Characteristics of Swaps

· Non-standardized contracts that are traded over the counter (OTC), allow to deal with much longer horizons than exchange-traded instruments, but subject to credit risk
· give greater privacy & escape regulation.
· Swaps are contracts that exchange assets, liabilities, currencies, securities, equity participations and commodities.
· Generally used for risk management by institutions
· Most involve multiple payments as a series of forward contracts, although one-payment contracts are possible
· When initiated, neither party exchanges any cash, a swap has zero value at the beginning.