Language development with deaf children Essay

Erik Drasgow discussed in his article how important early exposure is for deaf children (Drasgow 1998). Unlike hearing children who are exposed to language early in the womb, deaf children get their exposure to language at birth (Drasgow 1998). Drasgow explains that studies show the earlier language is developed the higher children excel in language skills (Drasgow 1998). Deaf children born to deaf parents will acquire language as easily as hearing child born to hearing parents develops a spoken language (Drasgow 1998). It is vital for a child receive complete exposure to a natural language within their first twelve months (Drasgow 1998). Suppose a child does not have access to language until the age of six or seven, that child may never acquire a natural language (Drasgow 1998). Parents. Parents are the biggest influence for children, hearing or deaf. A deaf child born to deaf parents adapt language normally, because the parents know how to relate to their child. However, a deaf child born to hearing parents, who have no prior exposure to the deaf culture, struggle to learn how to communicate with their child. The absence of communication will interfere with a child’s development (Easterbrooks & Baker 2002). Hearing parents do try their best, but there are things a deaf child needs. The knowledge of visual and spatial relationships is a skill most hearing parents do not understand, however their child will need that understanding (Easterbrooks & Baker 2002). Also, we have learned that the signed language relies heavily on facial expressions and non-manual markers. If hearing parents choose manual communication they are so focused on the signs the parents lose the important facials that make up the signed language (Easterbrooks & Baker 2002). Deaf culture requires eye contact for a conversation to take place, because hearing parents are accustomed to calling out to children, peers, and family, the parents do not realize how necessary eye contact is for their child and have difficulty gaining their child’s attention (Easterbrooks & Baker 2002). Children, whether hearing or deaf, must have exposure, understanding, and support from family to truly adapt a language. b. Nanci Scheetz defines pragmatics in her book, Psychosocial Aspects of Deafness. She defines it as: â€Å"Pragmatics address how language is used to communicate in social contexts. It examines the rules that govern the exchange of language, and focuses on the reasons why individuals converse with each other. It delves into the realm of discourse and analyzes how speakers organize their thoughts into coherent conversations. Further more, it takes into consideration the speaker’s word choice, the recipient’s knowledgebase, and the choice† (Scheetz 2004). My understanding is that pragmatics takes a look at where a person stands in their social development. Society has social norms that must be followed. As we develop, we learn what is allowed in day-to-day conversation, but we also learn what is considered taboo. Christine Yoshinag-Itano makes an important point in her article. She explains those pragmatics are going to change for each developmental stage and the pragmatics for the spoken languages and the manual languages are going to be different (Itano 1997). In my opinion this is true. Deaf children should not always be compared to hearing children. Their development is not going to match a hearing child’s stage for stage. Hearing children have an opportunity to hear new words spoken by adults and can ask what they mean. While deaf children, especially in a mainstream setting, miss that chance because one sign has many different meanings. In the mainstream environment, an interpreter hears the new word and switches it to the signed language; the deaf child then misses what the educated word. In this scenario hearing children add a new word to their vocabulary and the deaf child sees the same signs he or she already knows. Instances such as these are why I believe hearing children have a higher pragmatic level and deaf children fall behind. c. Researchers Elizabeth Keating and Gene Mirus conducted a study on how deaf children relate to hearing children in a mainstream setting (Keating & Mirus 2003). These researchers observed deaf and hearing students at two Texas schools over a five-month span (Keating & Mirus 2003). They had never met the principles, teachers, or students prior to their observation (Keating & Mirus 2003). Their method was to get video surveillance of the deaf and hearing students interacting with each other (Keating & Mirus 2003). While reading this article, I was concerned that these researchers would not be able to understand the deaf children signing. However as I continued through the article they explained that Mirus is deaf, a native American Sign Language (ASL) signer, fluent in English, and was taught in a mainstream setting as a deaf student (Keating & Mirus 2003). Keating is hearing, a native English speaker and is a skilled ASL signer as well (Keating & Mirus 2003). These two authors had some helped from their research assistant Chris Moreland (Keating & Mirus 2003). He, like Mirus, was part of a mainstream deaf program, and is a fluent in ASL and English, but is not a native signer (Keating & Mirus 2003). These authors believed that having people who knew the cultures and languages was critical to the study (Keating & Mirus 2003). The authors discussed a point that I think is important, the difference between a hearing conversation and a deaf conversation. For the Deaf community, eye contact is key. If the signer trying to start the conversation does not have the desired recipients attention, then the conversation cannot take place because the signs would not be seen (Keating & Mirus 2003). Also, deaf require feed back during a conversation to ensure the other person understands and is attentive (Keating & Mirus 2003). Interruptions are common in conversations between two deaf persons and the understanding of space and time (Keating & Mirus 2003). Hearing conversations are different. Hearing conversations do not require eye contact or even be in the same room, also interruptions are considered rude in the hearing culture. These differences separate interaction with the hearing and deaf worlds. While deaf people have adapted ways to communicate with the hearing, hearing people still lack their resources (Keating & Mirus 2003). I think this area should be studied closely. Keating and Mirus’ study gives examples of conversations between children in a school setting. The researchers saw hearing children ignore the attempts of the deaf students to take part in the conversation by mimicking a hearing child’s actions or not knowing understanding why the deaf child is not paying them attention (Keating & Mirus 2003). However, when the deaf child was interacting the video showed gesturing to help the hearing child understand what was needed but the researchers also saw a deaf child misunderstand an incident with hearing children on a see-saw (Keating & Mirus 2003). A hearing child fell off the seesaw and fell, the deaf child thought another child knocked the other off on purpose (Keating & Mirus 2003). The researchers found that deaf-hearing relations never went past what was going on at the present moment and was much shorter than deaf to deaf relations and hearing to hearing conversations (Keating & Mirus 2003). I think this alone is cause for more research. It is not fair for children who are in the same classroom all day to not have anyway to interact with each other outside of gestures and lip reading. If a child is going to be placed in a mainstream setting other children should have the opportunity to learn ways to communicate with the deaf students. Chances are the same students are going to have classes together until they graduate; kindergarten to twelfth grade is far too long for children to go without learning signs or ways to communicate with the deaf students. Works Cited Drasgow, E. (1998). American sign language as a pathway to linguistic competence. Exceptional Children, 64(3), 329. Retrieved from http://search.proquest.com/docview/201213704 Easterbrooks, S., & Baker, S. (2002). Language learning in children who are deaf and hard of hearing: multiple pathways. Boston, MA: Allyn and Bacon. Itano, C. Y. (1997). The challenge of assessing language in children with hearing loss. Language, Speech & Hearing Services in Schools, 28(4), 362. Retrieved from http://search.proquest.com/docview/232585838?accountid=14800 Keating, E., & Mirus, G. (2003). Examining interactions across language modalities: Deaf children and hearing peers at school. Anthropology and Education Quarterly, 34(2), 115. Retrieved from http://search.proquest.com/docview/218136755?accountid=14800 Martin, D. S., Craft, A., & Sheng, Z. N. (2001). The impact of cognitive strategy instruction on deaf learners: An international comparative study. American Annals of the Deaf, 146(4), 366. Retrieved from http://search.proquest.com/docview/214468209?accountid=14800 Scheetz, N,. (2004). Psychosocial aspects of deafness. Boston: Pearson.

Body Systems

Brenda Young Several systems in the human body maintain its proper function. These systems fight disease and infection; maintain proper blood flow to lungs and body, and dispose of any waste that the body no longer needs. Learning how each system works was educational and quite amazing. Our immune system fights off bacteria, viruses, and disease. Our environment if full of harmful toxins that our bodies are subject to daily.Most of the viruses are harmless, and our immune system can protect against them. The few that are able to invade our body's defenses can cause terrible disease and possibly death. A virus by itself is incapable of reproducing, it is not until the body and cells become invaded that disease can set in. In a short amount of time, the infected cells generate hundreds of thousands of new viruses released into the bloodstream where they are free to infect other cells.Skin, inflammatory response and the immune system are three defenses our body uses to fight disease and infection (Chairs, â€Å"Immune System,† 2013). Without the digestive system, the protein ND starch in our food could not be broken down into usable molecules, and therefore would be useless. Digestion and absorption of the food we eat is done so with the help of several organs in our body. The nervous system and the endocrine system control the digestion process.Once we have chewed our food and activated the release of saliva, the brain sends a message to our stomach where a protein- digesting enzyme from glands in the stomachs lining is released. Two hormones then circulate in the blood entering the pancreas where pancreatic Juice containing food- setting enzymes and sodium bicarbonate is released and food is broken down for the body to use and absorb (Chairs, â€Å"Digestive System,† 2013).The entire way the human body functions are interesting and unbelievable. By maintaining good health with nutrition and exercise, we help the immune system fight infection and ou r digestive system can easily dispose of and break down the food we eat. When our body is healthy, our minds are healthy. References Chairs, D. D. (2013). Human Body Systems: Structure, Body, Environment (2nd De. ). Retrieved from The University of Phoenix eBooks Collection database.

