Bank One Corporation - Page 87

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          II.  The Swaps Business                                                     
               A.  Swaps in General                                                   
                    1.  Definition of a Swap                                          
               A swap is a bilateral agreement obligating the parties                 
          (often referred to as counterparties) to exchange at specified              
          intervals (e.g., monthly, quarterly, semiannually) cashflows                
          ascertained from applying specified financial prices (e.g.,                 
          interest rates, currency rates) to a specified underlying amount.           
          The specified underlying amount is either a notional principal              
          amount which is not exchanged (as usually occurs when the subject           
          matter of the swap is interest rates) or an amount which may                
          actually be exchanged (as usually occurs when the subject matter            
          of the swap is currency rates).  The exchange of cashflows at the           
          periodic intervals is sometimes referred to as “periodic                    
          payments” and is usually done on a net settlement basis.  Each              
          party to a swap bears the risk that its counterparty will default           
          on its obligation to make a periodic payment, and, thus, that it            
          (the party) will not receive a periodic payment owed to it by the           
          counterparty.                                                               
                    2.  Swaps Are Derivative Financial Products                       
               Swaps are derivative financial products (financial                     
          derivatives).  A financial derivative is a bilateral agreement              
          the value of which is derived (as implied by its name) from the             
          performance of an underlying asset, reference rate, or index.               






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