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.
INVESTOPEDIA EXPLAINS '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.

Reverse Swap
An exchange of cash flow streams that undoes the effects of an ... 
Debt For Bond Swap
A debt swap involving the exchange of a new bond issue for similar ... 
Interest Rate Swap
An agreement between two parties (known as counterparties) where ... 
Forward Swap
A swap agreement created through the synthesis of two swaps differing ... 
Currency Swap
A swap that involves the exchange of principal and interest in ... 
Quanto Swap
A swap with varying combinations of interest rate, currency and ...

How can an investor terminate a derivative contract?
Most derivatives contracts have provisions allowing for early termination and netting out the initial investment. The early ... Read Full Answer >> 
What does the notional principal of a derivative contract refer to?
The notional principal amount of a derivative refers to the nominal, or predetermined, value used to calculate payments made ... Read Full Answer >> 
Who is the counterparty of a derivative?
The counterparty to a derivative is the party who takes the other side of the trade. Every derivative trade needs to have ... Read Full Answer >> 
What are the benefits of engaging in a currency swap?
Engaging in currency swaps often equates to acquiring additional flexibility. Companies can better exploit their comparative ... Read Full Answer >> 
How are risk weighted assets used to calculate the solvency ratio in regulatory capital ...
Riskweighted assets are the denominator in the calculation to determine the solvency ratio under the provisions of the Basel ... Read Full Answer >> 
How does an entrepreneur choose a business structure?
Swaps are derivative contracts between two parties that involve the exchange of cash flows. Interest rate swaps involve exchanging ... Read Full Answer >>

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