Argumentative Fallacy Vs. Straw

The great privilege of United States of America is the people of the country have the right to equality. Clayborne Carson an author of the argumentative essay â€Å"Two Cheers for Brown vs. Board of Education†. Born in Buffalo, New York; he is an educated scholar who specializes in African American and civil rights history. Carson’s essay is summarizes how Brown affected the outcome of desegregation in public schools. Brown is a Supreme Court decision that ruled public schools to allow African American†¦ A Straw man argument is a version of an argument then is easier to attack. Just as a man made of straw is a less solid version then a man made a flesh, a Straw man argument is a less solid version of a fully fleshed out argument. A straw man replaces or represents what ever actual argument is being made. The Straw man argument can come in many forms and some time is not even intional. People may accidental construct and Straw man argument if they don 't fully understand the depth of the subject or†¦ me. Not simply taking my breath away, but that feeling you get when you get punched in the stomach. That pain that keeps on coming. This was coupled with an intense ringing in my ears and tunnel vision. I felt like I was looking down the end of a straw. I seriously thought I was going to die. I had no idea what had just happened. All I could think about is whether my limbs we still intact. Ten minutes before that I had pulled the charge out of my back pack and mounted it to the wall. I was excited†¦ Mrs. Krumsiek English 101 30 November 2016 Argumentative essay We now live in a society where superheroes can be considered role models. Superheroes have escalated throughout the years, not only through comics, but through billion dollar movies like â€Å"Captain America: Civil War† and â€Å"Batman v Superman: Dawn of Justice†. They 're everywhere now from movies to shows, comic books, kids’ lunch boxes and backpacks. As humans we are sort obsessed with the superhero concept. We tend to look up to†¦ Logical fallacies are basically common errors. Everyone single person every day makes a common error. The logical fallacies that I will be discussing are the sunk cost fallacy, slippery slope fallacy, hasty generalization fallacy, post hoc ergo propter hoc, ad hominem, red herring, and the straw man fallacy. It happens to everyone of us, even though we may not even realize it sometimes. Sunk cost fallacy is getting into something and not wanting to get out of it because you may have put a lot of†¦ Straw Into Gold Analysis Many people in today’s society have become whom they are because of how they grew up. Many have been shaped into who they are because of their culture, their upbringing, or their families. In Sandra Cisneros’s story, â€Å"Straw Into Gold†, she uses allusion, imagery, and irony to strongly depict how much of her life has truly shaped her into the writer she is today. In using these three rhetorical devices, she creates a better understanding of the impact her childhood†¦ Argumentative Essay The function of an argumentative essay is to show that your assertion (opinion, theory, and hypothesis) about some phenomenon or phenomena is correct or more truthful than others'. The art of argumentation is not an easy skill to acquire. Many people might think that if one simply has an opinion, one can argue it successfully, and these folks are always surprised when others don't agree with them because their logic seems so correct. Argumentative writing is the act of forming†¦ Master List of Logical Fallacies Fallacies are fake or deceptive arguments, arguments that prove nothing. Fallacies often seem superficially sound, and far too often have immense persuasive power, even after being clearly exposed as false. Fallacies are not always deliberate, but a good scholar’s purpose is always to identify and unmask fallacies in arguments. Ad Hominem Argument: Also, "personal attack," "poisoning the well." The fallacy of attempting to refute an argument†¦ Argumentative Strategies of Plato vs. Aristophanes In Aristophanes’ â€Å"Clouds† and Plato’s â€Å"Apology† Socrates is satirically attacked and rationally defended respectively. The two argumentative styles of Aristophanes and Plato are on opposite sides of the spectrum. Aristophanes utilizes satire and humorous exaggerations of sophist teachings to denounce Socrates. Alternatively, Plato’s â€Å"Apology† uses logic and reason in order to defend himself against the charges brought against him. Both writings†¦ Sample Argumentative Essay Skills vs. Knowledge in Education Jonan Donaldson Introduction Main Idea One: The Other Side – Learning Information is needed for tests a) Tests are the best way to compare students b) Tests measure if you understand something c) Not all students can have the same skills, but all can have the same knowledge Main Idea Two: My Side 1 – Education is about understanding a) Knowledge is limited, but imagination encircles the world (creativity)†¦

Samsung are developing a phone with a bendable screen. Design a Coursework

Samsung are developing a phone with a bendable screen. Design a marketing comms plan for the launch and first six months of Samsuns new smartphone - Coursework Example For example, when a new brand is advertised in the developing markets, the consumers increase their demand for the commodity resulting to higher sales for the company. As one of the 4 Ps of marketing, communication is intended to have strategic and tactical implications with the former being long term and the latter short term. The reasons for using market communications include encouraging transaction by differentiating the brands, reinforcing, informing the customers, and persuading the potential buyers. Notably, for communication to have positive impact, consumers must be moved through a series of stages. These include creating awareness, creating interest, evaluation, trial and adoption (Kurtz, 2010). During communication, various tools are used such as advertising, sales promotion, personal selling, direct marketing, public relations, exhibition and digital media. Samsung is a South Korea based multinational company with numerous outlets but the headquarters is based in Seoul. H aving been founded in 1938 by Lee Byung-Chul, the company is well known for producing quality brands that meet the needs of the consumers. Some of the quality brands that Samsung produce include Samsung Galaxy Tab A LTE, Samsung Galaxy Tab 8.0 LTE, and Samsung Galaxy Tab S6 among others. This paper aims at discussing the marketing communication of Samsung in their effort to market a new smartphone which has user friendly features that makes it a competitive brand in the mobile sector. Samsung are developing a phone with a bendable screen. The product, which is expected to enjoy a strong positive relationship with the consumers, is expected to generate a turnover of $25 million in the first 6 months. In order to ensures that the consumers easily access the new brand, Samsung will establish various outlets mostly in the major cities in emerging market such Cape Town in South Africa, Mumbai in India and SÃ £o Paulo in Brazil. The company logistics system will also involve trucks whose role

Wal-Mart at the New York Stock Exchange Essay Example | Topics and Well Written Essays - 1250 words

Wal-Mart at the New York Stock Exchange - Essay Example The company is one of the biggest retailers in the world and deals in various products ranging from food items and clothing to electronics and pharmaceuticals. It operates in three business segments – Walmart US, Walmart International and Sam’s club. The company has operations in all states of the US besides 11 other countries including the developing economies like China and India (50). Ernst and Young LLP are Wal-Mart’s independent auditors. The auditors in their report have stated that the internal controls over the financial reporting are satisfactory and as per accounting principles as of January 31, 2011, and that the statements presented in the annual report provide the fair financial position of the company as a whole for both the years 2010 and 2011. Industry outlook The retail industry is one of the most competitive and unpredictable industries. With the world becoming a global village, it has become imperative that organizations in this sector reach ou t to unexplored geographical locations earlier than their competitors to take advantage of the new markets. For this, they need to be quick to adapt to the new cultures of these markets. This sector also has competition from technological innovations in communication. Since it has now become easier to get in touch with the customer through the internet, companies need to utilize these facilities to the fullest and at the earliest. Environmental concerns are also the issues which the companies in this sector cannot ignore. Future plans As per the CEO, Duke â€Å"the company has five-point priorities – growth by adding customers†¦..expanding the company sustainability effort† (D’Innocenzio and Bartels). Expansion within the US remains his top priority as well. The company plans to increase its Sam’s Club membership by improving the customer experience for its members. They also plan to increase transparency is the price. Wal-Mart is also planning to ex pand web presence to more geographical locations. Wal-Mart US is experimenting with new formats and is planning to launch Walmart Express to start with. Walmart international is targeting to increase new space by 23 to 24 million square feet in emerging markets this year. Income Statement analysis The company uses multi-step income statement. The company’s gross margin was at 25.26% in 2011 as against 25.4% in 2010. This shows that the gross profit did not show much change as a percentage of sales over the two years. In absolute numbers, the gross profits for 2011 and 2010 (in millions) were $106,562 and $103, 641respectively. Income from operations before income tax (in millions) was $23,538 in 2011 and $22,118 in 2010. The increase in both these incomes is attributable to increased sales due to its expansion into new markets and increase in the number of stores. The company increased its floor space by 3.4% during the financial year 2011 (Annual Report 17). The favorable ex change rate also helped the sales figure to increase (17). One more reason for this increase is the reduction of the effect of the financial crisis in US markets. Cash Flow statement analysis Cash Flow statement shows that the net cash (in millions) provided by the operating activities for 2011, 2010 and 2009 was $23,643, $26,249 and $23,147 respectively.

Purposal Essay Example | Topics and Well Written Essays - 500 words

Purposal - Essay Example care profession grew I came to the realization that there was a significant lack of the application of leadership thinking and development of employee skill. This aspect combined with my thirst for learning new principles and theories which would be applicable to my organization and update my knowledge in leadership. Based on these goals to enhance my leadership skills I have chosen to do a master program in HR and Change Leadership as a strategic move which would allow me to improve the health service and explore ways that would aid health care employees perform superiorly. How this leadership doctoral program helps to meet my needs is in the way it’s not just a distinctive degree program but also it focuses on the application of theory to real life situations. This would facilitate my leadership and educational goals in the way I can tackle various challenges at work with solutions based on an understanding of leadership and organizational theory. Furthermore the course fulf ills my need in the way it enables me to maintain a reasonable work-life balance and thoroughly examine various aspects of the healthcare industry and how leadership can be used as a strategic tool to bring about accelerated social, cultural, administrative and technological change in the field. There are numerous learning aspects as far as this course goes, that contribute to my healthcare profession. Firstly due to the process of preparing for the numerous assigned HR readings and interacting with my peers and learning from their work experiences in diverse backgrounds has been a great help. From the basic elements which have molded my perception towards the critical role that Human Resource plays in the success and future of an organization. This field has facilitated not just my ability to be innovative and creative professionally but also helped me gain more experience and insight into the health care field. Through active participation in group discussions I have learnt how various

