Basis swap: Difference between revisions
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A swap that exchanges two floating interest rates, each being calculated on a different basis. | ''Interest rate swaps.'' | ||
A basis swap is 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. | For example, 3-month LIBOR against 6-month LIBOR, or LIBOR against Prime. | ||
| Line 17: | Line 19: | ||
* [[Interest rate swap]] | * [[Interest rate swap]] | ||
* [[LIBOR]] | * [[LIBOR]] | ||
* [[Prime]] | |||
* [[Swap]] | * [[Swap]] | ||
* [[Synthetic]] | * [[Synthetic]] | ||
[[Category:Manage_risks]] | [[Category:Manage_risks]] | ||
Revision as of 20:59, 26 March 2021
Interest rate swaps.
A basis swap is 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.
