Investopedia

Extendable Swap

Filed Under » ,
Dictionary Says

Definition of 'Extendable Swap'

An exchange of cash flows between two counterparties, one of whom pays interest at a fixed rate and one of whom pays interest at a floating rate, in which the fixed-rate payer has the right to lengthen the term of the arrangement. The fixed-rate payer might want to exercise its right to extend the swap if interest rates were rising because it would profit from continuing to pay a fixed, below-market rate of interest and receiving an increasing market rate of interest from the floating rate.
Investopedia Says

Investopedia explains 'Extendable Swap'

The additional feature of an extendable swap makes it more expensive than a plain vanilla interest rate swap. That is, the fixed rate payer will pay a higher fixed interest rate and possibly an extension fee. The opposite of an extendable swap is a cancelable swap, which gives one counterparty the right to terminate the agreement early.

Articles Of Interest

  1. The Barnyard Basics Of Derivatives

    This tale of a fictional chicken farm is a great way to learn how derivatives work in the market.
  2. An Introduction To Swaps

    Learn how these derivatives work and how companies can benefit from them.
  3. What is an absolute rate?

    An absolute rate is easy to understand once you know the basics of an interest rate swap. An absolute rate is the fixed rate portion of an interest rate swap. Interest rate swap is an agreement ...
  4. How do companies benefit from interest rate and currency swaps?

    An interest rate swap involves the exchange of cash flows between two parties based on interest payments for a particular principal amount. However, in an interest rate swap, the principal amount ...
  5. What is a "gypsy swap"?

    A gypsy swap is a unique method by which a company may raise capital without issuing debt or holding a secondary offering. In many respects, a gypsy swap is similar to a rights offering, except ...
  6. How do I use a rollercoaster swap?

    A rollercoaster swap is the name for a swap (the exchange of one security for another) with a notional principal that differs during various payment periods. In other words, it is a swap agreement ...
  7. 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 was designed for insurance companies because their balance sheets ...
  8. Uncovering Oil And Gas Futures

    Find out how to stay on top of data reports that could cause volatility in oil and gas markets.
  9. Trading Is Timing

    Learn how to make gains even if you don't get in at the right time.
  10. Leading Economic Indicators Predict Market Trends

    Leading indicators help investors to predict and react to where the market is headed.
comments powered by Disqus
Marketplace
Hot Definitions
  1. Happiness Economics

    The formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth.
  2. Affluenza

    A social condition arising from the desire to be more wealthy, successful or to "keep up with the Joneses." Affluenza is symptomatic of a culture that holds up financial success as one of the highest achievements.
  3. Icarus Factor

    The term Icarus factor describes a situation where managers or executives initiate an overly ambitious project which then fails. Fueled by excitement for the project, the executives are unable to reign in their misguided enthusiasm before it is too late to avoid the failure.
  4. Angelina Jolie Stock Index

    An index made up of a selection of stocks from companies associated with actress Angela Jolie.
  5. Consequential Loss

    The amount of loss incurred as a result of being unable to use business property or equipment.
  6. Lease To Own

    An arrangement where an individual enters into a lease agreement with an owner with the inclusion of a clause that typically gives the individual the right, but not the obligation, to purchase the item leased at a predefined price and time.
Trading Center