Swap

What does it mean?
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.

In Other Words...
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.

Related Links
Swaps - More detail on using a swap.

Related Terms
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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