An interest rate swap in which two streams of floating rate payments are exchanged. For example, two counterparties may exchange 1 month LIBOR for 3 month LIBOR payments.
A floating-for-floating interest rate swap that pairs 2 floating rate instruments at different maturities (such as 6-month LIBOR versus 30-day U.S. T-bills).
basis swaps are used to hedge exposure to basis risk, such as locational risk or time exposure risk. For example, a natural gas basis swap could be used to hedge a locational price risk: the seller receives from the buyer a Nymex division settlement value (usually the average of the last three daysâ€(tm) closing prices) plus a negotiated fixed basis, and pays the buyer the published index value of gas sold at a specified location.
An interest rate swap where both legs are floating, linked to different index tenors. Basis swaps can be on the same index at different tenors e.g. 3 month LIBOR versus 6 month LIBOR; on the same or different tenors on different indexes e.g. 3 month US dollar Libor against US Prime rate.
A floating-for-floating interest rate or currency swap.
An arrangement where payments based on different floating rates are swapped. The payments can also be denominated in different currencies. Also known as floating swap or money market swap.
Swap used to hedge basis risks.
swap whose cash settlement price is calculated based on the basis between a futures contract and the spot price of the underlying commodity or a closely related commodity on a specified date.
Swapping one floating rate index for another. Also known as a floating/floating swap. In a basis swap, the user locks in a differential between two grades, two product types, or two locations of a commodity. In energy trading, a basis swap is used to finetune price risk management.
A basis swap is an interest rate swap which involves the exchange of two floating rate financial instruments denominated in the same currency. A floating-floating interest rate swap under which the floating rate payments is referenced to different bases.