Putable Swap

DEFINITION of 'Putable Swap'

An exchange of cash flows in which one counterparty makes payments based on a fixed interest rate, the other counterparty makes payments based on a floating interest rate, and the counterparty paying the floating interest rate (and receiving the fix rate) has the right to end the swap before it matures. An investor might choose a putable swap if interest rates are expected to change in a way that would adversely affect the floating rate payer.

BREAKING DOWN 'Putable Swap'

The additional features of a putable swap make it more expensive than a plain vanilla interest rate swap - the floating rate payer will pay a higher interest rate and possibly an early termination fee. The opposite of a putable swap is a callable swap, which allows the fixed interest rate payer to end the swap early.

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RELATED FAQS
  1. What are the risks involved with swaps?

    Learn about interest rate risk and counterparty risk for interest rate swap agreements, and understand how the Dodd-Frank ... Read Answer >>
  2. What are interest rate swaps on the OTC market?

    Learn about interest rate swaps and how they are traded over the counter, and understand the impact of Dodd-Frank on swaps ... Read Answer >>
  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 ... Read Answer >>
  4. Do interest rate swaps trade on the open market?

    Learn how interest rate swaps are traded on the OTC and interbank markets, and how these swaps can be used to arbitrage different ... Read Answer >>
  5. Who is the counterparty of a derivative?

    Learn about the counterparty to a derivative contract, and how derivative swap agreements traded over the counter have counterparty ... Read Answer >>
  6. Can individual investors profit from interest rate swaps?

    Find out how individual investors can speculate on interest rate movements through interest rate swaps by trading fixed rate ... Read Answer >>
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