Putable Swap

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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.

INVESTOPEDIA EXPLAINS '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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    An interest rate swap involves the exchange of cash flows between two parties based on interest payments for a particular ... Read Full Answer >>
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    The owner of a long call for a stock is entitled to a dividend only if the option is exercised prior to the ex-dividend date, ... Read Full Answer >>
  3. How are swap agreements financed?

    Since swap agreements involve the exchange of future cash flows and are initially set at zero, there is no real financing ... Read Full Answer >>
  4. What are the risks involved with swaps?

    The main risks associated with interest rate swaps, which are the most common type of swap, are interest rate risk and counterparty ... Read Full Answer >>
  5. How can an investor profit from the cyclical nature of the electronics sector?

    An investor can profit from the cyclical nature of the electronics sector in two ways. He can employ sector rotation, shifting ... Read Full Answer >>
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    Greek vega measures an option's sensitivity with respect to a change in the underlying asset's volatility. The vega of an ... Read Full Answer >>
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