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Swap

Traditionally, the exchange of one security for another to change the maturity (bonds), quality of issues (stocks or bonds), or because investment objectives have changed. Recently, swaps have grown to include currency swaps and interest rates swaps.

Notes:

If firms in separate countries have comparative advantages on interest rates, then a swap could benefit both firms. For example, one firm may have a lower fixed interest rate, while another has access to a lower floating interest rate. These firms could swap to take advantage of the lower rates.

See also: Basis Rate Swap, Bond Swap, Commodity Swap, Credit Default Swap, Currency Swap, Interest Rate Swap, Non Deliverable Swap - NDS, Swap Spread, Total Return Swap, Variance Swap, Volatility 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.

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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.

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swap

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