Swap

From Reuters Financial Glossary

An exchange of cash flows between two counterparties designed to offset interest rate or currency risk and to match their assets to their liabilities. For example, a company may have costs which it must pay in Swiss francs while its revenues are in US dollars. Another company may have the opposite requirement. A bank, in exchange for a fee, arranges a currency swap which meets both requirements. The same is true of interest rate swaps, which allow two parties to exchange fixed rate for floating rate risk to their mutual advantage. A key point is that parties to a swap do not exchange principal, or the underlying fixed amount of debt, but just cash flow, or the interest payments.