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Asset Swap Meaning

An asset swap is a transaction in which two parties exchange cash flows or exposure to different financial instruments to modify risk, return characteristics, or asset composition. Unlike a simple sale, an asset swap allows parties to retain ownership of the underlying asset while altering the economic profile of its cash flows.

Typical motivations include:

Managing interest-rate risk by swapping fixed-rate payments for floating-rate ones
Gaining exposure to a different currency or commodity
Adjusting portfolio duration, convexity, or credit exposure

For example, an investor holding a fixed-rate bond may enter an asset swap to convert its predictable coupon payments into variable-rate payments tied to an index. Conversely, another party may prefer fixed income and assume that exposure.

Asset swaps offer flexibility but come with disadvantages such as counterparty risk, potential illiquidity, and complexity. They are frequently customized to meet specific portfolio objectives.

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Important Disclaimer:

Finery Markets BVI Limited (“Finery Markets”) provides software, technology infrastructure, and related Information and Communication Technology (ICT) services on a Software-as-a-Service (“SaaS”) basis. Finery Markets acts solely as a software vendor and does not operate a trading platform, does not intermediate, match, execute, clear, or settle transactions, and does not engage in any activities that would require regulatory authorisation under applicable laws.

Finery Markets’ software is non-custodial and is provided exclusively to licensed institutional entities that act as independent operators of their own environments. All counterparties are solely responsible for establishing and maintaining their own bilateral trading and settlement relationships. Finery Markets is not a party to any such arrangements and assumes no responsibility for the conduct, verification, or compliance obligations of any users of the software.

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Additional notice to UK visitors: This website and associated communications are not intended to constitute a financial promotion under The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) and related guidance. Access to services provided by Finery Markets is limited to regulated entities, professional clients and eligible counterparties as set out by the Financial Conduct Authority. UK users are not permitted to use this website for the services of Finery Markets if they don't fall within these categories.