Basis swap: Difference between revisions

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A swap that exchanges two floating interest rates, each being calculated on a different basis.  For example, 3-month LIBOR against 6-month LIBOR, or LIBOR against Prime.
''Interest rate swaps.''
 
A basis swap is a swap that exchanges two floating interest rates, each being calculated on a different basis.   
 


The use of a basis swap for hedging is to transform a borrowing or deposit with interest calculated on a particular basis, into a synthetic liability or asset with interest effectively calculated on an alternative basis.   
The use of a basis swap for hedging is to transform a borrowing or deposit with interest calculated on a particular basis, into a synthetic liability or asset with interest effectively calculated on an alternative basis.   


This alternative interest basis being considered preferable by the hedger.
This alternative interest basis being considered preferable by the hedger.
Basis swaps are sometimes known as ''floating/floating'' swaps, because one floating rate is exchanged for another.




== See also ==
== See also ==
* [[Floating rate]]
* [[Hedger]]
* [[Hedging]]
* [[Interest rate swap]]
* [[Prime]]
* [[Swap]]
* [[Swap]]
* [[Synthetic]]
[[Category:Manage_risks]]

Latest revision as of 03:12, 5 October 2024

Interest rate swaps.

A basis swap is a swap that exchanges two floating interest rates, each being calculated on a different basis.


The use of a basis swap for hedging is to transform a borrowing or deposit with interest calculated on a particular basis, into a synthetic liability or asset with interest effectively calculated on an alternative basis.

This alternative interest basis being considered preferable by the hedger.


Basis swaps are sometimes known as floating/floating swaps, because one floating rate is exchanged for another.


See also