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Description or Characteristic This type of derivative consists of a floating rate debt security in which the coupon rate moves inversely with short-term market interest

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Description or Characteristic This type of derivative consists of a floating rate debt security in which the coupon rate moves inversely with short-term market interest rates, while the discount rate used to value the security moves directly with the short-term market rates. This type of derivative can be used to: (1) hedge against exchange rate fluctuations or (2) obtain less expensive debt by borrowing at the best possible rate, regardless of the currency, and then swapping for debt in the necessary Currency This type of derivative security often serves several useful economic purposes, including: (1) providing opportunities for speculation, (2) allowing for the hedging of risk, and (3) providing additional liquidity to those financial intermediaries that make amortized loans and can then securitize and sell their loans, such as mortgages. With this type of derivative, two parties exchange interest payments but not the principal on their loans. For both borrowers, the principal amount is called the notional principal, and the interest rate for the floating rate component of the transaction is tied to the LIBOR. Type of Derivative Inverse floater Currency swap Structured

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