Talk:Basis swap

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If a "basis swap is an interest rate swap which involving exchange of two floating rate financial instruments denominated in the same currency" then what is one where they are denominated in different currencies called?.

Can we please have a section on why one would use a basis swap, i.e. what purpose it has? -- Anon —Preceding unsigned comment added by 147.114.226.173 (talk) 07:54, 16 April 2008 (UTC)[reply]

I have added 3 examples to illustrate the use of basis swaps. Let me know (on my userpage->talk) if there is more clarification needed. Nshuks7 (talk) 07:54, 6 October 2008 (UTC)[reply]

Rationale for Basis Swaps[edit]

I will add the section --Malin Randstrom (talk) 07:21, 14 August 2008 (UTC) Basis Swaps are also financial instruments in he trading of commodities (i.e. Gas, Oil, Electricity) the article should not assume only currency swaps. —Preceding unsigned comment added by 205.196.178.27 (talk) 18:31, 15 October 2008 (UTC)[reply]

I described in general terms the mechanics behind basis swaps and provided one concrete example of how basis swaps may be used in hedging. In this instance, I used basis swaps of different curves in different currencies. Of course, there are more instances of my general description of basis swaps. --Malin Randstrom (talk) 16:32, 29 October 2008 (UTC)[reply]

I've added a bit on the use of basis swaps in energy, but this could be expanded. I think the examples already inthe article gave the impression that basis swaps only applied to interest rates. —Preceding unsigned comment added by Standoor (talk • contribs) 10:35, 9 October 2009 (UTC)[reply]

I would add that an important element of the basis swap is that it is a *collateralized* swap. This means that its cash flows are discounted at the overnight rate, for the purpose of funding the collateral. Had the basis swap not been collateralized, then both legs would be discounted at the Libor rates for their funding, and be subject to the Libor Bond Identity, which states that a bond paying Libor, and discounted at Libor, must have the value 1 (Ok, this is true of any other index, but in practice its always for Libor/other interbank indices). Since both legs have the value 1, the uncollateralized basis swap must always have the value zero. However, because basis swaps are collateralized, this reasoning does not hold. I bring this up because this has been a point of confusion here all day long. — Preceding unsigned comment added by 38.108.195.69 (talk) 21:34, 1 December 2011 (UTC)[reply]