Swap (Derivative Swap)

In the world of finance, a swap represents a derivative contract that facilitates the exchange of cash flows or the value of one asset for another. Usually, swaps involve cash flows based on a specified notional principal amount, like a bond or loan. It’s worth noting that the principal amount itself remains untouched in this contract; instead, various portions of cash flow form the swap’s different legs. Swaps find widespread usage in finance, with derivative swaps predominantly executed by major institutions over the counter (OTC).