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Glossary

  • Swaps

    Financial agreements to exchange securities. Swaps benefit both parties involved in the ‘swap’ and can be based on interest rates, stock indices, currency exchange rates and commodity prices. For example, in an interest rate swap, company A pays a fixed interest rate and company B pays a variable interest rate. Company A believes that interest rates will go down so is happy to ‘swap’ interest rates with company B. The swap also suits company B as they do not want to take the chance that the rate will increase and are looking to lock in their interest payments with a fixed rate. Therefore the ‘swap’ is mutually beneficial to both parties.

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