swap
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Swap
Swap
swap
swap
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;- product swaps: individual A offers potatoes to individual B in exchange for a bicycle. See BARTER;
- 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;
- 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;
- 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:- product swaps: individual A offers potatoes to individual B in exchange for a bicycle. See BARTER;
- 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;
- 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.