What is a Rate-Differential Swap
Автор: Frugal Finance Math
Загружено: 2025-11-15
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Ever wondered how investors profit from interest rate differences across countries—without ever touching foreign currency? This breakdown reveals how rate-differential swaps and quanto notes unlock that strategy.
The video covers two key financial instruments: rate-differential swaps (diff swaps) and cross-index basis notes (quanto notes).
Diff swaps involve payments tied to interest rate indexes in different currencies but settled in a single currency, allowing parties to exploit changes in interest rates between countries.
Quanto notes offer exposure to foreign interest rates while being paid in the investor's domestic currency, allowing for speculation on relative changes in yield curves.
Both instruments involve complex pricing mechanisms to equate present values of cash flows based on different interest rate indexes.
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