A flow chart approach to understanding interest rate swaps

Author: Edwin D. Maberly

Abstract: Over the last 20 years, financial engineers have created many value enhancing financial products. Today the curriculum for intermediate finance papers includes a discussion of both interest rate and currency swaps, but due to their complexity, many students fail to grasp these concepts. This paper is pedagogical in nature as its purpose is to enhance the understanding of interest rate swaps. The methodology employs a flow chart approach incorporating both visual and verbal teaching aids. A logical extension applies to currency swaps.