Swap Transaction

A swap transaction is an agreement between two parties to exchange a series of cash flows over a specified period, typically involving the exchange of fixed and floating interest rates, currencies, or other financial instruments. Swaps are used for hedging or speculative purposes and are tailored to meet the needs of the parties involved. Common types of swap transactions include interest rate swaps, currency swaps, and commodity swaps.

Example

In a swap transaction, a company agrees to pay a fixed interest rate of 4% in exchange for receiving floating payments tied to LIBOR, helping the company manage interest rate risk.