Differential swap

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Differential swap

Swap between two LIBOR rates of interest, e.g., yen LIBOR for dollar LIBOR Payments are in one currency.

Differential Swap

A plain vanilla swap in which one of the legs is paid in a currency other than the one in which it is calculated. For example, the notional amount over which the interest rates are calculated may be in U.S. dollars, but one of the payments may be made in yen. A differential swap may be entered in order to take advantage of a favorable exchange rate. See also: Exchange rate risk, Currency swap.
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Diff swaps are also referred to in the trade press as quantity-adjusted swaps (quants), guaranteed exchange rate swaps, LIBOR differential swaps, cross index basis (CRIB) swaps, and switch-libor swaps.
This tutorial looks at differential swaps in detail, examining their features and characteristics and showing how to price these structures.

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