An agreement between two parties to exchange interest rates, asset performances or prices or almost any economic values on a preset date in the future. This swap allows investors to hedge risk expected to arise at a future date. For example, this agreement may involve swapping interest rates beginning in three months and lasting for a specific period of time (say six months). Such a swap could be an interest rate swap or a cross-currency swap in which payments are put off till a specified time in the future. That is, the parties to the swap don’t begin exchanging interest payments at the trade date, but rather specify a value date some time in the future.
January 21, 2025
