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Credit Arbitrage Swap


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.



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Derivatives have increasingly become very important tools in finance over the last three decades. Many different types of derivatives are now traded actively on ...
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