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A financial derivative in which two counter-parties agree to exchange one stream of cash flows for another stream. In an interest rate swap a flow of payments at a fixed interest rate is swapped for a flow at a variable interest rate. A currency swap involves the initial exchange of principal denominated in two different currencies, payments of interest in the currency received over the lifetime of the swap, and a final re-exchange of principal. See also derivative.


Reference: Oxford Press Dictonary of Economics, 5th edt.