Liability Swap

Liability Swap
An exchange of debt related interest rates between two parties - usually large corporations. In a liability swap, two currently identical (in nominal value) cash flows are exchanged. Usually a variable (floating) rate is exchanged for a fixed rate of income. Swaps are undertaken because each company receives a better rate of interest by trading with the other than they would if they chose a more traditional financing route.

For example, XYZ may swap a six-month LIBOR interest rate for ABC's six-month fixed rate of 5% on a notional principal of $10 million dollars. Due to the split, XYZ will pay a fixed interest payment of 5%, instead of the floating rate.

A swap will have an initial value of zero because the initial cash flows are the same. Over time, however, this will change as interest rates change and the swap will have either a positive or negative value for each contract holder. In certain cases, the swap can be marked-to-market periodically to clear out the unrealized gains and losses by making any payments due.


Investment dictionary. . 2012.

Игры ⚽ Нужна курсовая?

Look at other dictionaries:

  • liability swap — An interest rate swap used to alter the cash flow characteristics of an institution s liabilities ( liability) so as to provide a better match with its assets. Bloomberg Financial Dictionary …   Financial and business terms

  • Liability swap — An interest rate swap used to alter the cash flow characteristics of an institution s liabilities so as to provide a better match with its assets. The New York Times Financial Glossary …   Financial and business terms

  • Interest rate swap — An interest rate swap is a derivative in which one party exchanges a stream of interest payments for another party s stream of cash flows. Interest rate swaps can be used by hedgers to manage their fixed or floating assets and liabilities. They… …   Wikipedia

  • Secondary liability — Secondary liability, or indirect infringement, arises when a party materially contributes to, facilitates, induces, or is otherwise responsible for directly infringing acts carried out by another party. The US has statutorily codified secondary… …   Wikipedia

  • asset swap — An interest rate swap used to alter the cash flow characteristics of an institution s assets in order to provide a better match with its liabilities ( liability). Bloomberg Financial Dictionary …   Financial and business terms

  • Deferred Long-Term Liability Charges — A collection of future company liabilities that will typically be summed up and shown as one line item on the balance sheet. The charges are most often made up of deferred tax liabilities that are to be paid more than one year in the future;… …   Investment dictionary

  • Своп обязательств — процентный своп, используемый для изменения характеристик потока наличности по обязательствам организации, с тем чтобы обеспечить их более полное соответствие активам. По английски: Liability swap Синонимы: Обмен обязательствами См. также: Свопы… …   Финансовый словарь

  • Swapgeschäft — Swap|ge|schäft 〈[ swɔ̣p ] n. 11〉 Devisenaustauschgeschäft [zu engl. swap „austauschen“] * * * Swap|ge|schäft [ swɔp… ], das [engl. swap, zu: to swap, ↑ Swap] (Bankw., Börsenw.): [von den Zentralbanken] meist zum Zweck der Sicherung von… …   Universal-Lexikon

  • Maiden Lane Transactions — refers to three limited liability companies created by the Federal Reserve Bank of New York in 2008 as a financial vehicle to facilitate transactions involving three entities: the former Bear Stearns company as the first entity, the former… …   Wikipedia

  • List of finance topics — Topics in finance include:Fundamental financial concepts* Finance an overview ** Arbitrage ** Capital (economics) ** Capital asset pricing model ** Cash flow ** Cash flow matching ** Debt *** Default *** Consumer debt *** Debt consolidation ***… …   Wikipedia

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”