Review article

Currency Swaps and Interest Rate Swaps

Zvonimir Slakoper ; Pravni fakultet Sveučilišta u Rijeci
Marta Božina Beroš ; Odjel za ekonomiju i turizam Sveučilišta u Puli

Abstract

Following the disintegration of monetary system established by the Bretton Wood agreement and enactment of the British restrictive currency regulations the currency swaps and interest rate swaps have been developed. The currency swaps are aimed at risk protection from fluctuating exchange rates of foreign currency and the interest rate swaps at risk protection from floating interest rates. Protection is accomplished by the first type of contracts in such a manner as to contractual parties stipulate the current exchange of two currencies according to the exchange rates at the time of entering into a contract and repeated exchange of the same currencies in opposite directions after the expiration of a contract and according to a stipulated exchange rate. The latter imply existence or emerging of an obligation to pay interest rates by contractual parties to third persons. More specifically, one party is obliged to pay interest rates according to fixed rate and the other party according to floating rate. With the aim to protect themselves from risks of floating interest rates oscillations these parties stipulate a payment of difference between the fixed rate and floating rate at the time of payment.
The currency swap and interest rate swap belong to financial derivatives, i.e. financial instruments which have been derived from other financial instruments, in this particular case from foreign currencies and interest rates. The swaps are present in numerous Croatian regulations as well as in domestic business practice. In business practice these contracts have regularly been stipulated, first of all, by stipulation of a framework contract, that is ISDA Master Agreement which contains provisions on general requirements applied in individual contracts subsequently stipulated in the form of sales agreement or endorsement. The last part of the article deals with a civil legal qualification of swaps in English and German law as well as conclusions on the qualification according to Croatian law. A special attention is given to the issue on swap validity in regards to its aletory nature.

Keywords

banking contracts; currency swap; interest rate swap

Hrčak ID:

52653

URI

https://hrcak.srce.hr/52653

Publication date:

14.12.2009.

Article data in other languages: croatian

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