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.   
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== See also ==
== See also ==
* [[Floating rate]]
* [[Floating rate]]
* [[Hedger]]
* [[Hedging]]
* [[Interest rate swap]]
* [[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