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.|