Swaps

Swaps are derivative agreements in which two counterparties agree to exchange cash flows. For example, one party may agree to pay a fixed interest rate, and the other a variable rate linked to some benchmark. When payment is due, the two cash flows will be netted out, so only one party will pay the other. Swaps can be used for hedging against rising interest rates or for speculation, like other derivatives. See also credit default swaps.