Basis Swap - Usage of Basis Swaps For Hedging

Usage of Basis Swaps For Hedging

Basis risk occurs for positions that have at least one paying and one receiving stream of cash flows that are driven by different factors and the correlation between those factors is less than one. Entering into a Basis Swap may offset the effect of gains or losses resulting from changes in the basis, thus reducing basis risk.

  1. against exposure to currency fluctuations (for example, 1 mo USD LIBOR for 1 mo GBP LIBOR)
  2. against one index in the favor of another (for example, 1 mo USD T-bill for 1 mo USD LIBOR)
  3. different points on a yield curve (for example, 1 mo USD LIBOR for 6 mo USD LIBOR)

Read more about this topic:  Basis Swap

Famous quotes containing the words usage of, usage, basis and/or swaps:

    “Girls who put out are tramps. Girls who don’t are ladies. This is, however, a rather archaic usage of the word. Should one of you boys happen upon a girl who doesn’t put out, do not jump to the conclusion that you have found a lady. What you have probably found is a lesbian.”
    —Fran Lebowitz (b. 1951)

    “Girls who put out are tramps. Girls who don’t are ladies. This is, however, a rather archaic usage of the word. Should one of you boys happen upon a girl who doesn’t put out, do not jump to the conclusion that you have found a lady. What you have probably found is a lesbian.”
    —Fran Lebowitz (b. 1951)

    “That food has always been, and will continue to be, the basis for one of our greater snobbisms does not explain the fact that the attitude toward the food choice of others is becoming more and more heatedly exclusive until it may well turn into one of those forms of bigotry against which gallant little committees are constantly planning campaigns in the cause of justice and decency.”
    —Cornelia Otis Skinner (1901–1979)

    “When you got to the table you couldn’t go right to eating, but you had to wait for the widow to tuck down her head and grumble a little over the victuals, though there warn’t really anything the matter with them. That is, nothing only everything was cooked by itself. In a barrel of odds and ends it is different; things get mixed up, and the juice kind of swaps around, and the things go better.”
    —Mark Twain [Samuel Langhorne Clemens] (1835–1910)