What are the differences between interest rate swaps, currency swaps, and equity swaps? Define what a swap is generally, and then define each type of swap in order to contrast them and compare their advantages and disadvantages.
A swap is a financial derivative contract in which two parties are involved and both parties agree to pay a certain amount at specified termination dates. There are three different types of swaps that will be discussed in this response: interest rate swaps, currency swaps, and equity swaps.
A currency swap involves the exchange of both the principal and the interest rate in one currency for another currency. The principal amounts are exchanged at the prevailing exchange rate which is called the spot rate. Currency swap exposes users to exchange rate ...
This solution provides a detailed 300-word definition of interest rate swaps, currency swaps, and equity swaps, discussing the benefits and drawbacks of each type of swap for the companies involved.