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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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.

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).

Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson

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.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005
References in periodicals archive ?
A bond swap is a common technique used to accomplish a variety of objectives.
At the time the swap contract was executed, Risk Adverse, Inc.
"And, it might be a coincidence, but I find the children are sleeping much better since we began Sugar Swaps. Usually put them to bed and they are up again and downstairs within half an hour.
"We'll definitely be continuing with some of the swaps. I'm happy it's helping cut down the sugar intake for my family."
Javelin SEF, LLC is a derivatives execution platform for interest rate swaps. The company offers both anonymous electronic and voice-hybrid methodologies for trade execution and works with several execution partners to ensure optimal liquidity for its diverse customer base.
The decreased capital inflows last year has resulted to lower FX swap positions and reduced gross international reserves, following almost three years (2010 to 2012) of capital inflow surges as capital looked for markets with good yields such as the region's emerging markets.
"I want to understand as best you can help me to understand it what the considerations were that led to the agreement to buy out the swaps at 75 percent as opposed to some other percentage," Rhodes said.
One of the key goals of the Dodd-Frank Act was to expose the previously dark and opaque swaps market to greater transparency to the regulators and public.
This finding is potentially significant because retirement plan fiduciaries who wish to engage in swaps must make sure a statutory or class exemption is available to prevent a nonexempt prohibited transaction.
Swap Negotiators acts as an intermediary between borrowers and their banks on all types of swap transactions (executing, modifying, unwinding and assigning).
It is important to note here that while foreign exchange (FX) forwards and EX swaps, as well as all swaps that a corporate entity declares the end-user exception for, are exempt from clearing rules; they are not exempt from the reporting requirements to a Swap Data Repository (SDR).