An interest rate swap in which two counterparties exchange their credit comparative advantages (in terms of credit rating or creditworthiness) each in its own market. Thus, an arbitrage between the two markets is made to the benefit of both exchanging companies. However, the existence of an arbitrage possibility should be evaluated taking into account all relevant risks associated with the swap, such as liquidity, taxation, legal, and default risks, among others.
December 16, 2024
