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Swap
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A Swap is a contract where two parties agree to Exchange their Interest payment liabilities on an agreed amount of each others Debt, for a fixed time period.
There are two basic kinds of Swap transaction; the single-Currency Swap and the cross-Currency Swap.
A single-Currency Swap is an agreement between two parties to Exchange the Basis of servicing the Interest cost on a common principal in the same Currency.
A cross-Currency Swap is an agreement between two parties to Exchange the Basis of servicing of Interest cost in different currencies. With cross-Currency swaps, it is important to recognize that, in addition to exchanging Interest-rate Cash flows or Coupon payments on a Bond, the principal is also swapped at maturity.
An Interest rate Swap is an arrangement in which two parties agree to Exchange periodic Interest payments, at agreed intervals, over an agreed period, but without any principal being paid. The most common and simplest deal involves one party paying a Fixed Rate of Interest and the other paying a floating rate.
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Privatebanking.com
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