Oedipus the King Essay Example | Topics and Well Written Essays - 1250 words

Oedipus the King - Essay Example The actual story line of the play is not at all new to the audience. Sophohocles was impressed by the ancient story of Oedipus Rex and, though with some variations, he brought this dramatic irony to the audience with a strong message of inevitable fate. The writer grabs every opportunity to make the best use of this dramatic irony as the most impactful scenes of the play can only create the difference when the audience is already aware of the basic story line. Oedipus, the man of great insight, mostly discusses the blindness and sight in the play, which makes it a dramatic irony. Audience is well informed about the fact that it is the Oedipus who is not aware regarding the reality of his life that is held responsible for his decline. In the play, Oedipus said to the priest about the dying and damaging condition of Thebes that he is very much aware, although he was actually not: †I pity you. I see-how could I fail to see What longings bring you here? Well I know† (70-71) O edipus makes all the conscious efforts to unveil the reality and knows about the truth but the audience perceives that he is just a mere puppet in the hands of pre-written fate. The irony at some places makes the audience believe that Oedipus willingly brings the disastrous condition upon him by uncovering the reality. Another example is when Oedipus said: â€Å"You should have searched. ... Oedipus’s efforts to know his own identity and to change the determined fate represent the main idea behind the play, but it is the bitter reality that fate cannot be changed by the humans and, therefore, the reality makes the Oedipus an example of pity and fear. In the beginning, the fine characteristics of Oedipus make the audience feel like he is the most desirable leader who wants to free his nation from the plague. He becomes the king of Thebes by answering the riddle of Sphinx. The citizens of Thebes are now falling dead, the crops are getting withered, women and newborns are dying because of the plague. The inhabitants of Thebes want to get relieved from this curse by gathering around and praying to God. Oedipus calls the priest to know the reason of the gathering and gets an answer to save Thebes from dying. Being sorrowed, he asks his brother in law Creon to go to Delphic oracle to get the answer of how to control this plague. Creon comes with an answer from the oracl e to eliminate the corruption from Thebes and also narrates that murderer of the former king Laius is in Thebes, which means finding and killing the murderer will restore peace in the city. He further tells Oedipus about the murder of Laius that there is only one person alive in the attack who has mentioned that the king was murdered by a group of thieves. On asking the reason for slow investigation, Creon gives the reason that due to the tension caused by riddle of Sphinx they were unable to focus on solving the murder issue. In this way, Oedipus takes the stand to find out the real murderer to remove the plague. He is determined to punish the culprit even if he

Film and critical Essay Example | Topics and Well Written Essays - 2000 words

Film and critical - Essay Example Quentin Tarantino’s achievement in his film Pulp Fiction was to create the ultimate example of a post-modern film. The work has a sense of nostalgia while creating something that was new and interesting for a generation that was looking to find out I there was something new to be seen. Tarantino created a work that was written in such a way as to engage the viewer in confusion that had to be unraveled and evaluated for its ultimate content. The use of pop culture imagery and dark counterculture lifestyles creates a universe that feels as though it is just off center to reality. The storyline is non-linear, creating complex web of interconnections between the characters. It is not hard to understand the film, but there is a world of theory that can be explored in the narrative allowing for a fresh perspective to be gained through multiple viewings. has a surreal quality while remaining intense in harsh strokes. The quotes that come from the dialogue have become a part of contemporary slang, giving the film elevated status in pop culture. The achievement of this film is that it appeals both intellectually and gutturally. When it was released, it was a huge success, re-launching the career of John Travolta and instantly elevating Tarantino into celebrity. The film became influential in subsequent work and instigated a new point of view. Analysis from a political point of view allows for an understanding of the position that was held in the early 1990’s as the political landscaping was changing. Released in 1994, the film reflects a growing conservatism that was cynical reaction to a liberalist attitude whose idealism had fallen short of the dream. Creating an immersion into violence, the film creates the feeling that order can be maintained only from a patriarchal dominance that has swift and bloody retribution. According to

Strategic Information System Essay Example | Topics and Well Written Essays - 2000 words

Strategic Information System - Essay Example These approaches tend to significantly aid in the development of the information system. These approaches can be used as a framework or as a guideline that provides steps which eventually lead to the final product. In a situation where requirements from the stakeholders continuously change the development team can make two approaches. The first is a socio-technical approach which takes into account the social and technical perspective before drawing up an information system for an organization. The second is agile methodology under which regular feedback is obtained from stakeholders to ensure that there are no mistakes being made while the system is being developed. Soft systems and socio technical approaches: Socio-technical approaches are basically approaches that help an organization take into account human and social aspects of an organization in addition to the technical matters, while developing an information system. These approaches have been used by a number of organization s in the past however, their use in recent years has steadily declined (Baxter & Sommerville, 2011). Socio-technical approaches are usually based on theories that revolve around social aspects involving individuals and the society that they are a part of. The technological part of this term does not necessarily refer to technology pertaining to materials and systems used, but rather it represents procedures that are used and knowledge that is related to those particular procedures (Baxter & Sommerville, 2011). Soft systems methodology is an approach that is used as an inquiry tool where an organization makes an inquiry into a problematic situation that is thought to exist within the real world (Checkland & Scholes, 1990). Problems can basically be categorized into two main categories hard and soft. Hard problems are problems that can be properly defined and can be solved using a technical predefined approach. Soft problems, on the other hand, are very difficult to clearly define (Cl arke, 2011). Within soft problems, there is a fluctuating factor of political and human activity. Moreover, there is no exact technical approach, which a person can use to solve a soft problem. In a number of cases, technological impact on the situation is not positive and may cause even greater problems (Checkland & Scholes, 1990). Advantages and disadvantages: The idea of developing a particular information system for an organization is to address a problem that occurs within that organization. Perceptions regarding the problem are different for every stakeholder of the organization. This then divides one single problem into a number of problems that are interrelated to each other in more than one ways. Socio-technical system helps the organization by citing the definition of the organization as one of the phases towards the solution of the problem in question (Checkland & Scholes, 1990). Socio-technical approach thus helps stakeholders on focusing on the nature of the problem pri or to working towards the procurement of the solution of the given problem. By clearly defining the problem, system developers would be able to address the real problem rather than forming a solution to the problem that they perceive is correct (Baxter & Sommerville, 2011). Methodologies such as soft system approach can only be used to analyze the weak points and fails to clearly specify how a system can be built using the information that is obtained from its analysis. In some cases, the problem is

GCC Economics and OPEC Research Paper Example | Topics and Well Written Essays - 2000 words

GCC Economics and OPEC - Research Paper Example The common market agreement among the GCC countries took effect from 1 January 2008. The members of Organization of Petroleum Exporting Countries (OPEC) is an association of developing countries, which include Venezuela, United Arab Emirates, Saudi Arabia, Qatar, Nigeria, Libya, Kuwait, Iraq, Iran, Ecuador, Angola and Algeria. OPEC was formed to help market oil and stabilize oil prices in the world. United Arab Emirates United Arab Emirates whose capital city is Abu Dhabi, Dubai covers an area of 82,880 Km2 and the land is predominantly desert with few pockets of agricultural areas. It is a member of OPEC. The country has an opened and highly developed economy, which is among the fastest growing in the world. The rate of inflation in United Arab Emirates is low and was 0.9 percent and 1.6 percent in 2010 and 2009 respectively. To boost trade, a free trade zone for manufacturing and distribution purposes. Presence of a deep-water port has also promoted international trade. The rate of interest charged by commercial banks was also lower at 6.2 percent and 5.9 percent in 2010 and 2009 respectively. Figure 1: GDP growth rate There was a sharp decline in the real GDP growth from 3.2 percent in 2008 to -3.2 in 2009. Sharp decline is attributed to the global financial turmoil. However, there was a strong growth in real GDP growth rate to 5.3 percent in 2010 due to recovering economy and increasing oil prices. OPEC Quotas in United Arab Emirates is 2.3 million barrels daily but its capacity is 2.8 million barrels daily. According to CIA (2011), United Arab Emirates’ reserves are estimated to be 97.8 billion barrels. Non- oil sectors include agriculture that produce dried fish, dates, watermelons, vegetables, eggs, poultry and dairy products (Department of State 2011). Non-oil sector covers tourism and international finance. United Arab Emirates produces cement, aluminum, fertilizers, boat building, commercial ship repair, textiles and handicrafts. Major trade pa rtners include Japan, India, China, United States, Germany, Iran, South Korea and Thailand Saudi Arabia Kingdom of Saudi Arabia whose capital is Riyadh also referred to as Saudi Arabia covers an area of 2,149,690 km2 with arid climate. It is a member of OPEC. It has a command economy, where government controls major economic activities and depends heavily on oil exports. The GDP of Saudi Arabia was $623 billion in 2010. Inflation rate is slightly lower at 5.4 percent and 5.1 percent in 2010 and 2009 respectively. The unemployment rate in Saudi Arabia was 10.8 percent, 10.5 percent and 9.8 percent in 2010, 2009 and 2008 respectively. High unemployment rates are among the highest rates in the gulf region. Commercial bank interest rates were 7.3 percent and 7.2 percent in 2010 and 2009 respectively. The country’s proven oil reserves are 262.6 billion barrels (Sfakianakis 2011). Saudi Arabia has the largest oil reserves with and is the world top oil exporter. Oil generates 75 per cent of the total budget revenues and comprises about 90 percent of total exports. Increase in oil prices caused by increasing demand has improved the economy of Saudi Arabia. The current quota for Saudi Arabia as set by OPEC is 9.4 million barrels daily. However, the country can produce up to 10.52 millions barrels daily. The non-oil sector real GDP growth r

The Benefits of a College Degree Essay Example for Free

The Benefits of a College Degree Essay Going to college to earn a degree is very important and is also an advantage for me in today?s world. I have many different reasons why I?m getting a degree. One reason is because important to have a goal, to work toward something. Having a long term goal helps me stay motivated. Most importantly getting a degree will insure that I will be personally and financially stable. Even though obtaining a college degree will help me in so many different ways in my life. Going to college is very taxing; emotionally, physically and financially. No matter how many times succeed or fail at my goals, going to college is an eye opener for me. There are so many goals I will have through out my life, none of them being as important as obtaining a college degree. Some people may say that my family is the most important achievement in my life. But a degree is in ways more important. It ensures that I will provide the best life for my family. On the other hand my family is what gives me the courage to wake up every morning and look forward to going to school to learn knew things. Working toward my degree keeps my mind focused. Having a long term goal is key in my life. Because no matter what happens I know that the next day I will be dedicating time from my life to achieve something most people only think about doing. I hope I can stay motivated enough to get more classes done. And to do my best at all times, even if my best is scraping by. Because at that time it was my best. These are small goals, but these goals will add up to a more important achievement in the end. The personal and financial stability I will get from a college education is priceless. Knowing that for eight years I didn?t quiet for anything to achieve my degree will be the greatest feeling ever. All of the motivation, dedication, wisdom, and courage that I will gain thought out my college carrier will be strongest part of my personal stability. Because of my college education I will be able to get a well paying job with benefits that will ensure the financial stability I need for my family. Knowing that the income from my job will enable me to not worry about having enough money for retirement is very satisfying. Being able to pay for my children?s education is very important to me and the well being of my children. Thanks to this financial stability I will be able to sleep a little better. There are many down falls to having a college carrier. Finding the time in my busy life to sit down and do hours of homework. It is difficult to wake up early every morning and go to work for eight grueling hours, then go home inhale my dinner, then rush to school. Only to come home and do homework for hours, go to bed late and wake up early and go through the same thing again. Not only is this exaughsting, it is emotionally hard as well. Not getting enough quality time with my family is hard to deal with. Not having time to do homework causes school work to be late. Which causes my grades to slip and my G.P.A to fall. In order to receive assistance for tuition I need to maintain my G.P.A. If my G.P.A were to fall I could be putt on academic probation. In turn I would need to work overtime to make up for money lost. College can be very physically and emotionally demanding. Obtaining a college degree is very important. A degree will help me to become personal and financially stable. Achieving this goal will help me in everyday life.

