I watched a 2 hours lecture twice just to know and understand how swap works, but I got nothing. I watched this 15 minutes video only once and I got the whole idea. Very grateful
Tommas099 - thanks for your comments. In fairness the example is designed to show a beginner the basic principles of a swap. All my numbers show is that a swaps bank can take advantage of the fact that different firms are able to borrow on different terms - my example is 100% theoretically sound but I accept the figures used are (quite deliberately) unrealistic in the I/R swaps market as I wanted to keep the basic principles as clear as possible. Tim.
I am studying for an exam right now, and this has come in really handy. I really could not understand the concept of interest rate swaps earlier from text books and you really explained it in such an easy manner. I am so stunned and genuinely happy that I now understand this concept. Thank you. Thank you so much for explaining it in such an easy to understand way🥰
Why has no textbook ever thought to explain it this way? We spend hard-earned money buying books that intentionally obfuscate things and leave the reader more confused than they were before reading them. Thanks so much Tim Bennett for making this rocket science of a concept feel like ABC. I must confess for a moment there I was checking the comment section expecting to see people who understood swaps screaming about how wrong his explanation was because, by Jove, there's no way this concept could be this simple. From the comments so far, I can now fully accept Tim's explanatory genius. Again, thanks Tim.
I am an engineer undergraduate and just wanted to inform you that your new job is to teach me all the terms that are flying around in financial movies. Thank you for that, keep the good work up :)
This is the best explanation ever for newbie, if you know absolutely nothing about swap or are confused. He really explained it as you were a five year old which is something I wanted lol
this is brilliant content - I was never confident with explaining what swaps are and now I feel like I could confidently go into my interview to explain! thank you so much!!
Sir, I just learned the the Interest Swap and taught it to 7 colleagues through class room training. Once again Thanks a lot. I have been assigned a new Project - Canara Bank Derivatives where the implementation is going on. Your understanding way and constructing the sentences wisely helped to understand the concept/functionality.
Actually I might do a basic currency swap soon. Caps floors and collars are interesting too but require some background knowledge about options (a cap is just a string of options, as is a floor, with a collar being the two in combination). Thanks for the suggestions. Tim.
You are AWESOME! I was looking over my boyfriend's shoulder and asked what a swap was and he didn't feel like explaining. So I watched this and now I'm talking to him about LIBOR and shit. THANK YOU
fair enough mate. As i said at the beginning, it does convey the theory well, and for what it's worth it's by far one of the better ones on youtube for doing that.
Extremely well explained! I kept asking where the original loans were coming from to better understand why the two companies need to enter into a swap agreement. You're video is the only I could find that answers my question. Thank you!
You kept me fully interested until the end. You enlightened me in a moment when you said it is financial magic. It is the simplest and straight to the point IRS explanation I've ever found.
matschbirne - that's right, the whole thing depends on the counter parties not defaulting. Of course a bank can separately protect itself using credit derivatives (see my video on what is a credit default swap for example) but these also carry counterparty default risk!! So one bank going bust can have a massive ripple effect as we have seen....
I came across this video while looking for a swap presentation to send to a lawyer friend to clue him in a little, whilst it is a very user friendly explanation, there are some fundamental and fairly crucial problems, particularly when you look at it from a practical stand point. Bare with me this may take a while!
HI! Company A is paying Libor to Swaps Bank, and receiving 8% from them, and it's also paying 7% fix rate to Bank A. Thus, Company A net payment is: Libor - 8% +7% = Libor - 1%
It's an brilliant video, but I don't get where the relative advantage of Company B is, since Company A can borrow at a lower cost for both the fixed and variable deal... what swap sorcery is this?
i have been doing marketing throughout uni. but i have decided to apply for an internship at MS. so here i am. do not know what does equity swap means but now i do. thanks!
Sir, you are amazing! i understood now what a swap is and believe it or not i spended over an hour trying to understand it and i couldn't, for that you have my appreciation and a like+fave. Again thank you a lot kind sir.
You explained the hard finance concept in a so vivid and gentle way~~ I think I really got the business model of a swap bank Making money by offering better financial deal to clients! It’s really the magic of finance
the swap bank will pay 8% to company A, and company A borrowed money from bank A at interest rate of 7%. So, when company A receives 8% interest rate from the swap bank, it pays 7% out of the 8% to bank A therefore 1% will remain for company A. in this case company A got what it wanted at the beginning which was variable rate and by doing the swap it got it below the original LIBOR rate.
