Common use of Swap Clause in Contracts

Swap. A Swap (the “Structure”) is an exchange of payments between the parties to the Structure, embedded with derivatives on the underlying asset (“Underlying”). One party agrees to pay a stream of payment based on either a fixed or floating rate whereas the other party will make payments based on the performance of the Underlying. The Underlying for FX SWAP is currencies. For cross currency Swaps, there is currency risk involved. If the investment or the underlying of the investment is denominated in a currency other than the reference currency, the investment is subject to exchange rate exposure and the investor may suffer losses. If the Investor wishes to terminate the transaction prior to maturity, there may be limited liquidity. Hence the investor may not be able to liquidate the position at all or at a satisfactory price or terms should the investor wish to terminate the transaction early.