Name different types of swap & explain how any one works

Question

Accepted Answer

Different types of swaps include interest rate swaps, currency swaps, and commodity swaps.

Interest rate swaps involve exchanging fixed and floating interest rate payments based on a notional amount.
Currency swaps involve exchanging principal and interest payments in different currencies.
Commodity swaps involve exchanging cash flows based on the price of a commodity.
Example: A company with a variable rate loan can enter into an interest rate swap to exchange the variable rate payments for fixed rate payments.
Example: A company with operations in multiple countries can enter into a currency swap to hedge against currency fluctuations.
Example: A farmer can enter into a commodity swap to lock in a price for their crop before harvest.

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