Currency swap

Similar financial terms

Base Currency
In terms of foreign exchange trading, currencies are quoted in terms of a currency pair. The first currency in the pair is the base currency. The base currency is the currency against which exchange rates are generally quoted in a given country. Examples: CHF/JPY, the Swiss franc is the base currency; EUR/USD, the EURO is the base currency.

Virtual currency option
An option contract introduced by the PHLX in 1994 that is settled in US$ rather than in the underlying currency. These options are also called 3-Ds (dollar denominated delivery).

Soft currency
A currency that is expected to drop in value relative to other currencies.

Reserve currency
A foreign currency held by a central bank or monetary authority for the purposes of exchange intervention and the settlement of inter-governmental claims.

Reporting currency
The currency in which the parent firm prepares its own financial statements; that is, US dollars for a US company.

Multicurrency loans
Give the borrower the possibility of drawing a loan in different currencies.

Multicurrency clause
Such a clause on a Euro loan permits the borrower to switch from one currency to another currency on a rollover date.

Xenocurrency
Xeno means foreign or strange. A Xenocurrency is one that trades outside its domestic boundaries.

Blocked currency
A currency that is not freely convertible to other currencies due to exchange controls.

Currency
Money.

Currency arbitrage
Taking advantage of divergences in exchange rates in different money markets by buying a currency in one market and selling it in another market.

Currency basket
The value of a portfolio of specific amounts of individual currencies, used as the basis for setting the market value of another currency. It is also referred to as a currency cocktail.

Currency future
A financial future contract for the delivery of a specified foreign currency.

Currency option
An option to buy or sell a foreign currency.

Currency risk sharing
An agreement by the parties to a transaction to share the currency risk associated with the transaction. The arrangement involves a customized hedge contract embedded in the underlying transaction.

Currency selection
Asset allocation in which the investor chooses among investments denominated in different currencies.

Eurocurrency
Certificates of Deposit (CDS), eurobonds, deposits, or any capital market instrument issued outside of the national boundaries of the currency in which the instrument is denominated (for example, Euro-Swiss francs, Euro-Deutsche marks, eurodollars, eurodollar bonds, or eurodollar CDS).

Amortizing swap
An interest rate swap with a decreasing notional principal amount.

Volatility swap
A volatility swap is a financial instrument where the realized volatility during an accrual period is exchanged for a fixed volatility. Both percentage volatilities are applied to a notional principal.

Total return swap
A total return swap is an exchange of a return on a debt security for LIBOR plus a spread. The return on the debt security includes income such as coupons and the change in its value.

Swaption
A swaption is an option to enter into an interest rate swap where a specified fixed rate is exchanged for floating.

Swap rate
The fixed rate in an interest rate swap that causes the swap to have a value of zero. It can be thought of as the Internal Rate of Return (IRR) of a swap.

Swap
A swap is an agreement to exchange a series of variable cash flows for a fixed amount of cash flows in the future according to a prearranged formula.

Step-up swap
A swap where the principal increases over time in a predetermined way.

LIBOR-in-Arrears Swap
A swap where the interest paid on a date is determined by the interest rate observed on that date (not by the interest observed on the previous payment date).

Amortizing interest rate swap
Swap in which the principal or national amount rises (falls) as interest rates rise (decline).

Tax swap
Swapping two similar bonds to receive a tax benefit.

Swap sale
A swap sale (also referred to as a swap assignment) is a transaction that ends one counterparty's role in an interest rate swap by substituting a new counterparty whose credit is acceptable to the other original counterparty.

Swap reversal
An interest rate swap designed to end a counterparty's role in another interest rate swap, accomplished by counterbalancing the original swap in maturity, reference rate, and notional amount.

Swap buy-back
The sale of an interest rate swap by one counterparty to the other, effectively ending the swap.

Substitution swap
A swap in which a money manager exchanges one bond for another bond that is similar in terms of coupon, maturity, and credit quality, but offers a higher yield.

Rate anticipation swaps
An exchange of bonds in a portfolio for new bonds that will achieve the target portfolio duration, based on the investor's assumptions about future changes in interest rates.

Put swaption
A financial tool in which the buyer has the right, or option, to enter into a swap as a floatingrate payer. The writer of the swaption therefore becomes the floating-rate receiver/fixed-rate payer.

Pure yield pickup swap
Moving to higher yield bonds.

Liability swap
An interest rate swap used to alter the cash flow characteristics of an institution's liabilities so as to provide a better match with its assets.

Call swaption
A swaption in which the buyer has the right to enter into a swap as a fixed-rate payer. The writer therefore becomes the fixed-rate receiver/floating rate payer.

Circus swap
A fixed rate currency swap against floating U.S. dollar LIBOR payments.