Airbag Swap

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DEFINITION of 'Airbag Swap'

An interest rate swap whose notional value adjusts according to rising interest rates by indexing the floating portion to a constant maturity swap (CMS).

BREAKING DOWN 'Airbag Swap'

These swaps were created to hedge investments in areas where interest rate fluctuations have significant effects. Due to an increasing notional value, an asymmetrical payout schedule occurs whereby the swap's net payment with higher interest rates is greater than that occurring with lower interest rates.

RELATED TERMS
  1. Notional Principal Amount

    In an interest rate swap, the predetermined dollar amounts on ...
  2. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  3. Constant Maturity Swap - CMS

    A variation of the regular interest rate swap. In a constant ...
  4. Notional Value

    The total value of a leveraged position's assets. This term is ...
  5. Swap

    Traditionally, the exchange of one security for another to change ...
  6. Derivative

    A security with a price that is dependent upon or derived from ...
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RELATED FAQS
  1. How can I use an "airbag swap"?

    An airbag swap is an interest rate swap designed to provide a cushion against rising interest rates. The airbag swap originally ... Read Full Answer >>
  2. Where do penny stocks trade?

    Generally, penny stocks are traded through the use of the Over the Counter Bulletin Board (OTCBB) and through pink sheets. ... Read Full Answer >>
  3. Where can I buy penny stocks?

    Some penny stocks, those using the definition of trading for less than $5 per share, are traded on regular exchanges such ... Read Full Answer >>
  4. How do futures contracts roll over?

    Traders roll over futures contracts to switch from the front month contract that is close to expiration to another contract ... Read Full Answer >>
  5. How are American Depository Receipts (ADRs) priced?

    The price of an American depositary receipt (ADR) is determined by the bank or other financial institution that issues it. ... Read Full Answer >>
  6. Why do companies enter into futures contracts?

    Different types of companies may enter into futures contracts for different purposes. The most common reason is to hedge ... Read Full Answer >>

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