A swap is a financial derivative contract between two parties to exchange cash flows or other financial instruments over a specified period.
Common types include interest rate swaps, where parties exchange interest rate payments, and currency swaps, involving the exchange of cash flows in different currencies.
Swaps are used to manage risk, alter cash flow structures, or gain a comparative advantage in the financial markets. They provide flexibility for businesses and investors to customize their financial exposure and hedge against fluctuations in interest rates, currencies, or other market variables.
