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Introduction to Swap


  • A swap is an agreement between two parties to swap cash flows in the future
  • The arrangement covers swaps on multiple dates
  • Futures or forwards can be considered as a simple example of a swap where there is a cash flow exchange on one particular date
  • Most common swaps are Interest Rate Swaps (IRS) and currency swaps
  • The legal agreement in which the two parties enter is called a confirmation, which covers the termination date, calendar used, rates of payment, day count conventions etc.

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