ASSET SWAP Meaning and
Definition
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An asset swap refers to a financial transaction in which an investor or entity exchanges an existing asset with another, typically of similar value or yield, for a specific period. It involves the simultaneous sale and purchase of assets, often seen in the context of fixed income securities.
In an asset swap, one party (typically the investor) sells a fixed income instrument, such as a bond or a loan, and receives cash flows based on the interest rate payments associated with that instrument. Simultaneously, the investor purchases a different fixed income instrument, often a swap instrument, which provides a different set of cash flows, such as variable interest payments or different maturity date. The goal is to achieve a desirable asset mix or to optimize cash flows, reflecting specific investment objectives or risk management needs.
The asset swap mechanism allows the investor to maintain exposure to the underlying credit risk of the original bond or loan, while gaining access to the desired cash flow characteristics of the swap instrument. This swap can result in benefits such as altering the duration of the portfolio, enhancing yield, managing interest rate risk, or obtaining exposure to a different currency or country. Asset swaps are commonly used by financial institutions, corporations, and institutional investors to restructure their portfolios according to specific investment strategies and risk profiles.
Overall, an asset swap is a financial transaction that involves trading one fixed income instrument for another, with the aim of achieving specific investment objectives or portfolio optimization.
Etymology of ASSET SWAP
The term "asset swap" is derived from the combination of the words "asset" and "swap".
- "Asset": This word dates back to the 18th century, derived from the Old French word "acetz" meaning "property, possessions". It further evolved from the Latin word "ad-sequi", which means "to follow" or "to attain".
- "Swap": The word "swap" originates from the Middle English word "swappen", which means "to strike, strike hands (in bargaining)". It is also related to the Old Norse word "sveppa", meaning "to strike with a weapon".
Therefore, the term "asset swap" essentially describes the exchange or trading of assets between two parties in a financial context.
Similar spelling words for ASSET SWAP
