ShmoopTube

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Finance allah shmoop what is a swap And what is

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a swap Shin Um can we just say it's an

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option to swap You know like microsoft is a micro

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computer software thing or like the electrocution is electricity and

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execution or the bromance is you know brother and romance

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which is something totally different when dealing with gerbils Anyway

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one day a guy was holding a swap turned a

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corner wasn't looking where he was going then glam o

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he ran into an option What came of it was

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a super hybrid type of security were in a slop

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like i swap you so many dollars for so many

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euros is tacked onto an option You want the ability

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to pay off your loan either in us dollars or

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in euros assuming they still exist when your loan comes

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due That whole brexit thing that issue have the option

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to swap the flavor of payments you're making for the

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hundred grand You borrowed no it's houses play out well

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When the bond was issued one dollar bought you one

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euro and the interest rate was eight percent So you

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paid eight grand a year to rent that hundred for

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ten years at which point you're going to pay it

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all off simple but after five years the exchange rates

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have drifted massively Magic fairy dust was sprinkled by wizards

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all over europe They beat back the thirty two hour

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work week Corruption unions and economic misery wrought by not

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being able to compete with china russia in africa and

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now amazingly the euro is a much stronger currency than

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the u s dollar that's kind of a fictional story

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here that we'll make enough In fact one euro buys

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you two u s dollars like it when the euro

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was first put out there So if you holding the

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swap shin on the interest payment flavor of the hundred

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grand you borrowed if you so choose you can pay

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that eight grand in euros that is instead of the

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eight thousand dollars a year in interest you can pay

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for thousand euros It's almost a ziff your interest rate

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was cut in half That's not really it's a value

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is the same it's just the number of units were

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cut have theirs You know that works And if you

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live in europe and work in europe and we're paid

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in euros Well it really is like a roman holiday

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of interest rates of just want to focus on the

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numbers But the values of the same there's No free 00:02:15.938 --> [endTime] lunch here even in swap shen lang

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