Role of Front OfficeHSBC Case Study Example | Topics and Well Written Essays - 1250 words

Role of Front OfficeHSBC - Case Study Example A cross-currency swap is similar to a vanilla swap while giving each counterparty access to a different foreign currency. That is, one counterparty makes payments in one currency; the other makes payments in a different currency. Because there are two currencies involved (and therefore two nationals) the payments made not only include interest rate payments (on the set payment periods in the relevant currency on the respective principal) but also an exchange of principals at maturity and (optionally) at the start of the swap. In a typical inflation swap, two counterparties agree on a long-term contract based on an agreed inflation rate. If at the end of the contract, prices are higher than originally expected, the seller of inflation makes a payment to the buyer. If prices turn out lower than expected, the buyer pays the seller. An Interest Rate Collar is an instrument that gives you protection against rising rates by guaranteeing that you will never pay above a pre-agreed rate but at the same time sets a downside (floor) rate below which you cannot benefit if rates do fall further. It effectively creates an interest rate range with an upper and lower limit and depending upon where the floor level is set, will reduce or eliminate the requirement for a premium.