
|
|
![]() | ![]() | ![]() | ![]() |


Swap |

Suggest other news sources for this topic

| This article is part of WikiProject Definitions. Consider editing to improve it. View articles referencing this definition. |
A swap is a derivative in which counterparties exchange certain benefits of one party's financial instrument for those of the other party's financial instrument. For example, in the case of a swap involving two bonds, the benefits in question can be the periodic interest (or coupon) payments associated with the bonds. Specifically, the two counterparties agree to exchange one stream of cash flows against another stream. These streams are called the legs of the swap. The swap agreement defines the dates when the cash flows are to be paid and the way they are calculated. Usually at the time when the contract is initiated at least one of these series of cash flows is determined by a random or uncertain variable such as an interest rate, foreign exchange rate, equity price or commodity price.
Swaps can be used to hedge certain risks such as interest rate risk, or to speculate on changes in the expected direction of underlying prices.



| |||||||