of cash flows. In this way, the swap buyer has transformed its original risk profile by changing both its interest rate and credit risk exposure. A company often utilizes this method when in need for money to invest ( internal financing ) or to pay off debts. What is an 'Asset Swap an asset swap is similar in structure to a plain vanilla swap with the key difference being the underlying of the swap contract.
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The asset swap market was born along with the swap market in the early 1990s, and continued to be most widely used by banks which use asset swaps to convert their long-term fixed rate assets to floating rate in order to match their short-term liabilities. T0displaystyle code promo tedibert T_0 is the start date, tMdisplaystyle T_M is the maturity date (end of the swap). Typically, an asset swap involves transactions in which the investor acquires a bond position and then enters into an interest rate swap with the bank that sold him/her the bond. In return, the swap buyer receives variable rate payments. At the next coupon period the asset swap buyer receives the full coupon on the bond and likewise pays the full coupon on the swap. The underlying asset is a single.