This is a derivative that allows two counterparties to keep their existing assets but change their exposure.

For example two borrowers can use an interest rate swap to move their interest payments on existing liabilities from fixed to floating. Swaps are arranged by intermediaries, typically banks, who sell swaps to achieve the type of exposure a client wants (fixed versus floating for example) at the lowest possible cost (some clients have a natural competitive advantage in fixed rate borrowing and other in floating depending on their size and the types of market that they have access to).

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