Basis swap

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

• Floating rate
• Hedger
• Hedging
• Interest rate swap
• Prime
• Swap
• Synthetic