I was advised to diversify my portfolio among several assets such as stocks and bonds since this can protect my inherited portfolio of about $2.5m. I’m used to just buying and holding assets which doesn’t seem applicable to the current rollercoaster market plus inflation is catching up with my portfolio. I’m really worried about survival after retirement.
True, I mostly just buy and hold stocks, but my portfolio has been mostly in the red for quite awhile now. Unfortunately to be able to make good gains, you’ll need to be consistent and restructure your portfolio frequently.
It's often true that people underestimate the importance of financial advisors until they feel the negative effects of emotional decision-making. I remember a few summers ago, after a tough divorce, when I needed a boost for my struggling business. I researched and found a licensed advisor who diligently helped grow my reserves despite inflation. Consequently, my reserves increased from $275k to around $750k.
There are a handful of experts in the field. I've experimented with a few over the past years, but I've stuck with ‘’Colleen Rose Mccaffery” for about five years now, and her performance has been consistently impressive. She’s quite known in her field, look-her up.
I wish I would've watched this during my Money and Banking Class last semester. It would've saved me a great big headache trying to piece this together off my professors lectures.
So if B's risk free premium was 1% his fixed rate of borrowing cost would have been 8%. The result of the schematic is that the difference of 2% (between fixed and floating premiums) is shared between A,who gets 1%, B who gets 1/2% and the swap bank who gets 1/2%. Let's assume that you have taken this from the old school, before banks ran swap books and that A can borrow at 7% but B would be willing to borrow at 9.5% but just could not borrow fixed in any other way (i.e. could not issue a bond)
Essentially bank B has taken the view that the price for the risk of Co B defaulting on a floating rate deal is 1% (above co A's borrowing rate) and the price for the risk of Co B defaulting on a fixed deal was 3% (above A's). i.e. the additional price for the default risk by Co B on a fixed rate loand was 2% more than the price for the risk of a default on a floating rate loan.
Thanks a lot !! Your Explanation really cleared my idea of Swap, for a beginner like me. Few questions though : 1. What is Swaps Bank ? 2. What i read and thought that SWAP is a contract between two parties? 3. What if the L.I.B.O.R goes high? Isn't that a loss for Company A ? Thanks!
All that has happened in the schematic is that the swaps banks has taken the view that the appropriate additional risk for a fixed loan was not 2%, but 1.5% (8.5% less the risk free rate -7%). This is not a swap. It is just finding another bank with a lower price. Furthermore, the swap bank also needs to square its open position so it therefore does a deal with Co A. Here again there is some strange behaviour - Co A is a risk free Co (AAA it would appear).
Hi everyone. I have a question: why the bank B should offer a 10% fixed interest rate, but the SWAP bank allow the company B to pay a fixed interest rate of 8.5%? I mean, sound strange to me if every parts can make money so easily, where is the risk? I catch the point that the SWAP agency can spot the two similar request in term of money and maturity, but why bank should not do the same? Excellent explanation however, thank you
Hello Sir . I find your study material so effective that no other tutor lecture suits me Can u post a lecture of yours covering option strategies in detail like synthetic long call , covered call , butterfly .. Waiting for your video eagerly .. Thanks
A takes advantage of his credit status and ability to issue bonds and borrow fixed (he ha a rating) & does a swap (through an intermediary who charges 1/2% for his services). B gets what he wants (9.5% borrowing cost). A gets borrowing cost of L -1%, the swap bank gets 1/2%. The only reason A would do this is because he has cash & borrwings through the bond market at 7%. A then is UN-hedged. By doing this swap he locks in a margin of 1%. He gets L on his deposits. He had fixed rate borrowings.
my text started with the QSD...and that's why it was confusing, but said essentially the same thing as Tim Bennett but a page of text filled with a crappy chart, whereas Tim's white board drawing was completely sensible. I wish I could load the picture in my text.
Co B needs a Libor +1 from swaps bank to be able to pay bank B not libor. So if the swaps bank receives libor +0 from co. A and pays libor +1 to co B, wouldnt it lose on the variable leg?
To explain something like this in a way that someone new can understand is really admirable.
Exactly!
Indeed! 😍
Totally! I think I got it
He’s the best
@@kelliezhang6750 O
I watched a 2 hours lecture twice just to know and understand how swap works, but I got nothing. I watched this 15 minutes video only once and I got the whole idea. Very grateful
Same , my teacher is so bad
Best explanation of SWAPS I have ever seen
This is one of the best videos on SWAPs you could ever come across. Thank you for coming up with such a brilliant video Sir.
