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Template:Swap - layman: Difference between revisions
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[[File:Noel.png|thumb|A swap pioneer from the 1970s]] | [[File:Noel.png|thumb|A swap pioneer from the 1970s]] | ||
{{tag|Swap}}s come in all shapes and sizes, but at their heart they are agreements to exchange — “swap” — [[cash flow|payment streams]]. In the simplest example, you and I could agree, for a period of 5 years, that I will pay you a fixed rate on an agreed sum, and you will pay me a floating rate on the same sum. We | {{tag|Swap}}s come in all shapes and sizes, but at their heart they are agreements to exchange — “swap” — [[cash flow|payment streams]]. In the simplest example, you and I could agree, for a period of 5 years, that I will pay you a fixed rate on an agreed sum, and you will pay me a floating rate on the same sum. We don’t pay the actual principal sum itself. | ||
Why would we | Why would we exchange those payment streams then? | ||
Imagine you had a [[floating rate]] income (for example, a [[floating rate note]]), but you had a fixed rate liability (say a mortgage). | Imagine you had a [[floating rate]] income (for example, a [[floating rate note]]), but you had a fixed rate liability (say a mortgage). | ||