What Is Total return Swap

Question

Accepted Answer

A total return swap is a financial contract in which one party agrees to make payments based on the total return of an underlying asset.

Total return swap involves exchanging the total return of an asset or index for a fixed or floating rate of interest
It allows investors to gain exposure to an asset without actually owning it
The party receiving the total return pays a fixed or floating rate of interest to the other party
Total return swaps are commonly used in the hedge fund industry to gain exposure to assets that are difficult to buy or sell directly
Example: A hedge fund may enter into a total return swap with a bank, where the hedge fund receives the total return of a stock index in exchange for paying a fixed rate of interest to the bank

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