How It Feel to Be Colored Me and How to Tame a Wild Tongue Essay Example for Free

How It Feel to Be Colored Me and How to Tame a Wild Tongue Essay Sometimes we know who and what we are, but it’s impossible to wear an identity without becoming what we pretend to be or bullied into silence allowing ourselves to be made a victim to oppression. In this essay I’m comparing the authors of â€Å"How it Feel to Be Colored Me by Zora Hurston, and How to Tame a Wild Tongue by Gloria Anzaldua. Gloria Anzaldua became a victim of oppression by accepting society expectations of the Chicano culture. Meanwhile, Zora Hurston accepted who she is despite who people perceived her as because of her skin color. These two authors defends their personal identities through their cultures in separate ways. In the story How to Tame a Wild Tongue, Gloria Anzaldua feels that the way someone is cannot be controlled it can only be erased; she states â€Å"Wild tongues can’t be tamed, they can only be cut out† (Page 31). Anzaldua was against losing her accent and had an issue with putting her first language as a second. She would rebel as a child when told not to speak Spanish, so she struggled with changing and adapting to the American culture. She believed her culture the â€Å"Chicano† culture needed to differ from others with a secret language they can be able to communicate amongst each other. â€Å"Chicano Spanish need to identify ourselves as a distinct people. We needed a language which we could communicate with ourselves, a secret language† (Page 32). By creating their own slang allows them to connect their identity and communicate reality, values, and things they have in common. Yet, Zora Hurston in the story â€Å"How it feels to be Colored Me† expresses the way she was created doesn’t bother her nor makes her sadden. â€Å"I am not tragically colored. There is no great sorrow dammed up in my soul, nor lurking behind my eyes. I don’t mind at all (Page 145).† Unlike other colored people she doesn’t hate herself for the color of her skin, she’s proud to be created as the person she is without regret. Although, she’s constantly reminded of her culture background it fails to bring her integrity down, because ancestors paid the price of her free start in society, and shouldn’t stop to reflect on choices that wasn’t hers. â€Å"Someone is always at my elbow reminding me that I am the grand-daughter of slaves. It fails to register depression with me. I am off to a flying start and must I not halt to look back and weep. Slavery is the price I paid for civilization, and the choice was not with me† (Pages 145-146). Zora Hurston doesn’t consider herself a part of her culture who uses their skin color for a bad excuse for why they’re in negative life situations. â€Å"I do not belong to the sobbing school of Negrohood who holds that nature somehow has given them a lowdown dirty deal and whose feelings are hurt about it (Page 145).

Impact of Credit Default Swaps (CDS)

