There are many financial derivatives that have threatened our banking and financial systems. Interest rate swap is probably the most important of it all posing a serious threat to the banks. You need to have the basic rights if you honestly want to understand the complexities of such an important derivative that affects our financial system in a large scale.
The Interest rate swap is nothing but a liquid financial derivative or more of an instrument that includes the exchange of interest rate cash flows between two parties. You should know that one of these parties in most cases is the bank itself, occasionally both parties being banks or other financial institutions. This is a lot more complicated to understand. So if you want to understand in simple terms, then it is just a kind of a agreement that different institutions like small businesses enter with banks just to protect themselves from the continuous change and market fluctuations in the interest rates.
In this process both the parties agree to pay fixed interest rates that are usually made under a common currency not a different one. Last few years have seen many new features being incorporated in the field of interest rate swapping, the major one being the exchange of rates based on different currencies. Banks make use of these rate swaps just for extending credit facilities to small business organizations. But this doesn't come without its disadvantages. It has been a subject of massive litigation giving rise to interest rate swap mis selling.
Small business organizations enter into such an agreement to protect themselves from the ever changing market. But the recent past has seen some serious exploitation on the part of top banks that have encouraged serious irregularities in sales practices adopted by these banks. As a result the small businesses are left crippled by this type of mis selling. Even they end up completely broke and nothing else to do.
Legally, the law enforcement is trying to bring order in this and have so ordered the top financial institutions the big names in the banking industry to properly compensate these small and hardworking business enterprises for these mis sellings. But this order is yet to be seen followed seriously by the banks. There have been penalties on the banks to do such thing but still mis selling are a thing that still thrives on. There is no place of trust in the equation contrary of the time when trust was most important in banking relations.
For customers (small time business owners) have ensued a battle for this injustice. Many have rather tasted success in winning and getting the money back. Yes they have thwarted the plans of the banks and get the right amount of compensation. Law enforcement has been strict and massive but still the interest rate swaps are going on and businesses are still being prey to such banks. Though the law regulations have become somewhat strong, the banks still find a way to do such things and still evade the law.
Source: http://www.articlesbase.com/law-articles/interest-rate-swap-an-unending-process-6497003.html
The Interest rate swap is nothing but a liquid financial derivative or more of an instrument that includes the exchange of interest rate cash flows between two parties. You should know that one of these parties in most cases is the bank itself, occasionally both parties being banks or other financial institutions. This is a lot more complicated to understand. So if you want to understand in simple terms, then it is just a kind of a agreement that different institutions like small businesses enter with banks just to protect themselves from the continuous change and market fluctuations in the interest rates.
In this process both the parties agree to pay fixed interest rates that are usually made under a common currency not a different one. Last few years have seen many new features being incorporated in the field of interest rate swapping, the major one being the exchange of rates based on different currencies. Banks make use of these rate swaps just for extending credit facilities to small business organizations. But this doesn't come without its disadvantages. It has been a subject of massive litigation giving rise to interest rate swap mis selling.
Small business organizations enter into such an agreement to protect themselves from the ever changing market. But the recent past has seen some serious exploitation on the part of top banks that have encouraged serious irregularities in sales practices adopted by these banks. As a result the small businesses are left crippled by this type of mis selling. Even they end up completely broke and nothing else to do.
Legally, the law enforcement is trying to bring order in this and have so ordered the top financial institutions the big names in the banking industry to properly compensate these small and hardworking business enterprises for these mis sellings. But this order is yet to be seen followed seriously by the banks. There have been penalties on the banks to do such thing but still mis selling are a thing that still thrives on. There is no place of trust in the equation contrary of the time when trust was most important in banking relations.
For customers (small time business owners) have ensued a battle for this injustice. Many have rather tasted success in winning and getting the money back. Yes they have thwarted the plans of the banks and get the right amount of compensation. Law enforcement has been strict and massive but still the interest rate swaps are going on and businesses are still being prey to such banks. Though the law regulations have become somewhat strong, the banks still find a way to do such things and still evade the law.
Source: http://www.articlesbase.com/law-articles/interest-rate-swap-an-unending-process-6497003.html
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