Finance Glossary
Swap
What is a swap?
A swap is an over-the-counter contract established between two parties by which these parties exchange cash flows over a given period. These cash flows can be of different types (rates, currencies, performances, risks, etc.), thus defining the type of swap.
The main types of swaps
There are different types of swaps depending on the type of cash flows exchanged. The most common are:
Interest rate swap
Standard interest rate swaps, floating rate against fixed rate, which exchange between the two parties the interest of a notional loan or deposit at a floating rate against interest at a fixed rate.
Currency swap
Currency swaps (or currency exchange swaps), through which the two parties exchange medium or long-term interest rates denominated in two different currencies.
Performance swap
Performance swaps are contracts in which both parties exchange the performances of various benchmarks: market indices, inflation, volatility.
CDS
CDS (Credit Default Swaps) are specific swaps designed to transfer credit risk between the protection buyer and the protection seller on an underlying asset.