DEFINITION of 'Macroeconomic Swap'

A type of derivative designed to help companies whose revenues are closely correlated with business cycles to reduce their business-cycle risk. In a macroeconomic swap, also called a macro swap, a variable stream of payments based on a macroeconomic indicator is exchanged for a fixed stream of payments. The exchange occurs between an end user and a macro swap dealer.

BREAKING DOWN 'Macroeconomic Swap'

Macroeconomic swaps were introduced to the market in the early 1990s. Types of indicators that may be used include, but are not limited to, the Consumer Confidence Index, the Wholesale Price Index, inflation rates, unemployment rates, gross national product and gross domestic product. In most types of swaps, the underlying asset can be traded, but this is not true for macroeconomic swaps.

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