Basis swap: Difference between revisions
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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]] | |||
* [[Interest rate swap]] | |||
* [[Swap]] | * [[Swap]] | ||
Revision as of 18:57, 29 August 2016
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.
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.
