Types of Financial Swaps

Though the history of financial swaps is relatively short, but the innovation of varieties is rapidly changing. In addition to the traditional interest rate swaps and currency swaps, a large number of new varieties of financial swaps continue to emerge. Currency swap is to exchange the principal and fixed interest of one currency with the equivalent principal and fixed interest of another currency. The main reason for this is that both parties have a comparative advantage in the financial markets of their respective countries.

Cross-currency interest rate swap. It is a combination of an interest rate swap and a currency swap, which is an exchange of a fixed interest rate in one currency for a floating interest rate in another currency.

Increasing swaps, decreasing swaps and chute swaps;

Basis point swaps: the interest payments exchanged are accounted for by two different floating rate indices, such as the 3-month USD LIBOR versus U.S. commercial paper rate swap transaction;

Extendable swaps and callable swaps;

Zero-coupon swaps: a swap in which a fixed interest flow of multiple payments is replaced by a single payment, which may be made at the beginning or at the end of the period;

later determinable swaps;

difference swaps;

forward swaps: swaps in which the effective date of the swap is the commencement of the swap at a definite time in the future;

swap options: essentially options rather than swaps, which are underlying swaps;

equity swaps: swaps that are essentially options rather than swaps, which are underlying swaps;

equity swaps: swaps in which the interest rate is fixed at a specified time in the future;<

Equity swap: an exchange of dividends and capital gains generated by an equity index for a fixed or floating interest rate.