Better and clearer explanation than a whole 3 hr class with my professor
Tommas099 - thanks for your comments. In fairness the example is designed to show a beginner the basic principles of a swap. All my numbers show is that a swaps bank can take advantage of the fact that different firms are able to borrow on different terms - my example is 100% theoretically sound but I accept the figures used are (quite deliberately) unrealistic in the I/R swaps market as I wanted to keep the basic principles as clear as possible. Tim.
We need to bring this guy out of fucking retirement and make him a fucking national treasure
Mark Channel c
Cool swear words
I can't say how appreciate I am. This video gives me the feeling that "that's what swap is about!!!" how amazing! Thank you so much.
I am studying for an exam right now, and this has come in really handy. I really could not understand the concept of interest rate swaps earlier from text books and you really explained it in such an easy manner. I am so stunned and genuinely happy that I now understand this concept. Thank you. Thank you so much for explaining it in such an easy to understand way🥰
You just explained one of the most complicated practice in finance in the easiest way possible. Great job!!
This is the best video on swaps that explains the basic concepts extremely well
This concept was real hard to grasp. This video made it look easy. You are a good teacher.
This man is a pedagogical wizard. Shame he stopped making videos.
Did he really stop?
Thanks Dustin!
@Dustin Suryadi Thank you for the info!!!
He's doing vids on killik and co's channel now.
follow his blog 'moneyweek.com'
I'm not even a native English speaker and this explanation is the best available on TH-cam
He has explained a difficult and complicated topic in a simple, objective manner. Best explanation I have ever seen.
Why has no textbook ever thought to explain it this way? We spend hard-earned money buying books that intentionally obfuscate things and leave the reader more confused than they were before reading them.
Thanks so much Tim Bennett for making this rocket science of a concept feel like ABC. I must confess for a moment there I was checking the comment section expecting to see people who understood swaps screaming about how wrong his explanation was because, by Jove, there's no way this concept could be this simple. From the comments so far, I can now fully accept Tim's explanatory genius. Again, thanks Tim.
I am an engineer undergraduate and just wanted to inform you that your new job is to teach me all the terms that are flying around in financial movies. Thank you for that, keep the good work up :)
This is the best explanation ever for newbie, if you know absolutely nothing about swap or are confused. He really explained it as you were a five year old which is something I wanted lol
My lecturer explained this and nobody understood anything but here everything is clear. Great job!
This guy is for some reason hilarious, yet such a great teacher! thumbs up all day every day.
this is brilliant content - I was never confident with explaining what swaps are and now I feel like I could confidently go into my interview to explain! thank you so much!!
Sir, I just learned the the Interest Swap and taught it to 7 colleagues through class room training. Once again Thanks a lot.
I have been assigned a new Project - Canara Bank Derivatives where the implementation is going on.
Your understanding way and constructing the sentences wisely helped to understand the concept/functionality.
In my 4 years of business school this is the best display of teaching I have ever seen; this man should be a finance professor making six figures.
Actually I might do a basic currency swap soon. Caps floors and collars are interesting too but require some background knowledge about options (a cap is just a string of options, as is a floor, with a collar being the two in combination). Thanks for the suggestions. Tim.
You are AWESOME! I was looking over my boyfriend's shoulder and asked what a swap was and he didn't feel like explaining. So I watched this and now I'm talking to him about LIBOR and shit. THANK YOU
Good comment - yes the swaps market is, in many ways, one enormous example of arbitrage (exploiting pricing anomalies).
A very good and clear explanation of an OTC swap. No long winded introductions simply concise and to the point.
This video has clarified swaps and relieved me of pre-exam stress and anxiety. thank you TIM
fair enough mate. As i said at the beginning, it does convey the theory well, and for what it's worth it's by far one of the better ones on youtube for doing that.
He is great. Why did he stopped making videos? How can we get him back to teaching.
Extremely well explained! I kept asking where the original loans were coming from to better understand why the two companies need to enter into a swap agreement. You're video is the only I could find that answers my question. Thank you!
You kept me fully interested until the end. You enlightened me in a moment when you said it is financial magic.
It is the simplest and straight to the point IRS explanation I've ever found.
matschbirne - that's right, the whole thing depends on the counter parties not defaulting. Of course a bank can separately protect itself using credit derivatives (see my video on what is a credit default swap for example) but these also carry counterparty default risk!! So one bank going bust can have a massive ripple effect as we have seen....
you can't get anything better than this tutorial anywhere.......
ravishankar
The most easiest explanation on swaps. Amazing
Thanks man. This video really helped me understand the basics of swaps. It even helped more than an hour of reading.
