Zero Basis Risk Swap (ZEBRA)

A Zero Basis Risk Swap (ZEBRA) is a type of swap agreement in which two parties exchange cash flows based on the difference between two interest rates. The two interest rates are usually the London Interbank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (EURIBOR).

The ZEBRA swap is used to hedge against the risk of basis risk, which is the risk that the difference between two interest rates will change. For example, if a company has a loan that is based on LIBOR and it wants to hedge against the risk that LIBOR will increase, it could enter into a ZEBRA swap with another party. The company would pay the other party a fixed rate of interest and receive a floating rate of interest based on EURIBOR. If LIBOR increases, the company will pay less interest on its loan, but it will also receive less interest from the ZEBRA swap. Conversely, if LIBOR decreases, the company will pay more interest on its loan, but it will also receive more interest from the ZEBRA swap.

The ZEBRA swap is a relatively new financial instrument, and it is not as widely used as other types of swaps, such as interest rate swaps and currency swaps. However, it can be a useful tool for companies that want to hedge against the risk of basis risk.

Here are some additional details about ZEBRA swaps:

* The ZEBRA swap is a bilateral agreement, which means that it is negotiated between two parties.
* The ZEBRA swap is typically used for hedging purposes, but it can also be used for speculation.
* The ZEBRA swap is a relatively complex financial instrument, and it is important to understand the risks involved before entering into a ZEBRA swap agreement.

If you are considering using a ZEBRA swap, it is important to consult with a financial advisor to make sure that you understand the risks involved and that the ZEBRA swap is the right tool for your needs.