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Derivatives

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  • July 2, 2020
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ZCS

It stands for zero-coupon swap; an inflation-indexed swap whereby a single fixed payment is due at the unique (final) payment date for the fixed rate leg in exchange for a series of usual floating payments at successive reset dates. Differently stated, the zero-coupon swap is an interest rate swap in which the fixed rate leg is based on a zero-coupon bond. The bondholder would be required to make that final payment at maturity. Mismatching of payment on each leg exposes one counterparty to a substantial default risk.


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