Impact of Credit Default Swaps (CDS) Chapter 1 : Introduction A Swap is a derivative in which two counterparties agree to exchange one stream of cash flow against another stream. Swaps can be used to create unfunded exposures to an underlying asset, since counterparties can earn the profit or loss from movements in price without having to post the notional amount in cash or collateral. It can be used to hedge certain risks such as interest rate risk, or to speculate on changes in the expected direction of underlying prices. The main objective of the project is to understand about Credit Default Swaps (CDS), its global footprint, its role in subprime crisis, its settlement in global arena and to check the feasible settlement of CDS in India, after its introduction in India, by understanding about Indian Credit Derivatives market. Research is concerned with the systematic and objective collection, analysis and evaluation of information about specific aspects to check the feasible settlement of CDSs in India. The development of financial derivatives in recent past is astounding when we consider its volume globally. But at the same time the product once created for hedging the risk currently allows you to bear more risk sometimes making the whole financial system to tremble. May be thats why Warren Buffet called it a financial weapon of mass destruction. Whatever it may be but derivatives have grown exponentially and are necessary for the market to flourish. The credit derivatives are nothing but the logical extension to the family of derivatives and have already made its presence felt globally. The credit derivatives have played a significant role in the development of debt market but also share a blame for the proliferation of subprime crisis. A credit default swap which constitutes the major portion of credit derivatives is similar to an insurance contract which allows you to transfer your risk to third party in exchange of a premium. Right from its origin as plain vanilla product for hedging purpose it has grown to very complex products and now has posed a question mark on its credibility. The subprime crisis started in what were regarded as the worlds safest and most sophisticated markets and spread globally, carried by securities and derivatives that were thought to make the financial system safer. The subprime crisis brings the complexity of securitized products and derivatives products, the human greedy nature, inability of rating agencies to gauge the risk, inefficiency of regulatory bodies, etc. to the fore. Although CDS was not the cause of the subprime crisis but it had cascading effect on the market and was considered as the reason for the collapse of American International Group (AIG). The lessons from the consequences of subprime crisis have helped in creating awareness about the regulatory frameworks to be in place which has increased the transparency, standardization, and soundness in the market. The various measures include formation of central counterparty for CDS, hardwiring of auction protocol and ISDA determination committee. On the backdrop of global crisis the movement of CDS is being watched carefully. The various data sources now provide data even on weekly basis. The efforts are being paid off and the market size of CDS has reduced considerably. And now with the central counterparties in place the CDS market will have more transparency and better control. After opening up of the economy the equity market of India have grown significantly bringing in more transparency. But the corporate bond market is still in undeveloped mode and the efforts being taken on developing it have not provided expected returns. Under this light, India is now all set to launch Credit Default Swaps which are expected to ignite the spark which will flourish the corporate bond market. Considering the cautious nature of RBI and the havoc created by CDS in global market the move by RBI is significant. From the move of RBI one can say as the knife itself is not harmful but it depends whether its in doctors hand or a robbers hand. Similarly CDS as a product is certainly not harmful but its utility will depend on the judicious use of the same. Chapter 2: Literature Review Derivatives The global economic order that emerged after World War II was a system where many less developed countries administered prices and centrally allocated resources. Even the developed economies operated under the Bretton Woods system of fixed exchange rates. The system of fixed prices came under stress from the 1970s onwards. High inflation and unemployment rates made interest rates more volatile. The Bretton Woods system was dismantled in 1971, freeing exchange rates to fluctuate. Less developed countries like India began opening up their economies and allowing prices to vary with market conditions. Price fluctuations made it hard for businesses to estimate their future production costs and revenues. Derivative securities provide them with a valuable set of tools for managing this risk. Financial markets are, by nature, extremely volatile and hence, the risk factor is an Important concern for financial agents. To reduce this risk, the concept of derivatives comes into the picture. Derivatives are products whose values are derived from one or more basic variables called bases. These bases can be underlying assets (for example forex, equity, etc), bases or reference rates. It is afinancial instrument(or more simply, an agreement between two people/two parties) that has a value determined by the future price of something else. Derivatives can be thought of as bets on the price of something.Itis the collective name used for a broad class offinancial instrumentsthatderivetheir value from other financial instruments (known as the underlying), events or conditions. Essentially, a derivative is a contract between two parties where the value of the contract is linked to the price of another financial instrument or by a specified event or condition. Asecurity whose price is dependent upon or derived fromone or more underlying assets.The derivative itself is merely a contract between two or more parties. Itsvalue is determinedby fluctuationsin the underlying asset.The most common underlying assets includestocks, bonds,commodities,currencies, interest rates and market indexes. Most derivatives are characterized by high leverage.Derivatives are generally used as an instrument to hedgerisk, but can also be used forspeculative purposes. For example, wheat farmers may wish to sell their harvest at a future date to eliminate the risk of a change in prices by that date. The transaction in this case would be the derivative, while the spot price of wheat would be the underlying asset. Derivatives have probably been around for as long as people have been trading with one another. Forward contracting dates back at least to the 12th century, and may well have been around before then. Merchants entered into contracts with one another for future delivery of specified amount of commodities at specified price. A primary motivation for pre-arranging a buyer or seller for a stock of commodities in early forward contracts was to lessen the possibility that large swings would inhibit marketing the commodity after a harvest. The need for a derivatives market The derivatives market performs a number of economic functions: They help in transferring risks from risk averse people to risk oriented people They help in the discovery of future as well as current prices They catalyze entrepreneurial activity They increase the volume traded in markets because of participation of risk averse people in greater numbers They increase savings and investment in the long run The participants in a derivatives market Hedgers use futures or options markets to reduce or eliminate the risk associated with price of an asset. Speculators use futures and options contracts to get extra leverage in betting on future movements in the price of an asset. They can increase both the potential gains and potential losses by usage of derivatives in a speculative venture. Arbitrageurs are in business to take advantage of a discrepancy between prices in two different markets. If, for example, they see the futures price of an asset getting out of line with the cash price, they will take offsetting positions in the two markets to lock in a profit. Types of Derivatives Forwards: A forward contract is a customized contract between two entities, where settlement takes place on a specific date in the future at todays pre-agreed price. Futures: A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Futures contracts are special types of forward contracts in the sense that the former are standardized exchange-traded contracts Options: Options are of two types calls and puts. Calls give the buyer the right but not the obligation to buy a given quantity of the underlying asset, at a given price on or before a given future date. Puts give the buyer the right, but not the obligation to sell a given quantity of the underlying asset at a given price on or before a given date. Warrants: Options generally have lives of upto one year, the majority of options traded on options exchanges having a maximum maturity of nine months. Longer-dated options are called warrants and are generally traded over-the-counter. LEAPS: The acronym LEAPS means Long-Term Equity Anticipation Securities. These are options having a maturity of upto three years. Baskets: Basket options are options on portfolios of underlying assets. The underlying asset is usually a moving average or a basket of assets. Equity index options are a form of basket options. Swaps: Swaps are private agreements between two parties to exchange cash flows in the future according to a prearranged formula. They can be regarded as portfolios of forward contracts. The two commonly used swaps are : Interest rate swaps: These entail swapping only the interest related cash flows between the parties in the same currency. Currency swaps: These entail swapping both principal and interest between the parties, with the cash flows in one direction being in a different currency than those in the opposite direction. Swaptions: Swaptions are options to buy or sell a swap that will become operative at the expiry of the options. Thus a swaption is an option on a forward swap. Rather than have calls and puts, the swaptions market has receiver swaptions and payer swaptions. A receiver swaption is an option to receive fixed and pay floating. A payer swaption is an options to pay fixed and receive floating. Uses of Derivatives Derivatives may be traded for a variety of reasons. A derivative enables a trader to hedge some pre-existing risk by taking positions in derivatives markets that offset potential losses in the underlying or spot market. In India, most derivatives users describe themselves as hedgers (Fitch Ratings, 2004) and Indian laws generally require that derivatives be used for hedging purposes only. Another motive for derivatives trading is speculation (i.e. taking positions to profit from anticipated price movements). In practice, it may be difficult to distinguish whether a particular trade was for hedging or speculation, and active markets require the participation of both hedgers and speculators. A third type of trader, called arbitrageurs, profit from discrepancies in the relationship of spot and derivatives prices, and thereby help to keep markets efficient. Jogani and Fernandes (2003) describe Indias long history in arbitrage trading, with line operators and traders arbitraging prices between exchanges located in different cities, and between two exchanges in the same city. Their study of Indian equity derivatives markets in 2002 indicates that markets were inefficient at that time. They argue that lack of knowledge; market frictions and regulatory impediments have led to low levels of capital employed in arbitrage trading in India. However, more recent evidence suggests that the efficiency of Indian equity derivatives markets may have improved (ISMR, 2004). Development of derivatives market in India Derivatives markets have been in existence in India in some form or other for a long time. In the area of commodities, the Bombay Cotton Trade Association started futures trading in 1875 and, by the early 1900s India had one of the worlds largest futures industry. In 1952 the government banned cash settlement and options trading and derivatives trading shifted to informal forwards markets. In recent years, government policy has changed, allowing for an increased role for market-based pricing and less suspicion of derivatives trading. The ban on futures trading of many commodities was lifted starting in the early 2000s, and national electronic commodity exchanges were created. In the equity markets, a system of trading called badla involving some elements of forwards trading had been in existence for decades.6 However, the system led to a number of undesirable practices and it was prohibited off and on till the Securities and Exchange Board of India (SEBI) banned it for good in 2001. A series of reforms of the stock market between 1993 and 1996 paved the way for the development of exchange-traded equity derivatives markets in India. In 1993, the government created the NSE in collaboration with state-owned financial institutions. NSE improved the efficiency and transparency of the stock markets by offering a fully automated screen-based trading system and real-time price dissemination. In 1995, a prohibition on trading options was lifted. In 1996, the NSE sent a proposal to SEBI for listing exchange-traded derivatives. The report of the L. C. Gupta Committee, set up by SEBI, recommended a phased introduction of derivative products, and bi-level regulation ( i.e., self-regulation by exchanges with SEBI providing a supervisory and advisory role). Another report, by the J. R. Varma Committee in 1998, worked out various operational details such as the margining systems. The first step towards introduction of derivatives trading in India was the promulgation of the Securities Laws(Amendment) Ordinance, 1995, which withdrew the prohibition on options in securities. The market for derivatives, however, did not take off, as there was no regulatory framework to govern trading of derivatives. SEBI set up a 24-member committee under the Chairmanship of Dr.L.C.Gupta on November 18, 1996 to develop appropriate regulatory framework for derivatives trading in India. The committee submitted its report on March 17, 1998 prescribing necessary pre-conditions for introduction of derivatives trading in India. The committee recommended that derivatives should be declared as securities so that regulatory framework applicable to trading of securities could also govern trading of securities. SEBI also set up a group in June 1998 under the Chairmanship of Prof.J.R.Varma, to recommend measures for risk control in derivatives market in India. The report, which was submitte d in October 1998, worked out the operational details of margining system, methodology for charging initial margins, broker net worth, deposit requirement and real-time monitoring requirements. The Securities Contract Regulation Act (SCRA) was amended in December 1999 to include derivatives within the ambit of securities and the regulatory framework was developed for governing derivatives trading. The act also made it clear that derivatives shall be legal and valid only if such contracts are traded on a recognized stock exchange, thus precluding OTC derivatives. The government also rescinded in March 2000, the three- decade old notification, which