POWER SWAP Meaning and
Definition
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A power swap is a term commonly used in finance and economics to describe a type of financial transaction known as an interest rate swap. In this context, a power swap refers specifically to an agreement in which two parties exchange their future interest payments on a given amount of principal.
In a power swap, the two parties involved agree to swap the interest payments on a predetermined notional principal amount, typically expressed as a fixed rate and a floating rate. The fixed rate is usually based on a benchmark interest rate, while the floating rate is usually a market-determined rate such as LIBOR.
The purpose of a power swap is often to manage interest rate risk. For instance, a corporate borrower with a floating-rate loan might enter into a power swap agreement with a counterparty to convert their floating-rate interest payments to fixed-rate payments. This can help the borrower to stabilize their cash flows and protect against potential interest rate increases. Conversely, a counterparty that prefers to receive floating-rate payments may enter into a power swap agreement to convert their fixed-rate interest payments into floating-rate payments.
Power swaps can be customized to meet specific needs. They typically involve periodic net settlements where one party pays the other the difference between the fixed and floating interest rates. These settlements are based on agreed-upon dates and market conditions. Overall, power swaps provide a flexible tool for managing interest rate exposure and enhancing financial stability for parties seeking to hedge against fluctuations in interest rates.
Common Misspellings for POWER SWAP
- power swep
- power sweap
- oower swap
- lower swap
- -ower swap
- 0ower swap
- piwer swap
- pkwer swap
- plwer swap
- ppwer swap
- p0wer swap
- p9wer swap
- poqer swap
- poaer swap
- poser swap
- poeer swap
- po3er swap
- po2er swap
- powwr swap
- powsr swap
Etymology of POWER SWAP
The word "power swap" is a combination of two separate terms: "power" and "swap".
- "Power" comes from the Old French word "povoir", which originated from the Latin word "potere", meaning "to be able". Over time, it evolved into the Middle English word "power", referring to authority, control, or the ability to act.
- "Swap" is a shortened form of the word "swap", which emerged in the early 17th century as a colloquial term in English. It is believed to be derived from the Old Norse word "sveppa", meaning "to sweep" or "to swing".
Therefore, the term "power swap" refers to the exchange, transfer, or substitution of authority or control.
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