Swap is a new invention in the arena of finance. Expansion business and integration financial institutions have given a special importance to swap as tool for hedging risk.
A swap is an agreement between two companies to exchange cash flows in the future to protect their positions from different risks. The agreement defines the dates when the cash flows are to be paid and the way in which they are to 9 be calculated. Usually the calculation of the cash flows involves the future values of one or more market variables.
Most swaps involve either interest payment or currencies. The first swap contract was negotiated in the early 1980s.
Swap is an agreement for an exchange of payments between two counterparties at some point(s) in the future and according to a specified formula.