Swap

Definition

• An agreement between two businesses to exchange commodities, payments or other financial products to reduce the risk of volatile market conditions or to obtain a better price or rate. For example, interest rate swaps, where floating rate interest is exchanged for fixed rate interest, protects a corporation against rises in rates or allows it to take advantage of a better rate. A cross-currency swap enables two parties to enter into an agreement in which one exchanges its currency for the other's to meet their separate requirements.

Synonyms
change, interchange, trade, exchange, switch

Related Terms and Acronyms

• Boot — Definition,
  • Cash or other property used in an exchange to make the values of property traded equal. For instance, if you trade in a delivery truck on a new model, the cash you pay in addition to your old truck is boot.
• Collusion — Definition,
  • A secret, deceitful agreement by two or more parties to defraud others.
• Debt — Definition,
  • Money one person or firm owes to another person or firm.
• Derivatives — Definition,
  • Financial contracts whose value is derived from the value of some underlying asset, rate or index. Derivatives are used as risk-management tools by governments and corporations to reduce exposure to risk, mainly related to fluctuations in foreign-exchange and interest rates. Derivative instruments include swaps, options, futures and forward contracts and are used by banks in two principal activities: sales/trading and asset/liability management.
• Equity — Definition,
  • Ownership in an asset.
  • The value of a property minus outstanding mortgage debt and other liens.
• Exchange — Definition,
  • A trade of property for other property or services. Like-kind property exchanges are a popular tax-deferral strategy.
• Loss — Definition,
  • When expenses are larger than revenues.
• Profit — Definition,
  • When revenues exceed expenses.
• Security — Definition,
  • Property designated as collateral.
  • A document stating ownership of a stock or bond.
  • A tradable financial implement that represents ownership, the rights to ownership or debt.
• Stock — Definition,
  • A share of the ownership of a company.
• Trade Equity — Definition,
  • A swap of property, such as real estate or a car, as part of a down payment for other real estate.