swap

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Swap

An arrangement in which two entities lend to each other on different terms, e.g., in different currencies, and/or at different interest rates, fixed or floating.

Swap

The exchange of two securities, interest rates, or currencies for the mutual benefit of the exchangers. For example, in an interest rate swap, the exchangers gain access to interest rates available only to the other exchanger by swapping them. In this case, the two legs of the swap are a fixed interest rate, say 3.5%, and a floating interest rate, say LIBOR + 0.5%. In such a swap, the only things traded are the two interest rates, which are calculated over a notional value. Each party pays the other at set intervals over the life of the swap. For example, one party may agree to pay the other a 3.5% interest rate calculated over a notional value of $1 million, while the second party may agree to pay LIBOR + 0.5% over the same notional value. It is important to note that the notional amount is arbitrary and is not actually traded.

swap

A contract in which two parties agree to exchange periodic interest payments. In the most common type of swap arrangement, one party agrees to pay fixed interest payments on designated dates to a counterparty who, in turn, agrees to make return interest payments that float with some reference rate such as the rate on Treasury bills or the prime rate. Also called interest rate swap. See also counterparty risk.

swap

To trade one asset for another. Also called exchange, substitute, switch.

Swap.

When you swap or exchange securities, you sell one security and buy a comparable one almost simultaneously.

Swapping enables you to change the maturity or the quality of the holdings in your portfolio. You can also use swaps to realize a capital loss for tax purposes by selling securities that have gone down in value since you purchased them.

More complex swaps, including interest rate swaps and currency swaps, are used by corporations doing business in more than one country to protect themselves against sudden, dramatic shifts in currency exchange rates or interest rates.

swap

the bilateral (and multilateral) exchange of a product, business asset, interest rate on a financial debt, or currency for another product, business asset, interest rate on a financial debt, or currency, respectively;
  1. product swaps: individual A offers potatoes to individual B in exchange for a bicycle. See BARTER;
  2. business asset swaps: chemical company A offers its ethylene division to chemical company B in exchange for B's paint division. This enables both companies to divest (see DIVESTMENT) parts of their business they no longer wish to retain while simultaneously entering, or strengthening their position in, another product area;
  3. INTEREST-RATE swaps on financial debts: a company that has a variable-rate debt, for example, may anticipate that interest rates will rise; another company with fixed-rate debt may anticipate that interest rates will fall. It therefore contracts to make variable interest-rate payments to the first company and in exchange is paid interest at a fixed rate. Interest-rate swaps may be undertaken simultaneously on a variety of debt instruments thereby enabling corporate treasurers to lower the company's total interest payments;
  4. currency swap: the simultaneous buying and selling of foreign currencies. This can take two main forms: a spot/forward swap (the simultaneous purchase or sale of a currency in the SPOT MARKET coupled with an offsetting sale or purchase of the same currency in the FORWARD MARKET); or a forward/forward swap (a pair of forward currency contracts involving a forward purchase and sale of a particular currency which mature at different future dates).

Currency swaps are used by firms which trade internationally to minimize the risk of losses arising from exchange rate changes (see EXCHANGE RATE EXPOSURE).

swap

the exchange of a product, interest rate on a financial debt, or currency for another product, interest rate on a financial debt, or currency respectively:
  1. product swaps: individual A offers potatoes to individual B in exchange for a bicycle. See BARTER;
  2. INTEREST RATE swaps on financial debts: a company that has a variable-rate debt, for example, may anticipate that interest rates will rise; another company with fixed-rate debt may anticipate that interest rates will fall. The second company therefore contracts to make variable-interest rate payments to the first company and in exchange is paid interest at a fixed rate. Interest rate swaps may be undertaken simultaneously on a variety of debt instruments, thereby enabling corporate treasurers to lower the company's total interest payments;
  3. currency swaps: the simultaneous buying and selling of foreign currencies. This can take two main forms: a spot/forward swap (the simultaneous purchase or sale of a currency in the SPOT MARKET coupled with an offsetting sale or purchase of the same currency in the FUTURES MARKET); or a forward/forward swap (a pair of forward currency contracts, involving a forward purchase and sale of a particular currency which mature at different future dates).

Currency swaps are used by firms that trade internationally to minimize the risk of losses arising from exchange rate changes (see EXCHANGE RATE EXPOSURE). See DERIVATIVE.

References in periodicals archive ?
Of course, this does leave the safety onus on the swapper, something PDX Food Swap organizer Bethany Rydmark says is worth it.
We will all set it out on the tables so swappers will have some time to look at and taste what is on offer, before indicating what they would like.
Management trainer Marylou, 49, and IT company executive Roger, 50, found their fellow swappers looked after their home very well.
The designer rail auction, where swappers could set their own reserve price, included a stylish Diane Von Furstenberg skirt which sold for just pounds 20.
TELECOMWORLDWIRE-25 May 2004-European file swappers continuing to trade illegally despite lawsuits(C)1994-2004 M2 COMMUNICATIONS LTD http://www.
Trade group the British Phonographic Industry has announced that it may begin to sue Internet song swappers as part of its campaign against online piracy.
The Recording Industry Association of America recently mounted a get-tough policy against illegal online file swappers.
File swappers beware: A federal judge has made it easier for the recording industry to pursue people who download copyrighted material, in January, the judge ordered Verizon Communications to disclose the identity of an Internet subscriber suspected of making available unauthorized copies of several hundred songs.
The sites ask women to clean the containers with alcohol before sending them, and trader profiles give the positive or negative histories of past swappers.
SPEEDING points swappers Chris Huhne and Vicky Price should have spent longer in jail, the Justice Secretary said yesterday.
HOST: Louise Redknapp is a fan of sharing clothes with her pals ON YOUR MARKS: Louise Redkapp makes the final preparations before the swap begins FASHION HUNTERS: Clothes swappers check out the racks at the fashion event at the Pan-Am Bar Pictures: JASON ROBERTS
FUNDRAISERS: Naomi Gate with son Benji and organisers, right; swappers, above Pictures by IAN McINTYRE and PETER REIMANN