Common use of Swap Transactions Clause in Contracts

Swap Transactions. In a swap transaction, two parties agree to exchange specific quantities of two different assets. An example is an interest rate swap involving the swap of the fixed rate of a currency with the floating rate of the same currency over a specified period of time. In this case, the party receiving the fixed rate will make a gain if the fixed rate is higher than the floating rate on the rate determination date. A variation of this arrangement is the cross-currency interest-rate swap, which is an interest-rate swap involving two different currencies. The exchange is usually of payments in different currencies calculated on different interest-rate bases. An example is the swap of the floating interest rate of one currency over a specific period for the fixed interest rate of another currency over the same period. Movements in exchange rates, interest rates or the market price of the underlying instruments of the swap transaction may significantly affect the Customer's position. Movements in exchange rates, interest rates or the market price of the underlying instruments of the swap transaction can also be affected by various factors, including inflationary fears and weakening currency. There may not be any logical reason for markets to act in a certain way, making it difficult to anticipate such movements.