Name | Description |
Generic swap | Is the most basic swap, which transforms floating rate interest payments into fixed rate payments for one party, and vice versa for the counterparty to the contract. |
Swaption | It is a type of contract that gives the holder a right to buy or sell a swap, i.e., an option to exchange cash flows. |
Basis index swap | It is an agreement to exchange the interest payments based on different indexes and used by counterparties to reduce their risk exposure resulting from a nonlinear movement in interest rates across two different indexes. |
Yield curve swap | It is a contract to exchange interest payments indexed to a long-term rate with those indexed to a short-term rate for one party, and vice versa for the counterparty. |
Forward Rate Agreement (FRA) | It is an extension of a forward contract except that, unlike the single payment feature of forward contracts, an FRA can incorporate multiple periodic payments. |
Cap | It is an agreement that permits the buyer to receive the difference in the interest cost on a specified notional amount if the interest rate rises above the stipulated “cap rate.” |
Collar | It is a combination of a cap and floor agreement, in which the buyer purchases an interest rate cap while selling a floor indexed to the same interest rate. The name “collar,” is because they have the effect of limiting the effective borrowing rate between the cap rate and the floor rate. |
Nonpar swap | The interest rates used in a nonpar swap are different than the market interest rates for par-value bonds. It is different from most other swaps. Thus, one party may be required to make a payment at contract initiation. The nonpar swaps are typically used to offset existing par swap positions, the underlying interest rates for which may have changed since their inception. |
Zero coupon swaps | It is an agreement where one counterparty makes only one payment at the termination of the swap, analogous to a zero-coupon bond. The other party makes periodic fixed or floating rate payments. |
Floor | It is analogous to a cap, except that a payment is triggered by interest rates falling below a specified threshold. |
Caption | It is a contract that gives the holder a right to buy a cap should the stipulated conditions be met. |