# Basis swap

From ACT Wiki

*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.