prohibited forward trading in securities. Derivatives trading commenced in India in June 2000 after SEBI granted the final approval to this effect in May 2001. SEBI permitted the derivative segments of two stock exchanges, NSE and BSE, and their clearing house/corporation to commence trading and settlement in approved derivatives contracts . To begin with, SEBI approved trading in index futures contracts based on SP CNX Nifty and BSE-30(Sensex) index. This was followed by approval for trading in options based on these two indexes and options on individual securities. The trading in BSE Sensex options commenced on June 4, 2001 and the trading in options on individual securities commenced in July 2001. Futures contracts on individual stocks were launched in November 2001. The derivatives trading on NSE commenced with SP CNX Nifty Index futures on June 12, 2000. The trading in index options commenced on June 4, 2001 and trading in options on individual securities commenced on July 2, 2001. Single stock futures were launched on November 9, 2001. The index futures and options contract on NSE are based on SP CNX Trading and settlement in derivative contracts is done in accordance with the rules, byelaws, and regulations of the respective exchanges and their clearing house/corporation duly approved by SEBI and notified in the official gazette. Foreign Institutional Investors (FIIs) are permitted to trade in all Exchange traded derivative products. The following are some observations based on the trading statistics provided in the NSE report on the futur es and options (FO): †¢ Single-stock futures continue to account for a sizable proportion of the FO segment. It constituted 70 per cent of the total turnover during June 2002. A primary reason attributed to this phenomenon is that traders are comfortable with single-stock futures than equity options, as the former closely resembles the erstwhile badla system. On relative terms, volumes in the index options segment continues to remain poor. This may be due to the low volatility of the spot index. Typically, options are considered more valuable when the volatility of the underlying (in this case, the index) is high. A related issue is that brokers do not earn high commissions by recommending index options to their clients, because low volatility leads to higher waiting time for round-trips. Put volumes in the index options and equity options segment have increased since January 2002. The call-put volumes in index options have decreased from 2.86 in January 2002 to 1.32 in June. The fall in call-put volumes ratio suggests that the traders are increasingly becoming pessimistic on the market. Farther month futures contracts are still not actively traded. Trading in equity options on most stocks for even the next month was non-existent. Daily option price variations suggest that traders use the FO segment as a less risky alternative (read substitute) to generate profits from the stock price movements. The fact that the option premiums tail intra-day stock prices is evidence to this. Calls on Satyam fall, while puts rise when Satyam falls intra-day. If calls and puts are not looked as just substitutes for spot trading, the intra-day stock price variations should not have a one-to-one impact on the option premiums. SWAP In finance, a SWAP is a derivative in which two counterparties agree to exchange one stream of cash flow against another stream. These streams are called the legs of the swap. Conventionally they are the exchange of one security for another to change the maturity (bonds), quality of issues (stocks or bonds), or because investment objectives have changed. A swap is an agreement to exchange one stream of cash flows for another. Swaps are most usually used to:- Switch financing in one country for financing in another To replace a floating interest rate swap with a fixed interest rate (or vice versa) (Litzenberger, R.H)In August 1981 the World Bank issued $290 million in euro-bonds and swapped the interest and principal on these bonds with IBM for Swiss francs and German marks. The rapid growth in the use of interest rate swaps, currency swaps, and swaptions (options on swaps) has been phenomenal. Currently, the amount of outstanding interest rate and currency swaps is almost $3 trillion. Recently, swaps have grown to include currency swaps and interest rate swaps. It can be used to hedge certain risks such as interest rate risk, or to speculate on changes in the expected direction of underlying prices. If firms in separate countries have comparative advantages on interest rates, then a swap could benefit both firms. For example, one firm may have a lower fixed interest rate, while another has access to a lower floating interest rate. These firms could swap to take advantage of the lower rates. Different types of swaps:- Currency Swaps Cross currency swaps are agreements between counterparties to exchange interest and principal payments in different currencies. Like a forward, a cross currency swap consists of the exchange of principal amounts (based on todays spot rate) and interest payments between counterparties. It is considered to be a foreign exchange transaction and is not required by law to be shown on the balance sheet. In a currency swap, these streams of cash flows consist of a stream of interest and principal payments in one currency exchanged for a stream, of interest and principal payments of the same maturity in another currency. Because of the exchange and re-exchange of notional principal amounts, the currency swap generates a larger credit exposure than the interest rate swap. Cross-currency swaps can be used to transform the currency denomination of assets and liabilities. They are effective tools for managing foreign currency risk. They can create currency match within its portfolio and minimize exposures. Firms can use them to hedge foreign currency debts and foreign net investments. Currency swaps give companies extra flexibility to exploit their comparative advantage in their respective borrowing markets. Currency swaps allow companies to exploit advantages across a matrix of currencies and maturities. Currency swaps were originally done to get around exchange controls and hedge the risk on currency rate movements. It also helps in Reducing costs and risks associated with currency exchange. They are often combined with interest rate swaps. For example, one company would seek to swap a cash flow for their fixed rate debt denominated in US dollars for a floating-rate debt denominated in Euro. This is especially common in Europe where companies shop for the cheapest debt regardless of its denomination and then seek to exchange it for the debt in desired currency. Credit Default Swap Credit Default Swap is a financial instrument for swapping the risk of debt default. Credit default swaps may be used for emerging market bonds, mortgage backed securities, corporate bonds and local government bond. The buyer of a credit default swap pays a premium for effectively insuring against a debt default. He receives a lump sum payment if the debt instrument is defaulted. The seller of a credit default swap receives monthly payments from the buyer. If the debt instrument defaults they have to pay the agreed amount to the buyer of the credit default swap. The first credit default swap was introduced in 1995 by JP Morgan. By 2007, their total value has increased to an estimated $45 trillion to $62 trillion. Although since only 0.2% of Investment Companys default, the cash flow is much lower than this actual amount. Therefore, this shows that credit default swaps are being used for speculation and not insuring against actual bonds. As Warren Buffett calls them financial weapons of mass destruction. The credit default swaps are being blamed for much of the current market meltdown. Example of Credit Default Swap An investment trust owns  £1 million corporation bond issued by a private housing firm. If there is a risk the private housing firm may default on repayments, the investment trust may buy a CDS from a hedge fund. The CDS is worth  £1 million. The investment trust will pay an interest on this credit default swap of say 3%. This could involve payments of  £30,000 a year for the duration of the contract. If the private housing firm doesnt default. The hedge fund gains the interest from the investment bank and pays nothing out. It is simple profit. If the private housing firm does default, then the hedge fund has to pay compensation to the investment bank of  £1 million the value of the credit default swap. Therefore the hedge fund takes on a larger risk and could end up paying  £1million The higher the perceived risk of the bond, the higher the interest rate the hedge fund will require. Credit default swaps are used not only by investment banks, but also by other financial institutions. Corporate entities use credit default swaps either for protection purposes, to hedge or to sell. Investment banks are primarily affected by the buyers. If a number of major corporate entities have bought protection from the same investment bank, and all of them fail simultaneously, this will put pressure on the investment bank to pay out. Moreover, the credit risk caused by the above failure may lead to other risks, such as liquidity risk, market risk and operational risk. Therefore, most of the investment banks re-sell the sold protection on the market to other market participants. Edwards (2004) argues that derivatives do not reduce credit risk, but rather transfer it from banks to other banks or entities. Therefore, most of the investment banks re-sell the sold protection on the market to other market participants. Edwards (2004) argues that derivatives do not reduce credit risk, but rather transfer it from banks to other banks or entities. Some of the top banks in America are carrying unknown gambling risks that no one has warned about, and they are all tied up in U.S. bank derivative portfolios (Edwards M, 2004). Commodity Swap A commodity swap is an agreement whereby a floating (or market or spot) price is exchanged for a fixed price over a specified period. The vast majority of commodity swaps involve oil. A swap where exchanged cash flows are dependent on the price of an underlying commodity. This swap is usually used to hedge against the price of a commodity. Commodities are physical assets such as precious metals, base metals, energy stores (such as natural gas or crude oil) and food (including wheat, pork bellies, cattle, etc.). In this swap, the user of a commodity would secure a maximum price and agree to pay a financial institution this fixed price. Then in return, the user would get payments based on the market price for the commodity involved. They are used for hedging against Fluctuations in commodity prices or Fluctuations in spreads between final product and raw material prices. A company that uses commodities as input may find its profits becoming very volatile if the commodity prices become volatile. This is particularly so when the output prices may not change as frequently as the commodity prices change. In such cases, the company would enter into a swap whereby it receives payment linked to commodity prices and pays a fixed rate in exchange. There are two kinds of agents participating in the commodity markets: end-users (hedgers) and investors (speculators). Commodity swaps are becoming increasingly common in the energy and agricultural industries, where demand and supply are both subject to considerable uncertainty. For example, heavy users of oil, such as airlines, will often enter into contracts in which they agree to make a series of fixed payments, say every six months for two years, and receive payments on those same dates as determined by an oil price index. Computations are often based on a specific number of tons of oil in order to lock in the price the airline pays for a specific quantity of oil, purchased at regular intervals over the two-year period. However, the airline will typically buy the actual oil it needs from the spot market. Equity Swap The outstanding performance of equity markets in the 1980s and the 1990s, have brought in some technological innovations that have made widespread participation in the equity market more feasible and more marketable and the demographic imperative of baby-boomer saving has generated significant interest in equity derivatives. In addition to the listed equity options on individual stocks and individual indices, a burgeoning over-the-counter (OTC) market has evolved in the distribution and utilization of equity swaps. An equity swap is a special type of total return swap, where the underlying asset is a stock, a basket of stocks, or a stock index. An exchange of the potential appreciation of equitys value and dividends for a guaranteed return plus any decrease in the value of the equity. An equity swap permits an equity holder a guaranteed return but demands the holder give up all rights to appreciation and dividend income. Compared to actually owning the stock, in this case you do not have to pay anything up front, but you do not have any voting or other rights that stock holders do have. Equity swaps make the index trading strategy even easier. Besides diversification and tax benefits, equity swaps also allow large institutions to hedge specific assets or positions in their portfolios The equity swap is the best swap amongst all the other swaps as it being an over-the-counter derivatives transaction; they have the attractive feature of being customizable for a particular users situation. Investors may have specific time horizons, portfolio compositions, or other terms and conditions that are not matched by exchange-listed derivatives. They are private transactions that are not directly reportable to any regulatory authority. A derivatives dealer can, through a foreign subsidiary in the particular country, invest in the foreign securities without the withholding tax and enter into a swap with the parent dealer company, which can then enter a swap with the American investor, effectively passing on the dividends without the withholding tax Interest Rate Swap An interest rate swap, or simply a rate swap, is an agreement between two parties to exchange a sequence of interest payments without exchanging the underlying debt. In a typical fixed/floating rate swap, the first party promises to pay to the second at designated intervals a stipulated amount of interest calculated at a fixed rate on the notional principal; the second party promises to pay to the first at the same intervals a floating amount of interest on the notional principle calculated according to a floating-rate index. The interest rate swap is essentially a strip of forward contracts exchanging interest payments. Thus, interest rate swaps, like interest rate futures or interest rate forward contracts, offer a mechanism for restructuring cash flows and, if properly used, provide a financial instrument for hedging against interest rate risk The reason for the exchange of the interest obligation is to take benefit from comparative advantage. Some companies may have comparative advantage in fixed rate markets while other companies have a comparative advantage in floating rate markets. When companies want to borrow they look for cheap borrowing i.e. from the market where they have comparative advantage. However this may lead to a company borrowing fixed when it wants floating or borrowing floating when it wants fixed. This is where a swap comes in. A swap has the effect of transforming a fixed rate loan into a float Impact of Credit