Swaps are off-balance-sheet transactions involving two or more basic building blocks. Most swaps currently traded in the market involve combinations of cash-market rates and indexes—for example, a fixed-rate security combined with a floating-rate one, with a currency transaction perhaps thrown in. Swaps also exist, however, that have futures, forward, or option components.
The market for swaps is overseen by the International Swaps and Derivatives Association (ISDA). Swaps are among the most important and useful instruments in the debt capital markets. They are used by a wide range of institutions, including commercial banks, mortgage banks and building societies, corporations, and local governments. Demand for them has grown ...