What is equity swap financing?

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An equity swap is an exchange of future cash flows between two parties that allows each party to diversify its income for a specified period of time while still holding its original assets.

What is equity and equity swap?

An ‘Equity Swap’ is where one of those cash flows being exchanged is the return on the equity index. It is a derivative contract where one party agrees to pay the return on an equity index and the other agrees to pay a fixed or floating interest rate.

How do you swap shares?

In a merger or an acquisition, shares can be used as “currency” to buy the target company without having to pay cash. 2. If Company A wants to acquire Company B using share swap deal, A gives B’s shareholders some of its own shares in exchange of each share of B they own. B shares cease to exist after deal.

How do equity index swaps work?

Equity swaps are used to exchange returns on a stock or equity index with some other cash flow (fixed rate of interest/ reference rates like labor/ or return on some other index or stock). It can be used to gain exposure to a stock or an index without actually possessing the stock.

How do banks make money on equity swaps?

The bank makes its money through commissions, interest spreads and dividend rake-off (paying the client less of the dividend than it receives itself). It may also use the hedge position stock (1,000 Vodafone in this example) as part of a funding transaction such as stock lending, repo or as collateral for a loan.

What are the benefits of swap?

The following advantages can be derived by a systematic use of swap:

Borrowing at Lower Cost:
Access to New Financial Markets:
Hedging of Risk:
Tool to correct Asset-Liability Mismatch:
Swap can be profitably used to manage asset-liability mismatch.
Additional Income:

What is share swap with example?

Example of a stock swap wants to acquire a rival, Andy’s Chocolate Corp. in a stock swap. John’s gives Andy’s shareholders a certain number of its own shares for each share of Andy’s stock they own. In a 1.5-for-1 swap, an Andy’s shareholder with 100 shares would end up with 150 shares of John’s.

Who benefits from debt for equity swaps?

Something equivalent the value of cash can also be paid instead of cash. In case of debt to equity swaps, loans are extinguished in favor of equity. In these transactions, the lender usually receives less than the face value of the debt but more than the depreciated market value. Hence, both parties are better off.

What are two advantages of swapping?

The following advantages can be derived by a systematic use of swap:

Borrowing at Lower Cost: Swap facilitates borrowings at lower cost.
Access to New Financial Markets:
Hedging of Risk:
Tool to correct Asset-Liability Mismatch:
Additional Income: