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Swaps Usefulness and Benefits

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- What useful purpose do swaps serve?
- How does a business benefit from the use of swaps?

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This solution discusses swaps.

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Just like any financial instrument, swaps can be used to speculate on movements in markets as well as to hedge against and reduce risk. There are many legitimate reasons for a company to enter into a swap agreement. Just like forward contracts can be used by farmers to reduce risk of future payments on crops they are growing, and thereby reduce their total risk, many companies can use swaps to reduce or even eliminate their risk.

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  • MBA, Merage School of Business, Univ of Cal, Irvine
  • BA, Univ of Cal, Irvine
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