Asset Swap and Liability Swap
Definition
An asset swap is an interest rate swap (IRS) or currency swap used to change the interest rate exposure and/or the currency exposure of an investment. The term is also used to describe the package of the swap plus the investment itself.
A liability swap is an interest rate swap (IRS) or currency swap used to change the interest rate exposure and/or the currency exposure of a borrowing.
How are they used?
An IRS or a currency swap can be used to change the characteristics of a borrowing – for example, from fixed-rate to floating-rate, from floating-rate to fixed-rate, from one floating rate to another (a basis swap), and/or from one currency to another. A swap can equally well be used by an investor to ...
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