 really implied financing arrangements.
-Hotly justifying this stance somewhat sidetracked the original article, so we have declared independence and made a new article where the JC can indulge himself.
+Hotly justifying this stance somewhat 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 other article.
-So here goes. A swap is a disguised loan.
+So here goes: at least beyond the galaxy of inter-dealer arrangements, a ''swap is a synthetic loan''.
 You could analyse an interest rate swap as off-setting fixed rate and floating rate loans. 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 — they “net” to zero.
-“Aha, JC: quite so. But this implies, does it not, that the parties are ''not'' lending to each other?”
+“Aha, JC: quite so. But this implies, does it not, that the parties are ''not'' lending to each other? Do not the “loans” cancel out too?”
-Well, yes: but the difference is in how the two sides manage their respective positions. Beyond the cramped star system of inter-dealer relationships, there is a boundless universe where one party is a “dealer” and the other a “customer”. This is the great majority of all swap arrangements.
+Well, yes: but the difference is in how the two sides manage their respective positions. Beyond that cramped star system of inter-dealer relationships, there is a boundless universe where one party is a “dealer” and the other a “customer”. This is the great majority of all swap arrangements.
-The difference between ''customer'' and ''dealer'' does not depend on who is “long” and who “short” — customers can be long ''or'' short — nor on who pays fixed and who pays floating.
+The difference between ''customer'' and ''dealer'' is not who is “long” and who “short” — one of the beauties of swap contracts is that customers can easily go long ''or'' short — nor on who pays fixed and who pays floating.
 For the customer the object of transacting is to ''change'' its market exposure: to get into a positions it did not have before, or get out of one it did. This sounds obvious. But, being a bilateral contract, you might think it follows that the dealer is changing its position, too. But it is not. A dealer is there to provide exposure without taking any itself, and thereby to earn a commission. The dealer intends to say ''flat''.