You are probably the only reason I now have a better chance at passing my final on Tuesday.
I came across this video while looking for a swap presentation to send to a lawyer friend to clue him in a little, whilst it is a very user friendly explanation, there are some fundamental and fairly crucial problems, particularly when you look at it from a practical stand point. Bare with me this may take a while!
The best Interset SWAP learning VIDEO ever.
His teaching standard is GOLD!
nice presenation! Your speaking speed really help non-English speaker to understanding swap! Thank you
HI! Company A is paying Libor to Swaps Bank, and receiving 8% from them, and it's also paying 7% fix rate to Bank A. Thus, Company A net payment is: Libor - 8% +7% = Libor - 1%
It's an brilliant video, but I don't get where the relative advantage of Company B is, since Company A can borrow at a lower cost for both the fixed and variable deal... what swap sorcery is this?
What a lucid and understandable explanation of a swap. Why did he stopped posting his tutorials and sharing his knowledge ? Anyway, my thanks to him.
I spent three hours on my lecture notes but i still can't understand the concept of 'swap'. Your video helps me a lot. Thank you!!! :D
This is MUCH more useful than my stupid CPA material, thanks you so much!!!!!!!
YOU ARE A.M.A.Z.I.N.G. saved my life preparing for the final exam!! this is the BEST explanation EVER!!!
i would have aced my economics if this guy thought me!
JeevS GOne Still fail your spelling test though
your explanation is really.. really much more clear than what the professor gave in the class... THANK YOU..!!
i have been doing marketing throughout uni. but i have decided to apply for an internship at MS. so here i am. do not know what does equity swap means but now i do. thanks!
Man, i know only the basic of finance, but i think i understand most of the video. Thanks.
Sir, you are amazing! i understood now what a swap is and believe it or not i spended over an hour trying to understand it and i couldn't, for that you have my appreciation and a like+fave.
Again thank you a lot kind sir.
You explained the hard finance concept in a so vivid and gentle way~~ I think I really got the business model of a swap bank
Making money by offering better financial deal to clients! It’s really the magic of finance
You make a strong difference to many. BEST TEACHER EVER!!! Thank you so much!
Learning for my state exams - Mr.Bennett you are saving me this week!
I can't possible grasp the fact that anyone could come up with this.. Really ingenious stuff!
0:51 As I type this on 02/11/2017, it only took the BOE another 6 and a bit years to finally do the rate hike haha.
this tutorial is amazing, way much better than the explanation of my teacher.... thank u very much MoneyWeeKvideos
Sorry about that - will see whether we can dig up a quieter one!
This video is f.. brilliant. No one explained it better. Thanks.
the swap bank will pay 8% to company A, and company A borrowed money from bank A at interest rate of 7%. So, when company A receives 8% interest rate from the swap bank, it pays 7% out of the 8% to bank A therefore 1% will remain for company A. in this case company A got what it wanted at the beginning which was variable rate and by doing the swap it got it below the original LIBOR rate.
This man is an excellent educator.
thank you!!!! greatest and easiest explanation to understand in the entire internet!!!
Finance is a magic and this teacher is a magician. So much admire.
I was advised to diversify my portfolio among several assets such as stocks and bonds since this can protect my inherited portfolio of about $2.5m. I’m used to just buying and holding assets which doesn’t seem applicable to the current rollercoaster market plus inflation is catching up with my portfolio. I’m really worried about survival after retirement.
True, I mostly just buy and hold stocks, but my portfolio has been mostly in the red for quite awhile now. Unfortunately to be able to make good gains, you’ll need to be consistent and restructure your portfolio frequently.
It's often true that people underestimate the importance of financial advisors until they feel the negative effects of emotional decision-making. I remember a few summers ago, after a tough divorce, when I needed a boost for my struggling business. I researched and found a licensed advisor who diligently helped grow my reserves despite inflation. Consequently, my reserves increased from $275k to around $750k.
My partner’s been considering going the same route, could you share more info please on the advisor that guides you?
There are a handful of experts in the field. I've experimented with a few over the past years, but I've stuck with ‘’Colleen Rose Mccaffery” for about five years now, and her performance has been consistently impressive. She’s quite known in her field, look-her up.
Thanks a lot for this suggestion. I needed this myself, I looked her up, and I have sent her an email. I hope she gets back to me soon.
I wish I would've watched this during my Money and Banking Class last semester. It would've saved me a great big headache trying to piece this together off my professors lectures.
Very Very Cleared explanation of SWAP
fantastic, you really did a great job explaining this in such an understandable way, didnt even had to pauze or replay it. well done!
