Advanateges:
· Low financing cost due to lower transaction costs
· Quick and anonymous execution in OTC markets with no regulations, and anonymity.
· Allow to hedge over longer time horizons.
· Allow custom designed contract (historically , exploit perceived market inefficient is not possible today as the market is getting matured and offered few arbitrage apportunities)
· Comparative advantage
Limitations:
· difficult to find counterparties
· difficult tohttp://cfa-studynotes.blogspot.com/2009/01/characteristics-of-swaps.html alter or terminate once initiated
· other counterparties exposes to default risk (most important among the limitations)
· Swaps usually limited to small no of firms , financial institutions, swap facilitator.
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