CAN YOU GIVE ME AN EXAMPLE OF A SWAP? - ProProfs Discuss
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Can you give me an example of a swap?



Asked by Ruby, Last updated: Sep 29, 2021

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John Smith

John Smith

John Smith
John Smith

Answered Sep 08, 2016

Heres an example. party a and party b enter into a swap in which party a makesfloating rate payments to party b, and party b makes fixed rate payments to party a.whats actually exchanged between the two is the net difference between the fixedandfloating-rate cash flow. as the floating rate changes through the life of the swapwith fluctuations in market rates, the net amount exchanged between the two partiesalso changes. if market rates rise, the party that has contracted to pay the floating ratewill likely be the loser. if market rates fall, the party that has contracted to pay the fixedrate will likely be the loser. the losing party makes payments to the winning partybased on the difference between the rates.this subject is covered fully in the derivatives fundamentals course.
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