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Thus, originally, swaps were offsetting [[loan]]s in different currencies.<ref>Some of their “[[loan]]y” ancestry can still be seen in the [[fossil record]]: This is the best explanation of why there should be a [[cross default]] provision in an {{isdama}}. Well, it’s not like there’s any other good reason, is there?</ref> This arrangement allowed each side to access the foreign exchange of the other country and avoid paying any foreign currency taxes. | Thus, originally, swaps were offsetting [[loan]]s in different currencies.<ref>Some of their “[[loan]]y” ancestry can still be seen in the [[fossil record]]: This is the best explanation of why there should be a [[cross default]] provision in an {{isdama}}. Well, it’s not like there’s any other good reason, is there?</ref> This arrangement allowed each side to access the foreign exchange of the other country and avoid paying any foreign currency taxes. | ||
IBM and the World Bank entered into the first formal [[swap transaction]] in 1981. The World Bank | IBM and the World Bank entered into the first formal [[swap transaction]] in 1981. The World Bank faced significant demand from its borrowers for [[Deutschmark]]s and [[Swiss franc]]s, but the Swiss and German governments limited the amount of borrowing the World Bank could do in their currencies. IBM, on the other hand, already had plenty of CHF and DEM, but wanted to increase its U.S. dollars since interest rates were high. | ||
[[Salomon Brothers]] came up with the idea for the two parties to “swap” their debts. IBM swapped its borrowed francs and marks for the World Bank’s dollars. | [[Salomon Brothers]] came up with the idea for the two parties to “swap” their debts. IBM swapped its borrowed francs and marks for the World Bank’s dollars. |