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- Dictionaryswap/swɒp/
verb
- 1. take part in an exchange of: "we swapped phone numbers" Similar
noun
- 1. an act of exchanging one thing for another: "let's do a swap"
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Learn the meaning of swap as a verb and a noun, and see how to use it in different contexts. Find out the synonyms of swap and the related words and phrases in English.
Learn the meaning, synonyms, examples, and history of the word swap, which can be a verb or a noun. A swap is an exchange of one thing for another, such as goods, services, or rights.
SWAP meaning: 1. to give something and be given something else instead: 2. an exchange, or something that is…. Learn more.
- What Is A Swap?
- Swaps Explained
- Other Swaps
- The Bottom Line
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A swap is a derivative contract through which two parties exchange the cash flows or liabilities from two different financial instruments. Most swaps involve cash flows based on a notional principal amount such as a loan or bond, although the instrument can be almost anything. Usually, the principal does not change hands. Each cash flow comprises o...
Interest Rate Swaps
In an interest rate swap, the parties exchange cash flows based on a notional principal amount of an underlying security. The amount of the security itself is not actually exchanged, only the interest rates. Also, the swap can be an amortizing swap, where the underlying principle of a loan will decrease over time. Parties undertake swaps in order to hedge against interest rate risk or to speculate. For example, imagine ABC Co. has just issued $1 million in five-year bonds with a variable annu...
Scenario 1
If LIBOR rises by 0.75% per year, Company ABC's total interest payments to its bondholders over the five-year period amount to $225,000. Let's break down the calculation: In this scenario, ABC did well because its interest rate was fixed at 5% through the swap. ABC paid $15,000 less than it would have with the variable rate. XYZ's forecast was incorrect, and the company lost $15,000 through the swap because rates rose faster than it had expected.
Scenario 2
In the second scenario, LIBOR rises by 0.25% per year: In this case, ABC would have been better off by not engaging in the swap because interest rates rose slowly. XYZ profited $35,000 by engaging in the swap because its forecast was correct. This example does not account for the other benefits ABC might have received by engaging in the swap. For example, perhaps the company needed another loan, but lenders were unwilling to do that unless the interest obligations on its other bonds were fixe...
The instruments exchanged in a swapdo not have to be interest payments. Countless varieties of exotic swap agreements exist, but relatively common arrangements include commodity swaps, currency swaps, debt swaps, and total return swaps.
A swap is a derivative contract where one party exchanges or "swaps" the cash flows or value of one asset for another. For example, a company paying a variable rate of interest may swap its interest payments with another company that will then pay the first company a fixed rate. Swaps can also be used to exchange other kinds of value or risk like t...
A swap is a derivative contract that exchanges cash flows or liabilities from two different financial instruments. Learn about interest rate swaps, commodity swaps, currency swaps, and how to calculate gains and losses from swaps.
Learn the meaning and usage of the word swap, which can be a verb or a noun. See synonyms, examples, and word history of swap.
1. An exchange of one thing for another. 2. A contract in which two parties agree to exchange periodic interest payments, especially when one payment is at a fixed rate and the other varies according to the performance of a reference rate, such as the prime rate. [Middle English swappen, to strike, strike the hands together in closing a bargain .]
Learn the meaning, pronunciation, synonyms, and usage of the word swap in British and American English. Swap is a verb that means to exchange or trade something or someone for another, or a noun that refers to such an exchange.
