Basis swap
From ACT Wiki
Jump to navigationJump to search
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.
