222

$show=home

Welcome to Accounting Education

The Accounting University with 3400+ Accounting contents as study material which can watch, read and learn anyone, anywhere.

Start your studies

$show=home

Journal Entries $type=three$count=6$author=hide$comment=hide$label=hide$date=hide$show=home$s=0

Balance Sheet $type=three$count=6$author=hide$comment=hide$label=hide$date=hide$show=home$s=0

What is Swap in Finance

If you have studied finance books in your business school, you have surely studied different swaps like currency swap, credit default swap and interest rate swap. But still, one question is important, what is its definition which you can use for learning other advance concepts of swap.


Definition of Swap 

Swap is the contract of exchange of cash flow by exchanging of one financial instrument into other financial instrument. For example, you have some bonds of a company which have big losses, so, there is big chance of loss in these bonds. This company is still giving to you the interest. So, you have still tax liability. You just go to derivative market and sell this bonds on loss and buy other company's bond which is performing well. This is swap contract. Your are selling your financial instrument and buying other financial instrument by exchanging net cash flow of profit or loss in this transaction. But main aim of saving from big losses. Swap will always in cash contract. It never in future or forward or option contract.




Types of Swap 


1. Currency Swap 

Currency Swap is an agreement between two parties of two countries for exchanging of principle and interest of loan at its present value. This swap is very useful for controlling foreign exchange risk. Interest rate swap is different from currency swap, because in interest rate swap, we just exchange the interest from fixed to floating rates but in currency swap, we both principle and interest of loan is exchanged from one party to another party for mutual benefits. Read more at here


2. Credit Default Swap 

Suppose, I gave $ 10 million loan to A.  This is my asset. If A will become defaulter, what will happen with my $ 10 million investment in the form of loan. It will become Zero. I am also noble personality and I can not quarrel with A. So, I contract with an insurance company and buy credit swap policy. Now, I am tension free. If my borrower will not repay my loan, my $ 10 million loan will be repaid by insurance company. So, like interest rate swap, credit default swap is exchange agreement between insurance company and lender. Insurance company takes the risk of loss due to loan defaulting. Lender will be responsible to pay the amount of CDS policy. Read more at here


3. Interest rate swap

Interest rate swap is contract between two companies through any financial intermediary. This contract is of exchange of  interest rate. In this contract, one company exchanges his fixed interest rate in to floating interest rate and other company exchanges his floating interest rate in to fixed interest rate. This deal is done in international money market or by derivative in OTC market. This is good way to hedge in the fluctuation of interest rates. Main aim of interest rate swap to reduce the cost of debt.   Read more at here


4. Bond Swap 

Bond swap is the exchange of two swap and different between the price will also exchange in net cash flow from one party to other party. One will be the seller of bond. Same time, he will also the buyer of bonds to whom, he is selling his bond. Net difference between the sale price and purchase price will be paid through cash. This contract will be bond swap.


5. Commodity Swap 

Commodity swap is the swap of prices of any commodity. We know that both buyer and seller are not interested to suffer loss due to changes in the market price of commodity. If commodity price will increase, buyer will always cry. If commodity price will decrease, seller will always cry. So, through hedging, we can reduce this risk. Commodity swap is the great tool of hedging of commodity prices. In this swap agreement, buyer and seller lock the price by net cash flow to each other. For example, buyer want to buy at $ 100 per litre petrol and seller want to sell at $ 150 per litre petrol. If both agree to do commodity swap agreement, they agree to lock prices at $ 120 if buyer will pay $ 20 advance to seller. In future, seller will not increase prices whether market will increase the price or not. 

Comments

 


