The exchange of one entitlement for another. They can be interest-rate swaps (the larger category) or cross-currency swaps. With interest-rate swaps two parties swap their form of borrowings (they do not exchange principal amounts) because the interest-rate structure of each suits the other better; for example, a borrower with fixed-rate funds could swap with another for floating-rate payments. interest-rate swaps are used either to achieve lower borrowing costs or to gain entry to fixed-rate markets that would otherwise be inaccessible or too expensive. interest-rate swaps can also be used to back up a view of interest rates, eg, a borrower may swap from fixed to floating rates if he or she believes that rates are likely to fall. See also: amortising swap, annuity swap, asset-based swap, basis swap, blended interest-rate swap, callable swap, cocktail swap, commodity swap, currency swap, deferred payment swap, discount swap, dual-coupon swap, dual-currency swap, fixed-fixed currency swap, fixed-floating rate swap, in-arrears swap, non-par swap, puttable swap, rate differential swap, rollercoaster swap, step-down swap, step-up swap, unmatched swap, zero-coupon swap.
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