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Technology Stocks : DELL Bear Thread -- Ignore unavailable to you. Want to Upgrade?

To: lin luo who wrote (1708)	8/27/1998 10:40:00 PM
From: lin luo	Respond to of 2578

-------OT-----swaps I am not an expert on this thing (I could, but not worth it), I will try to explain it from my best knowledge. The banks are usually a middleman. The customers depending on their needs usually call the bankers to hedge or gamble their assets (or just nothing). It is really just OTC buy/sell like regular buy/sell stocks on the markets. The difference is that the liquidity or the form of trades are not available on the regular markets. Let us say we gamble on crude oil spreads through Merrill Lynch. Merrill plays the middleman to take the deal. If the deal is done (usually it is very hard to make) Merrill either hedges in the open markets or finds another client to take it. So, the two sides do not know each other. Both sides has to sign a Master agreement with Merrill. What will be the problem? When one side loses too much and can not pay the bankers, it will find an excuse to default. These excuses include either the Master agreement is not signed by the right people, or the terms are not clear, etc. So, in this case Merrill has to take the loss and keeps the agreement with the other party. That is how the bankers will lose in case of default. The end results will be either settled in court or delay in payments.