Overview of Equity Swap
In case of equity swap two parties get involved in cash interchange between themselves. The equity swaps help the exchanging parties to retain the ownership of their assets and improve their earnings as well. According to the conditions of the equity swap, the cash flows interchanged are valued equally in nominal terms.
Uses of Equity Swaps
Equity swaps offer a diverse range of benefits to their users. The business entities can receive advantages derived from taxation as a result of using equity swaps.
The bigger business entities can protect certain properties by using equity swaps. They can also use equity swaps for the purpose of hedging so as to guard few placements in their respective portfolios.
From the perspective of investment managers, the equity swaps are extremely convenient to use. As far as business administration is concerned the equity swaps could be carried out pretty easily. The equity swaps are cost effective as well. The owners of equity swaps also receive certain benefits.
The managers of funds operating in the emerging markets can use the equity swaps with a lot of convenience. With the help of equity swaps the investors can handle the various rules and regulations of businesses in a better way.
Users of Equity Swaps
The major business entities that deal with the provision of funds like the providers of automobile loans, organizations that lend capital and the investment banks, use equity swaps extensively in their operations. Equity swaps help in making profitable business plans for trading in indexes.
Fixed Income Part of Equity Swaps
As far as the part of the equity swaps having a specified income is concerned, the London Interbank Offered Rate or LIBOR acts as the normal standard. Almost like the commercial papers, the deals of the fixed income part of the equity swaps are carried out after almost every year. The period may be lesser than a year as well.
Application of Equity Swaps
Equity swaps could be used for a wide variety of reasons:
For avoiding the rules and regulations regarding the types of investment that could be possessed by a business entity
For getting rid of expenses that may be incurred in deals. This also includes the various taxes.
For escaping the restrictions that have been placed on purchases
For getting rid of taxes to be paid on dividends that are based locally
Last Updated on : 1st July 2013