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Interest rate swaps and equity swaps: Standard features/differences

Describe the standard features of an equity swap contract. What are the differences between an equity swap and an interest rate swap.

Please incorporate two high quality references and explain in detail.

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Interest Rate Swaps and Equity Swaps

An interest rate swap refers to the act of transferring an interest rate stream without having the underlying debt transferred. This can take part between two parties with a contract agreement. An interest rate swap is a representation of one financial instrument category referred to as derivative instrument. A derivative instrument is defined as an agreement with a derived value from some underlying market return, price index or market return as stated by Kuprianov (1994).

Kuprianov goes ahead and states that, over the recent years, there has been a rapid growth in the swaps and other derivative instrument's markets which has resulted to a spurred controversy over the economic rationale of these instruments. However cons and observers have expressed their concern over the alarming growth and size of the ...

Solution Summary

Interest rate swaps and equity swaps are examined. The standard features and differences are determined.