DEFINITION of 'Reversible Swap'
An exchange of cash flows that allows one counterparty to use a swaption to switch the payor and payee of the fixed and floating rate income streams. The counterparty who is making fixed payments and receiving floating payments would begin receiving fixed payments and making floating payments, and vice versa. A reversible swap consists of an interestrate swap plus a swaption for two times the notional principal amount of the interestrate swap. If the notional principal amount of the interestrate swap was $100,000, the swaption would be for $200,000.
BREAKING DOWN 'Reversible Swap'
Reversible swaps are a type of interest rate swap. They allow investors to hedge against or speculate on possible changes in interest rates. One situation when a reversible swap would be desirable is when political instability makes interest rates especially unpredictable. Other types of financial instruments investors might use to manage interestrate risk include plain vanilla swaps, constant maturity swaps, airbag swaps, forward rate agreements and many others.

Asset Swap
Similar in structure to a plain vanilla swap, the key difference ... 
Callable Swap
An exchange of cash flows in which one counterparty makes payments ... 
Putable Swap
An exchange of cash flows in which one counterparty makes payments ... 
Call Swaption
A type of option between two parties that can be exercised on ... 
Delayed Rate Setting Swap
An exchange of cash flows, one of which is based on a fixed interest ... 
Swap Rate
The rate of the fixed portion of a swap as determined by its ...

Markets
What's an Interest Rate Swap?
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Investing
Interest Rate Swaps Explained
Plain interest rate swaps that enable the parties involved to exchange fixed and floating cash flows. 
Investing
Different Types of Swaps
Investopedia explores the most common types of swap contracts. 
Managing Wealth
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Puzzled by interest rate swap quotes terminology? Investopedia explains how to read the interest rate swap quotes 
Trading
Currency Swap Basics
Find out what makes currency swaps unique and slightly more complicated than other types of swaps. 
Trading
Hedging With Currency Swaps
The wrong currency movement can crush positive portfolio returns. Find out how to hedge against it. 
Trading
Managing Interest Rate Risk
Interest rate risk stems from the possibility that an interestbearing assetâ€™s value will change due to changing interest rates. 
Markets
The FastPaced World of Libor & Fixed Income Arbitrage
LIBOR is an essential part of implementing the swap spread arbitrage strategy for fixed income arbitrage. Here is a stepbystep explanation of how it works. 
Trading
Managing Interest Rate Risk
Learn which tools you need to manage the risk that comes with changing rates. 
Managing Wealth
The Advantages Of Bond Swapping
This technique can add diversity to your portfolio and lower your taxes. Find out how.

What would motivate an entity to enter into a swap agreement?
Learn why parties enter into swap agreements to hedge their risks, and understand how the different legs of a swap agreement ... Read Answer >> 
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 DoddFrank on swaps ... Read Answer >> 
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 >> 
How are swap agreements financed?
Learn how swap agreements are now cleared by swap execution facilities and require the use of collateral margin to hold, ... Read Answer >> 
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 >> 
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 >>