Name

access,2,account,86,accountant,95,Accounting,683,accounting definitions,99,accounting ebook,3,Accounting education,85,Accounting Education Ads Help,1,accounting procedure,2,accounting process outsourcing,2,Accounting Software,52,advance,3,advertising,6,africa,7,Amalgamation,6,amendments,16,Amortization,1,announcements,62,Annuity,2,assets,53,audit,47,auditing,41,Australia,2,B.Com.,22,balance sheet,87,bank,111,Bank reconciliation,12,banking,33,basic accounting,110,BBA,1,benefits,13,best,50,bill,12,black money,3,blog,12,bloggers,7,book keeping,4,bookkeeping,3,Branch Accounting - full tutorial,8,budget,35,Budget variance,13,business,65,businessman,9,CA,30,calculator,4,canada,3,capital,72,capital budgeting,27,career,21,cash,40,cash book,8,cash flow statement,11,Chiense,1,children,13,china,6,class,3,coaching,2,coins,2,college,6,commerce,10,commerce students,7,company,36,computer,9,computer accounting,1,conference,4,Contact vinod kumar,1,Control Your Spending,27,corporate accounting,69,cost,160,cost accounting,195,cost center,8,cost centre,1,CPA,2,credit,18,credit card,11,cs,10,currency,35,data,11,Debit and credit,17,debit cards,1,debt,62,debtor,21,degree,6,depletion,2,depreciation,38,Diwali Messages,12,documents,4,dollar,5,domain,3,Downloads,3,Dubai,1,e-accounting,17,earning,17,education,246,Education Loans,6,email,15,employee,4,EPF,2,ERP,7,euromoney,1,examination,7,excel,17,excise duty,6,expenses,65,facebook,7,factor of loan,1,fans,2,feature,32,fifo,5,FII,4,fiji,1,finacle,1,finance,823,Finance Journal Entries,6,Financial,134,financial accounting,147,Financial Statements,4,fire insurance,3,flickr,2,flow,4,forensic,4,forex,21,formula,8,france,1,fraud,6,free,2,fun,34,function,1,fund,48,GAAP,36,GDP,1,gdr,5,germany,1,gold,7,goodwill,4,goodwill accounting,3,google,34,google apps,3,google apps,1,google base,1,google buzz,1,google calendar,1,Google docs,38,google finance,3,google fusion tables,1,google talk,5,govt.,5,GST,33,guide,85,health,6,Hindi,2,Hindi Language,3,history,3,holding company,3,How to treat FBT in Tally 9,1,HRA,3,ICAI,11,ICAWI,3,ICICI Bank,1,IFRS,11,income,17,income statement,19,Income Tax,7,India,57,indian railway,1,Indonesia,1,inflation,4,inflation accounting,3,infographics,8,information,7,inspiration,176,insurance,14,insurance accounting,2,Intangible,3,interest,26,international,7,Internet,40,Introduction of Tally 9,1,inventory,41,investment,135,investment in Shares,6,invoice,3,IT,1,Japan,1,Job costing,4,journal entries,143,Journal Entries eBook Help,4,Kalculate,1,keyboard,3,kuwait,2,laptop,2,law,4,LBT,1,learning,36,lease,5,lecture,11,ledger,17,leducation,1,Leverage Analysis,7,liabilities,16,lifo,3,linkedin,1,loan,74,logical point,1,loss,5,loss of profit,1,M.Com.,5,m.phil,2,malaysia,3,management accounting,129,manual accounting,4,manufacturing account,1,market,11,marketing,3,mastercard,2,material,13,MBA,14,MCA,1,media,4,migration,2,mobile,9,money,61,ms word,3,ms. excel,14,multi currency in tally 9,1,Multicurrency Accounting,3,mutual fund,30,national security,1,new and sacrifice ratio,1,new york times,1,new zealand,1,news,1,NGO,5,nonprofit-accounting,6,North Georgia Mountains,1,Notification,1,NPV,17,NSE,1,odbc,2,office,10,oman,1,online application,2,online accounting,11,Online Accounting Course,5,otcei,1,pakistan,3,parents,3,Partnership,1,pay pal,3,pdf,4,Personal Finance,6,pie chart,1,pie chart of income,2,pnb,5,podcast,1,ppf,1,presentation,10,price,7,privacy policy,2,prof. vinod kumar,13,profit,24,profit and loss account,12,project management,11,provision,14,purchase,9,puzzles,2,quickbooks,2,Quote,22,quotes,42,quotes of svtuition,1,rating agency,2,ratio analysis,34,RBI,7,readers,13,real estate,13,rectification of errors,11,remote control,2,reports,10,reserves,8,responsibility accounting,4,retirement,2,revenue,3,Revenue reserves,2,review,7,risk,11,rupees,9,salary,5,sale,12,SAP,3,saudi arabia,1,saving,19,sbi,9,scholarship,2,school,1,SEBI,13,security,30,service tax,23,share,20,share trading,15,Shares,16,shri lanka,3,singapore,2,sms,6,social accounting,7,society,5,solution,219,South Africa,1,stock,24,stock exchange,22,structure,6,student,39,students,70,study,21,subsidiary company,2,svtuition,14,swiss bank,2,tally,100,tally 9,8,Tally 7.2,8,Tally 9,42,Tally.ERP 9,59,TallyPrime,1,tanzania,2,tax,94,Tax Accounting,30,TDS,15,teacher,62,teaching,112,technology,33,test,40,testimonial,15,testimonials,15,thailand,1,tips,60,trading,5,trading on equity,2,transaction,7,trend,12,trial balance,14,truthfulness,1,tuition,3,twitter,10,UAE,5,UGC - NET Commerce,13,UK,11,United Arab Emirates,1,university,9,usa,25,valuation,9,VAT,22,Video,36,Voucher and vouching,4,Wealth,8,wikipedia,25,working capital,29,youtube,14,
ltr
item
Accounting Education: What is Swap in Finance
What is Swap in Finance
https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhdX27L_yL01cMt3X0-SqzKl2qXg61sxxeh0KkFFSv8gjkxlxop9j29t4zEFTrMGd8ixdIrA38toKAglP1YMqS64-4qVamSR3QamzQy-Fl_FP9oI7SHusm2ED7vJpKzm76M0j7x3m-0H44/s640/swap.PNG
https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhdX27L_yL01cMt3X0-SqzKl2qXg61sxxeh0KkFFSv8gjkxlxop9j29t4zEFTrMGd8ixdIrA38toKAglP1YMqS64-4qVamSR3QamzQy-Fl_FP9oI7SHusm2ED7vJpKzm76M0j7x3m-0H44/s72-c/swap.PNG
Accounting Education
https://www.svtuition.org/2013/11/what-is-swap-in-finance.html
https://www.svtuition.org/
https://www.svtuition.org/
https://www.svtuition.org/2013/11/what-is-swap-in-finance.html
true
2410664366776677676
UTF-8
Loaded All Posts Not found any posts VIEW ALL Reply Cancel reply Delete By Home PAGES Contents View All RELATED CONTENTS FOR YOUR LEARNING Topic ARCHIVE SEARCH ALL POSTS Not found any post match with your request Back Home Sunday Monday Tuesday Wednesday Thursday Friday Saturday Sun Mon Tue Wed Thu Fri Sat January February March April May June July August September October November December Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec just now 1 minute ago $$1$$ minutes ago 1 hour ago $$1$$ hours ago Yesterday $$1$$ days ago $$1$$ weeks ago more than 5 weeks ago Followers Follow THIS PREMIUM CONTENT IS LOCKED STEP 1: Share to a social network STEP 2: Click the link on your social network Copy All Code Select All Code All codes were copied to your clipboard Can not copy the codes / texts, please press [CTRL]+[C] (or CMD+C with Mac) to copy