Bank One Corporation - Page 109

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          interest rate.6  FRAs are different from swaps in that FRAs lack            
          periodic payments.                                                          
                    3.  Types of Swaps in the Marketplace                             
               Swaps in the marketplace during the relevant years consisted           
          primarily of interest rate swaps (sometimes, IRSWs), currency               
          swaps (sometimes, CYSWs), and commodity swaps (sometimes, COMs).7           
          An interest rate swap, the primary swap at issue, is a bilateral            
          agreement calling for the periodic exchange of interest payments            
          ascertained by applying specified interest rates to an agreed-              
          upon notional principal amount.  A currency swap is a bilateral             
          agreement to exchange payments denominated in different                     
          currencies.  A commodity swap is a bilateral agreement to                   
          exchange cashflows ascertained by applying commodity prices to a            
          notional quantity of a particular commodity.                                
               B.  Origin and Growth of the Swaps Market                              
                    1.  Origin of the Market                                          
               The origin of the swaps market is generally traced to a                
          currency swap negotiated between the World Bank and IBM in 1981.            


          6 A forward rate is a rate that the parties to a forward                    
          contract agree will be applied at a future date.  Assume, for               
          example, that a person agrees to borrow money 1 year from today             
          and repay it with 6-percent interest at the end of the second               
          year.  The 6-percent interest rate is a forward rate, and the               
          contract is a forward contract.                                             
          7 During the relevant years, FNBC was a party to each type                  
          of these swaps.  The specific swaps in dispute are FNBC’s                   
          interest rate swaps, currency swaps, and commodity swaps.                   





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