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- Financial Dictionary
In financial derivatives terminology, the term Swaps either refers to a mutually agreed upon exchange of payment streams, as in Interest Rate Swaps, or to the exchanging of one delivery date for another, as in Foreign Exchange Swaps.
For example, a forex swap might be suitable for a forex counterparty that needs to roll out an existing foreign exchange position to a date further in the future in order to prevent delivery from taking place on the contract when they do yet not have the funds to perform. Swaps can also be utilized when the need arises to bring forex delivery dates closer to the present. Interest Rate Swaps, on the other hand, involve the exchange of one set of cash flows for another, the level of which depends on interest rates. This latter type of Swap includes Currency Interest Rate Swaps in which the counterparties agree to exchange cash flows that occur in differing currencies.
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