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
trade, interchange, switch, change, exchange

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,
    • The value of a property minus outstanding mortgage debt and other liens.
    • Ownership in an asset.
  • 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 tradable financial implement that represents ownership, the rights to ownership or debt.
    • A document stating ownership of a stock or bond.
  • 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.
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