Swaps

A swap is an agreement to exchange streams of payments, most often fixed interest for floating interest. Here is how interest rate swaps work, why companies use them and how total return swaps played a role in a famous 2021 collapse.

Trading payment streams

In a swap, two parties agree to exchange cash flows over time based on a notional amount that itself never changes hands. Interest rate swaps are the largest part of the private derivatives market, measured in hundreds of trillions of dollars of notional value.

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