Foundations of Swaps and OTC Derivatives

Unlike exchange-traded futures or options, OTC derivatives are privately negotiated contracts that seldom appear on a public order book — yet they underpin trillions of dollars in daily global risk transfer. For finance professionals, investors, and anyone seeking to understand modern capital markets, OTC instruments are inescapable. By the end of this course you will be able to explain the mechanics of vanilla interest rate swaps, currency swaps, and credit default swaps, describe the role of ISDA master agreements in standardising OTC contracts, and outline how counterparty credit risk differs in OTC markets compared to cleared exchange markets. What you will learn: - What defines an OTC derivative and how it differs structurally from exchange-traded instruments - Interest rate swap mechanics: fixed-for-floating, notional principal, settlement, and use cases - Currency swap structures and how they differ from FX forward contracts - Credit default swaps: protection buyer, protection seller, reference entity, and credit events - The ISDA master agreement: netting, collateral, and close-out provisions - Central clearing and the shift from bilateral to cleared OTC trades post-2008 - How dealers make markets in swaps and how bid-ask spreads reflect credit and liquidity risk - Regulatory context: Dodd-Frank, EMIR, and their impact on OTC reporting and margining The course is structured as a sequence of concept readings followed by worked numerical examples — for instance, tracing a five-year interest rate swap from inception through each settlement date. Case studies examine real-world episodes where OTC derivatives played a central role, including the 2008 financial crisis. Self-assessment exercises after each module let you check comprehension before advancing. This course is designed for finance students, investment analysts, and professionals in related fields who are new to OTC markets. No prior derivatives experience is required, though familiarity with basic interest rate concepts is helpful. This content is purely educational and informational; it does not constitute financial or legal advice and is not a substitute for jurisdiction-specific regulatory or legal guidance.