What an educator you are, Sir!
Salute
Tim Bennett, your videos are amazing !
Finally Got a teacher. Thanks
Brilliant ... your way of explanation is simply brilliant !!
how straightforward and effective this video explains the principles .
Thank you very much.I couldn't understand this for many time.But now it's crystal clear.Thanks again.You have made my day.
Thank you very much for you video, I learn much more from your vid than in my classroom.Please keep up the awesome works!!!
Very 1st time i understood about Swaps. Thanks
So if B's risk free premium was 1% his fixed rate of borrowing cost would have been 8%.
The result of the schematic is that the difference of 2% (between fixed and floating premiums) is shared between A,who gets 1%, B who gets 1/2% and the swap bank who gets 1/2%. Let's assume that you have taken this from the old school, before banks ran swap books and that A can borrow at 7% but B would be willing to borrow at 9.5% but just could not borrow fixed in any other way (i.e. could not issue a bond)
Very clearly illustrated. Love this fella.
Very well explained. Thanks never understand swaps better than that.
After watching many videos on this topic, your explanation has made me finally have an understanding of this topic. Thanks a million Sir.😊
Essentially bank B has taken the view that the price for the risk of Co B defaulting on a floating rate deal is 1% (above co A's borrowing rate) and the price for the risk of Co B defaulting on a fixed deal was 3% (above A's). i.e. the additional price for the default risk by Co B on a fixed rate loand was 2% more than the price for the risk of a default on a floating rate loan.
The best explanation on IR Swaps I've ever heard! Thanks!
I'm learning a LOT from your videos - they're very clear - thanks!
wow...the way you made it look so easy is incredible. Thank you so much !!!!
I will be putting something up on basic currency swaps soon in light of the Fed's latest liquidity move. Tim.
Thanks a lot !! Your Explanation really cleared my idea of Swap, for a beginner like me. Few questions though :
1. What is Swaps Bank ?
2. What i read and thought that SWAP is a contract between two parties?
3. What if the L.I.B.O.R goes high? Isn't that a loss for Company A ?
Thanks!
You are right, company A is at the most risk right now.
How do you know how much the "swaps bank" is willing to accept & give? For example, how was the 8.5% determined & the 8%?
Thank you very much for explaining a swap. Was feeling very grateful for this video. Good job!
All that has happened in the schematic is that the swaps banks has taken the view that the appropriate additional risk for a fixed loan was not 2%, but 1.5% (8.5% less the risk free rate -7%). This is not a swap. It is just finding another bank with a lower price. Furthermore, the swap bank also needs to square its open position so it therefore does a deal with Co A. Here again there is some strange behaviour - Co A is a risk free Co (AAA it would appear).
Amazingly explained the concept of SWAPS using perfect example. Thanks :-)
Hi everyone. I have a question: why the bank B should offer a 10% fixed interest rate, but the SWAP bank allow the company B to pay a fixed interest rate of 8.5%? I mean, sound strange to me if every parts can make money so easily, where is the risk? I catch the point that the SWAP agency can spot the two similar request in term of money and maturity, but why bank should not do the same? Excellent explanation however, thank you
Great sir ...this is yesterday of my exam ..💓💓💓💓💓😍
best swap tutorial on youtube
Explained in a very concise and accurate manner...! Perfectly understood d swaps..
Thank you very much..!
Hello Sir .
I find your study material so effective that no other tutor lecture suits me
Can u post a lecture of yours covering option strategies in detail like synthetic long call , covered call , butterfly ..
Waiting for your video eagerly ..
Thanks
Thanks a lot Tim ! Couldn't wrap my head around the concept, now I can !
A takes advantage of his credit status and ability to issue bonds and borrow fixed (he ha a rating) & does a swap (through an intermediary who charges 1/2% for his services). B gets what he wants (9.5% borrowing cost). A gets borrowing cost of L -1%, the swap bank gets 1/2%. The only reason A would do this is because he has cash & borrwings through the bond market at 7%. A then is UN-hedged. By doing this swap he locks in a margin of 1%. He gets L on his deposits. He had fixed rate borrowings.
my text started with the QSD...and that's why it was confusing, but said essentially the same thing as Tim Bennett but a page of text filled with a crappy chart, whereas Tim's white board drawing was completely sensible. I wish I could load the picture in my text.
This really helped me study for my FRM exam tomorrow!
Co B needs a Libor +1 from swaps bank to be able to pay bank B not libor. So if the swaps bank receives libor +0 from co. A and pays libor +1 to co B, wouldnt it lose on the variable leg?