Interest Rate Swaps: Uses

Why do market participants use interest rate swaps? The interest rate swaps market has grown from its beginnings in the early 1980s to become the largest derivatives market in the world due to the comparative advantage that swaps can give to both counterparties to the transaction. We explain this idea of comparative advantage, describe the concepts of brokering and warehousing when looking to match swap counterparties, and briefly look at the effects of electronic trading and financial reforms on the swaps market.