Swaps Swaps are temporary exchange of assets during trading on the exchange. The parties may exchange securities, currencies and payments. In addition, they undertake to return the same papers to each other after a certain period of time or to make a return payment. A swap transaction always consists of two transactions with the same asset or goods, but either with delivery at different times or with different terms and conditions. Interest swap Interest Swap (IRS) is an agreement whose parties exchange obligations: Party A pays a fixed percentage to party B of a certain amount; B pays A floating interest. Example: Bank A and Bank B entered into a contract. The first agreed to pay a second fixed rate of 5% of $100 million each month. Bank B agreed to pay a monthly floating rate from the same amount. Thus, if the floating rate is above 5%, then Bank A wins (as he paid only 5%). Conversely, if the floating rate is below 5%, Bank B stands to gain (as it was paid 5% and spent only a fraction of that percentage). Currency swap A currency swap is a combination of two opposing trades in exchange for the same amount on different dates. The date of execution of the first transaction is the date of currency exchange, and the second reverse transaction is the date of the end of the swap. Example: Let’s say the client has 50 thousand in the brokerage account. He bought $1 thousand. With the delivery tomorrow at the rate of 66 to the dollar. The next morning, the client has to put in dollars. However, as the client has not enough funds to pay $1,000, the broker shifts the date of currency issuance to the next day. This procedure will be repeated until the client either closes the position or fails to deposit sufficient funds to pay the purchased dollars. Thus, when the dollar will rise to 70, we can still buy it at 66 (if the transaction is open). However, note that every time you move a position, you will have to pay a commission. Date of the second transaction (sale bought