DOI: 10.5176/2251-3388_2.1.30
Authors: Dr. Kosrow Dehnad and Darius Dehnad
Abstract:
When searching for the best swap rate, companies should – and do – ask a number of their corresponding banks for price quotes. We caveat that as more banks are approached for quotes the traders begin simultaneous hedging estimations that create market chatter. This chatter amplifies the impression that many similar trades are being priced or that a very large deal is pending and results in market movement against the company. We propose a practical solution that considers the liquidity of Eurodollar futures together with the notional amount of the swap to judge the approximate number of banks that should be approached for a quote.
Keywords: Eurodollar futures, hedging, interest rate swaps, liquidity, market chatter, trading volume
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