Default Swaps (CDS) Impact of Credit Default Swaps (CDS) Chapter 1 : Introduction A Swap is a derivative in which two counterparties agree to exchange one stream of cash flow against another stream. Swaps can be used to create unfunded exposures to an underlying asset, since counterparties can earn the profit or loss from movements in price without having to post the notional amount in cash or collateral. It can be used to hedge certain risks such as interest rate risk, or to speculate on changes in the expected direction of underlying prices. The main objective of the project is to understand about Credit Default Swaps (CDS), its global footprint, its role in subprime crisis, its settlement in global arena and to check the feasible settlement of CDS in India, after its introduction in India, by understanding about Indian Credit Derivatives market. Research is concerned with the systematic and objective collection, analysis and evaluation of information about specific aspects to check the feasible settlement of CDSs in India. The development of financial derivatives in recent past is astounding when we consider its volume globally. But at the same time the product once created for hedging the risk currently allows you to bear more risk sometimes making the whole financial system to tremble. May be thats why Warren Buffet called it a financial weapon of mass destruction. Whatever it may be but derivatives have grown exponentially and are necessary for the market to flourish. The credit derivatives are nothing but the logical extension to the family of derivatives and have already made its presence felt globally. The credit derivatives have played a significant role in the development of debt market but also share a blame for the proliferation of subprime crisis. A credit default swap which constitutes the major portion of credit derivatives is similar to an insurance contract which allows you to transfer your risk to third party in exchange of a premium. Right from its origin as plain vanilla product for hedging purpose it has grown to very complex products and now has posed a question mark on its credibility. The subprime crisis started in what were regarded as the worlds safest and most sophisticated markets and spread globally, carried by securities and derivatives that were thought to make the financial system safer. The subprime crisis brings the complexity of securitized products and derivatives products, the human greedy nature, inability of rating agencies to gauge the risk, inefficiency of regulatory bodies, etc. to the fore. Although CDS was not the cause of the subprime crisis but it had cascading effect on the market and was considered as the reason for the collapse of American International Group (AIG). The lessons from the consequences of subprime crisis have helped in creating awareness about the regulatory frameworks to be in place which has increased the transparency, standardization, and soundness in the market. The various measures include formation of central counterparty for CDS, hardwiring of auction protocol and ISDA determination committee. On the backdrop of global crisis the movement of CDS is being watched carefully. The various data sources now provide data even on weekly basis. The efforts are being paid off and the market size of CDS has reduced considerably. And now with the central counterparties in place the CDS market will have more transparency and better control. After opening up of the economy the equity market of India have grown significantly bringing in more transparency. But the corporate bond market is still in undeveloped mode and the efforts being taken on developing it have not provided expected returns. Under this light, India is now all set to launch Credit Default Swaps which are expected to ignite the spark which will flourish the corporate bond market. Considering the cautious nature of RBI and the havoc created by CDS in global market the move by RBI is significant. From the move of RBI one can say as the knife itself is not harmful but it depends whether its in doctors hand or a robbers hand. Similarly CDS as a product is certainly not harmful but its utility will depend on the judicious use of the same. Chapter 2: Literature Review Derivatives The global economic order that emerged after World War II was a system where many less developed countries administered prices and centrally allocated resources. Even the developed economies operated under the Bretton Woods system of fixed exchange rates. The system of fixed prices came under stress from the 1970s onwards. High inflation and unemployment rates made interest rates more volatile. The Bretton Woods system was dismantled in 1971, freeing exchange rates to fluctuate. Less developed countries like India began opening up their economies and allowing prices to vary with market conditions. Price fluctuations made it hard for businesses to estimate their future production costs and revenues. Derivative securities provide them with a valuable set of tools for managing this risk. Financial markets are, by nature, extremely volatile and hence, the risk factor is an Important concern for financial agents. To reduce this risk, the concept of derivatives comes into the picture. Derivatives are products whose values are derived from one or more basic variables called bases. These bases can be underlying assets (for example forex, equity, etc), bases or reference rates. It is afinancial instrument(or more simply, an agreement between two people/two parties) that has a value determined by the future price of something else. Derivatives can be thought of as bets on the price of something.Itis the collective name used for a broad class offinancial instrumentsthatderivetheir value from other financial instruments (known as the underlying), events or conditions. Essentially, a derivative is a contract between two parties where the value of the contract is linked to the price of another financial instrument or by a specified event or condition. Asecurity whose price is dependent upon or derived fromone or more underlying assets.The derivative itself is merely a contract between two or more parties. Itsvalue is determinedby fluctuationsin the underlying asset.The most common underlying assets includestocks, bonds,commodities,currencies, interest rates and market indexes. Most derivatives are characterized by high leverage.Derivatives are generally used as an instrument to hedgerisk, but can also be used forspeculative purposes. For example, wheat farmers may wish to sell their harvest at a future date to eliminate the risk of a change in prices by that date. The transaction in this case would be the derivative, while the spot price of wheat would be the underlying asset. Derivatives have probably been around for as long as people have been trading with one another. Forward contracting dates back at least to the 12th century, and may well have been around before then. Merchants entered into contracts with one another for future delivery of specified amount of commodities at specified price. A primary motivation for pre-arranging a buyer or seller for a stock of commodities in early forward contracts was to lessen the possibility that large swings would inhibit marketing the commodity after a harvest. The need for a derivatives market The derivatives market performs a number of economic functions: They help in transferring risks from risk averse people to risk oriented people They help in the discovery of future as well as current prices They catalyze entrepreneurial activity They increase the volume traded in markets because of participation of risk averse people in greater numbers They increase savings and investment in the long run The participants in a derivatives market Hedgers use futures or options markets to reduce or eliminate the risk associated with price of an asset. Speculators use futures and options contracts to get extra leverage in betting on future movements in the price of an asset. They can increase both the potential gains and potential losses by usage of derivatives in a speculative venture. Arbitrageurs are in business to take advantage of a discrepancy between prices in two different markets. If, for example, they see the futures price of an asset getting out of line with the cash price, they will take offsetting positions in the two markets to lock in a profit. Types of Derivatives Forwards: A forward contract is a customized contract between two entities, where settlement takes place on a specific date in the future at todays pre-agreed price. Futures: A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Futures contracts are special types of forward contracts in the sense that the former are standardized exchange-traded contracts Options: Options are of two types calls and puts. Calls give the buyer the right but not the obligation to buy a given quantity of the underlying asset, at a given price on or before a given future date. Puts give the buyer the right, but not the obligation to sell a given quantity of the underlying asset at a given price on or before a given date. Warrants: Options generally have lives of upto one year, the majority of options traded on options exchanges having a maximum maturity of nine months. Longer-dated options are called warrants and are generally traded over-the-counter. LEAPS: The acronym LEAPS means Long-Term Equity Anticipation Securities. These are options having a maturity of upto three years. Baskets: Basket options are options on portfolios of underlying assets. The underlying asset is usually a moving average or a basket of assets. Equity index options are a form of basket options. Swaps: Swaps are private agreements between two parties to exchange cash flows in the future according to a prearranged formula. They can be regarded as portfolios of forward contracts. The two commonly used swaps are : Interest rate swaps: These entail swapping only the interest related cash flows between the parties in the same currency. Currency swaps: These entail swapping both principal and interest between the parties, with the cash flows in one direction being in a different currency than those in the opposite direction. Swaptions: Swaptions are options to buy or sell a swap that will become operative at the expiry of the options. Thus a swaption is an option on a forward swap. Rather than have calls and puts, the swaptions market has receiver swaptions and payer swaptions. A receiver swaption is an option to receive fixed and pay floating. A payer swaption is an options to pay fixed and receive floating. Uses of Derivatives Derivatives may be traded for a variety of reasons. A derivative enables a trader to hedge some pre-existing risk by taking positions in derivatives markets that offset potential losses in the underlying or spot market. In India, most derivatives users describe themselves as hedgers (Fitch Ratings, 2004) and Indian laws generally require that derivatives be used for hedging purposes only. Another motive for derivatives trading is speculation (i.e. taking positions to profit from anticipated price movements). In practice, it may be difficult to distinguish whether a particular trade was for hedging or speculation, and active markets require the participation of both hedgers and speculators. A third type of trader, called arbitrageurs, profit from discrepancies in the relationship of spot and derivatives prices, and thereby help to keep markets efficient. Jogani and Fernandes (2003) describe Indias long history in arbitrage trading, with line operators and traders arbitraging prices between exchanges located in different cities, and between two exchanges in the same city. Their study of Indian equity derivatives markets in 2002 indicates that markets were inefficient at that time. They argue that lack of knowledge; market frictions and regulatory impediments have led to low levels of capital employed in arbitrage trading in India. However, more recent evidence suggests that the efficiency of Indian equity derivatives markets may have improved (ISMR, 2004). Development of derivatives market in India Derivatives markets have been in existence in India in some form or other for a long time. In the area of commodities, the Bombay Cotton Trade Association started futures trading in 1875 and, by the early 1900s India had one of the worlds largest futures industry. In 1952 the government banned cash settlement and options trading and derivatives trading shifted to informal forwards markets. In recent years, government policy has changed, allowing for an increased role for market-based pricing and less suspicion of derivatives trading. The ban on futures trading of many commodities was lifted starting in the early 2000s, and national electronic commodity exchanges were created. In the equity markets, a system of trading called badla involving some elements of forwards trading had been in existence for decades.6 However, the system led to a number of undesirable practices and it was prohibited off and on till the Securities and Exchange Board of India (SEBI) banned it for good in 2001. A series of reforms of the stock market between 1993 and 1996 paved the way for the development of exchange-traded equity derivatives markets in India. In 1993, the government created the NSE in collaboration with state-owned financial institutions. NSE improved the efficiency and transparency of the stock markets by offering a fully automated screen-based trading system and real-time price dissemination. In 1995, a prohibition on trading options was lifted. In 1996, the NSE sent a proposal to SEBI for listing exchange-traded derivatives. The report of the L. C. Gupta Committee, set up by SEBI, recommended a phased introduction of derivative products, and bi-level regulation ( i.e., self-regulation by exchanges with SEBI providing a supervisory and advisory role). Another report, by the J. R. Varma Committee in 1998, worked out various operational details such as the margining systems. The first step towards introduction of derivatives trading in India was the promulgation of the Securities Laws(Amendment) Ordinance, 1995, which withdrew the prohibition on options in securities. The market for derivatives, however, did not take off, as there was no regulatory framework to govern trading of derivatives. SEBI set up a 24-member committee under the Chairmanship of Dr.L.C.Gupta on November 18, 1996 to develop appropriate regulatory framework for derivatives trading in India. The committee submitted its report on March 17, 1998 prescribing necessary pre-conditions for introduction of derivatives trading in India. The committee recommended that derivatives should be declared as securities so that regulatory framework applicable to trading of securities could also govern trading of securities. SEBI also set up a group in June 1998 under the Chairmanship of Prof.J.R.Varma, to recommend measures for risk control in derivatives market in India. The report, which was submitte d in October 1998, worked out the operational details of margining system, methodology for charging initial margins, broker net worth, deposit requirement and real-time monitoring requirements. The Securities Contract Regulation Act (SCRA) was amended in December 1999 to include derivatives within the ambit of securities and the regulatory framework was developed for governing derivatives trading. The act also made it clear that derivatives shall be legal and valid only if such contracts are traded on a recognized stock exchange, thus precluding OTC derivatives. The government also rescinded in March 2000, the three- decade