Bond Market Association (BMA) Swap

DEFINITION of 'Bond Market Association (BMA) Swap'

A type of swap arrangement in which two parties agree to exchange interest rates on debt obligations, where the floating rate is based on the bond market association's swap index. One of the parties involved will swap a fixed interest rate for a floating rate, while the other party will swap a floating rate for a fixed rate.

BREAKING DOWN 'Bond Market Association (BMA) Swap'

The benefits of two parties entering into an interest rate swap arrangement can be significant. Often, each of the two firms involved has a comparative advantage in its fixed or variable interest rate. Consequently, for budgeting or forecasting reasons, a company may wish to enter into a loan with a fixed or variable interest rate in which it does not have a comparative advantage.

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