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swap transactions

Bond option

One party grants to the other party the right to purchase (if a call) or sell (if a put) a bond at an agreed strike price. Where the transaction is cash settled, the seller of the option would pay to the buyer the difference between the market price of that quantity of the commodity on the exercise date and the strike price.

Cap/floor transaction

One party pays a single or periodic fixed amounts and the other pays the excess (if any) of e.g. a specified floating rate, commodity price over an agreed rate or commodity price.

Collar transaction

A collar is the combination of a cap and a floor and one party will be the payer on the cap and the other party is the payer on the floor.

Commodity option

One party grants to the other, in consideration for a premium) the right to purchase (if a call) or sell (of a put) a specified quantity at a specified strike price.

Commodity swap

One party pays periodic amounts of a given currency based on a fixed price and the other party pays periodic amounts of the same currency based on the price of a commodity or a future contract on a commodity. All calculations are based on a notional quantity of the commodity.

Credit default swap

Cf. credit default swap

Cross currency rate swap

One party pays periodic fixed amounts in one currency and the other party pays periodic floating amounts in another currency

Currency option

One party grants to another the right to purchase (if a call) or sell (of a put) an agreed amount of a currency at an agreed strike price

Currency swap

One party pays the fixed amount of one currency and the other party pays a fixed amount of another currency. There may be initial and final exchange of the currency notional amounts.

Equity or equity index swap

One party periodically pays a fixed amount and the other party pays an amount based on the performance of a reference share, a basket of shares or a share index.

Equity index option

One party grants to the other party the right to receive a payment equal to the amount by which a share index either exceeds (if a call) or is less than (if a put) a specified strike price.

Equity option

One party grants to another the right to purchase (if a call) or sell (of a put) shares or a basket of shares at a specified strike price. Where the transaction is cash settled, the seller of the option would pay to the buyer the difference between the market price of that quantity of the commodity on the exercise date and the strike price.

Foreign exchange transaction

One party purchases one currency with another currency with settlement either on a spot or a specified future date.

Forward rate

One party agrees to pay a fixed rate for a defined period and the other party agrees to pay a rate to be set on a specified date in the future. The payment calculation is based on a notional rate and is settled based on the difference between the agreed forward rate and the prevailing market rate at the time of settlement.

Interest rate option

One party grants to another the right to receive a payment equal to the amount by which an interest rate either exceeds (if a call) or is less than (if a put) an agreed strike price.

Interest rate swap (IRS)

One party periodically pays a fixed amount calculated based on a specified currency and fixed rate and the other party pays a floating amount based on the same currency but a floating rate. The fixed rate and the floating rate are reset periodically and all calculations are based on a notional amount of the specified currency

Swap option or swaption

One party grants to another party the right to enter into a swap with pre-agreed terms. The underlying swap may be settled at the time of exercise of the option. Cf. this article

Total return swap

Cf. total return swap
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