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In turn, it pays a floating rate like Libor. The global swaps market approaches $350 trillion.
According to the Bank for International Settlements:
"(I)nterest rate swaps are the largest component of the global OTC derivatives market.""The notional amount outstanding as of June 2009 in OTC interest rate swaps was $342 trillion, up from $310 trillion in Dec 2007."
"The gross market value was $13.9 trillion in June 2009, up from $6.2 trillion in Dec 2007."
In theory, it lets lenders and borrowers minimize the risk of interest rate changes. It doesn't always work that way.
Nonetheless, without a mechanism in place, banks might not lend at fixed rates. They pay depositors floating ones. If rates rise, so do costs. If they exceed revenues, crises follow.
Predatory Capitalism Failed
Rodney Shakespeare is Professor of Binary Economics at Trisakti University, Britain. He's a financial expert. He's a regular on the Progressive Radio News Hour.
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