Differential swap(redirected from Differential Swaps)
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.