A market in which a borrower with one type of loan exchanges it with another borrower with a different type of loan.

Each borrower is looking for an advantage that the original loan did not have, for example that the loan is in a particular currency, has a particular interest rate etc.

Common types of swap include: (1) Currency swap: The idea of comparative advantage is what fuels a currency swap which has two primary uses. One is to get inexpensive debt by borrowing at the best rate in the market irrespective of currency and then exchanging for debt in the currency that an investor wants. The second use is to lessen the exposure to movements in theexchange rate which is also a way to hedge. (2) Debt swap: A transaction in which the obligations (debts) of a company or individual are exchanged for something of value (equity). In the case of a publicly-traded company, this would generally entail an exchange of bonds for stock. The value of the stocks and bonds being exchanged are typically determined by the market at the time of the swap. (3) Debt to equity swap: exchange of a foreign debt for a stake in the debtor country's national enterprises. The resulting hybrid transaction enables the borrower to transform loans into shares of stock, or equity. Most commonly, a financial institution holds the new shares after the original debt is transformed to equity shares. (4) Interest rate swap: The basic structure of an interest rate swap consists of the exchange between two counterparties of fixed rate interest for floating rate interest in the same currency calculated by reference to a mutually agreed notional principal amount. This principal amount, which would normally equate to the underlying assets or liabilities being swapped by the counterparties, is applicable solely for the calculatio n of the interest to be exchanged under the swap.

Q2. Write a detailed note on international stock exchange?

A stock exchange is a form of exchange which provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and dividends. Securities traded on a stock exchange include stock issued by companies, unit trusts, derivatives, pooled investment products and bonds. Stock exchanges often function as "continuous auction" markets, with buyers and sellers consummating transactions at a central location, such as the floor of the exchange. Organized and regulated financial market where securities (bonds, notes, sh ares) are bought and sold at prices governed by the forces of demand and supply. Stock exchanges basically serve as (1) primary markets where corporations, governments, municipalities, and other incorporated bodies can raise capital by channeling savings of the investors into productive ventures; and (2) secondary markets whereinvestors can sell their securities to other investors for cash, thus reducing the risk of investment and maintaining liquidity in the system. The first stock exchange was opened in Amsterdam in 1602; the three largest exchanges in the world are (in the descending order) New York Stock Exchange (NYSE), London Stock Exchange (LSE), and the Tokyo Stock Exchange(TSE). The National Stock Exchange of India Ltd. (NSE) is the INDIAs leading stock exchange located in the financial capital of Mumbai, India. National Stock Exchange (NSE) was established in the mid 1990s as a demutualised electronic exchange. NSE provides a modern, fully automated screen-based trading system, with over two lakh trading terminals, through which investors in every nook and corner of India can trade. NSE has played a critical role in reforming the Indian securities market and in bringing unparalleled transparency, efficiency and market integrity.