old notification, which prohibited forward trading in securities. Derivatives trading commenced in India in June 2000 after SEBI granted the final approval to this effect in May 2001. SEBI permitted the derivative segments of two stock exchanges, NSE and BSE, and their clearing house/corporation to commence trading and settlement in approved derivatives contracts . To begin with, SEBI approved trading in index futures contracts based on SP CNX Nifty and BSE-30(Sensex) index. This was followed by approval for trading in options based on these two indexes and options on individual securities. The trading in BSE Sensex options commenced on June 4, 2001 and the trading in options on individual securities commenced in July 2001. Futures contracts on individual stocks were launched in November 2001. The derivatives trading on NSE commenced with SP CNX Nifty Index futures on June 12, 2000. The trading in index options commenced on June 4, 2001 and trading in options on individual securities commenced on July 2, 2001. Single stock futures were launched on November 9, 2001. The index futures and options contract on NSE are based on SP CNX Trading and settlement in derivative contracts is done in accordance with the rules, byelaws, and regulations of the respective exchanges and their clearing house/corporation duly approved by SEBI and notified in the official gazette. Foreign Institutional Investors (FIIs) are permitted to trade in all Exchange traded derivative products. The following are some observations based on the trading statistics provided in the NSE report on the futur es and options (FO): †¢ Single-stock futures continue to account for a sizable proportion of the FO segment. It constituted 70 per cent of the total turnover during June 2002. A primary reason attributed to this phenomenon is that traders are comfortable with single-stock futures than equity options, as the former closely resembles the erstwhile badla system. On relative terms, volumes in the index options segment continues to remain poor. This may be due to the low volatility of the spot index. Typically, options are considered more valuable when the volatility of the underlying (in this case, the index) is high. A related issue is that brokers do not earn high commissions by recommending index options to their clients, because low volatility leads to higher waiting time for round-trips. Put volumes in the index options and equity options segment have increased since January 2002. The call-put volumes in index options have decreased from 2.86 in January 2002 to 1.32 in June. The fall in call-put volumes ratio suggests that the traders are increasingly becoming pessimistic on the market. Farther month futures contracts are still not actively traded. Trading in equity options on most stocks for even the next month was non-existent. Daily option price variations suggest that traders use the FO segment as a less risky alternative (read substitute) to generate profits from the stock price movements. The fact that the option premiums tail intra-day stock prices is evidence to this. Calls on Satyam fall, while puts rise when Satyam falls intra-day. If calls and puts are not looked as just substitutes for spot trading, the intra-day stock price variations should not have a one-to-one impact on the option premiums. SWAP In finance, a SWAP is a derivative in which two counterparties agree to exchange one stream of cash flow against another stream. These streams are called the legs of the swap. Conventionally they are the exchange of one security for another to change the maturity (bonds), quality of issues (stocks or bonds), or because investment objectives have changed. A swap is an agreement to exchange one stream of cash flows for another. Swaps are most usually used to:- Switch financing in one country for financing in another To replace a floating interest rate swap with a fixed interest rate (or vice versa) (Litzenberger, R.H)In August 1981 the World Bank issued $290 million in euro-bonds and swapped the interest and principal on these bonds with IBM for Swiss francs and German marks. The rapid growth in the use of interest rate swaps, currency swaps, and swaptions (options on swaps) has been phenomenal. Currently, the amount of outstanding interest rate and currency swaps is almost $3 trillion. Recently, swaps have grown to include currency swaps and interest rate swaps. It can be used to hedge certain risks such as interest rate risk, or to speculate on changes in the expected direction of underlying prices. If firms in separate countries have comparative advantages on interest rates, then a swap could benefit both firms. For example, one firm may have a lower fixed interest rate, while another has access to a lower floating interest rate. These firms could swap to take advantage of the lower rates. Different types of swaps:- Currency Swaps Cross currency swaps are agreements between counterparties to exchange interest and principal payments in different currencies. Like a forward, a cross currency swap consists of the exchange of principal amounts (based on todays spot rate) and interest payments between counterparties. It is considered to be a foreign exchange transaction and is not required by law to be shown on the balance sheet. In a currency swap, these streams of cash flows consist of a stream of interest and principal payments in one currency exchanged for a stream, of interest and principal payments of the same maturity in another currency. Because of the exchange and re-exchange of notional principal amounts, the currency swap generates a larger credit exposure than the interest rate swap. Cross-currency swaps can be used to transform the currency denomination of assets and liabilities. They are effective tools for managing foreign currency risk. They can create currency match within its portfolio and minimize exposures. Firms can use them to hedge foreign currency debts and foreign net investments. Currency swaps give companies extra flexibility to exploit their comparative advantage in their respective borrowing markets. Currency swaps allow companies to exploit advantages across a matrix of currencies and maturities. Currency swaps were originally done to get around exchange controls and hedge the risk on currency rate movements. It also helps in Reducing costs and risks associated with currency exchange. They are often combined with interest rate swaps. For example, one company would seek to swap a cash flow for their fixed rate debt denominated in US dollars for a floating-rate debt denominated in Euro. This is especially common in Europe where companies shop for the cheapest debt regardless of its denomination and then seek to exchange it for the debt in desired currency. Credit Default Swap Credit Default Swap is a financial instrument for swapping the risk of debt default. Credit default swaps may be used for emerging market bonds, mortgage backed securities, corporate bonds and local government bond. The buyer of a credit default swap pays a premium for effectively insuring against a debt default. He receives a lump sum payment if the debt instrument is defaulted. The seller of a credit default swap receives monthly payments from the buyer. If the debt instrument defaults they have to pay the agreed amount to the buyer of the credit default swap. The first credit default swap was introduced in 1995 by JP Morgan. By 2007, their total value has increased to an estimated $45 trillion to $62 trillion. Although since only 0.2% of Investment Companys default, the cash flow is much lower than this actual amount. Therefore, this shows that credit default swaps are being used for speculation and not insuring against actual bonds. As Warren Buffett calls them financial weapons of mass destruction. The credit default swaps are being blamed for much of the current market meltdown. Example of Credit Default Swap An investment trust owns  £1 million corporation bond issued by a private housing firm. If there is a risk the private housing firm may default on repayments, the investment trust may buy a CDS from a hedge fund. The CDS is worth  £1 million. The investment trust will pay an interest on this credit default swap of say 3%. This could involve payments of  £30,000 a year for the duration of the contract. If the private housing firm doesnt default. The hedge fund gains the interest from the investment bank and pays nothing out. It is simple profit. If the private housing firm does default, then the hedge fund has to pay compensation to the investment bank of  £1 million the value of the credit default swap. Therefore the hedge fund takes on a larger risk and could end up paying  £1million The higher the perceived risk of the bond, the higher the interest rate the hedge fund will require. Credit default swaps are used not only by investment banks, but also by other financial institutions. Corporate entities use credit default swaps either for protection purposes, to hedge or to sell. Investment banks are primarily affected by the buyers. If a number of major corporate entities have bought protection from the same investment bank, and all of them fail simultaneously, this will put pressure on the investment bank to pay out. Moreover, the credit risk caused by the above failure may lead to other risks, such as liquidity risk, market risk and operational risk. Therefore, most of the investment banks re-sell the sold protection on the market to other market participants. Edwards (2004) argues that derivatives do not reduce credit risk, but rather transfer it from banks to other banks or entities. Therefore, most of the investment banks re-sell the sold protection on the market to other market participants. Edwards (2004) argues that derivatives do not reduce credit risk, but rather transfer it from banks to other banks or entities. Some of the top banks in America are carrying unknown gambling risks that no one has warned about, and they are all tied up in U.S. bank derivative portfolios (Edwards M, 2004). Commodity Swap A commodity swap is an agreement whereby a floating (or market or spot) price is exchanged for a fixed price over a specified period. The vast majority of commodity swaps involve oil. A swap where exchanged cash flows are dependent on the price of an underlying commodity. This swap is usually used to hedge against the price of a commodity. Commodities are physical assets such as precious metals, base metals, energy stores (such as natural gas or crude oil) and food (including wheat, pork bellies, cattle, etc.). In this swap, the user of a commodity would secure a maximum price and agree to pay a financial institution this fixed price. Then in return, the user would get payments based on the market price for the commodity involved. They are used for hedging against Fluctuations in commodity prices or Fluctuations in spreads between final product and raw material prices. A company that uses commodities as input may find its profits becoming very volatile if the commodity prices become volatile. This is particularly so when the output prices may not change as frequently as the commodity prices change. In such cases, the company would enter into a swap whereby it receives payment linked to commodity prices and pays a fixed rate in exchange. There are two kinds of agents participating in the commodity markets: end-users (hedgers) and investors (speculators). Commodity swaps are becoming increasingly common in the energy and agricultural industries, where demand and supply are both subject to considerable uncertainty. For example, heavy users of oil, such as airlines, will often enter into contracts in which they agree to make a series of fixed payments, say every six months for two years, and receive payments on those same dates as determined by an oil price index. Computations are often based on a specific number of tons of oil in order to lock in the price the airline pays for a specific quantity of oil, purchased at regular intervals over the two-year period. However, the airline will typically buy the actual oil it needs from the spot market. Equity Swap The outstanding performance of equity markets in the 1980s and the 1990s, have brought in some technological innovations that have made widespread participation in the equity market more feasible and more marketable and the demographic imperative of baby-boomer saving has generated significant interest in equity derivatives. In addition to the listed equity options on individual stocks and individual indices, a burgeoning over-the-counter (OTC) market has evolved in the distribution and utilization of equity swaps. An equity swap is a special type of total return swap, where the underlying asset is a stock, a basket of stocks, or a stock index. An exchange of the potential appreciation of equitys value and dividends for a guaranteed return plus any decrease in the value of the equity. An equity swap permits an equity holder a guaranteed return but demands the holder give up all rights to appreciation and dividend income. Compared to actually owning the stock, in this case you do not have to pay anything up front, but you do not have any voting or other rights that stock holders do have. Equity swaps make the index trading strategy even easier. Besides diversification and tax benefits, equity swaps also allow large institutions to hedge specific assets or positions in their portfolios The equity swap is the best swap amongst all the other swaps as it being an over-the-counter derivatives transaction; they have the attractive feature of being customizable for a particular users situation. Investors may have specific time horizons, portfolio compositions, or other terms and conditions that are not matched by exchange-listed derivatives. They are private transactions that are not directly reportable to any regulatory authority. A derivatives dealer can, through a foreign subsidiary in the particular country, invest in the foreign securities without the withholding tax and enter into a swap with the parent dealer company, which can then enter a swap with the American investor, effectively passing on the dividends without the withholding tax Interest Rate Swap An interest rate swap, or simply a rate swap, is an agreement between two parties to exchange a sequence of interest payments without exchanging the underlying debt. In a typical fixed/floating rate swap, the first party promises to pay to the second at designated intervals a stipulated amount of interest calculated at a fixed rate on the notional principal; the second party promises to pay to the first at the same intervals a floating amount of interest on the notional principle calculated according to a floating-rate index. The interest rate swap is essentially a strip of forward contracts exchanging interest payments. Thus, interest rate swaps, like interest rate futures or interest rate forward contracts, offer a mechanism for restructuring cash flows and, if properly used, provide a financial instrument for hedging against interest rate risk The reason for the exchange of the interest obligation is to take benefit from comparative advantage. Some companies may have comparative advantage in fixed rate markets while other companies have a comparative advantage in floating rate markets. When companies want to borrow they look for cheap borrowing i.e. from the market where they have comparative advantage. However this may lead to a company borrowing fixed when it wants floating or borrowing floating when it wants fixed. This is where a swap comes in. A swap has the effect of transforming a fixed rate loan into a float