An agreement to exchange cash flows over time, such as fixed for floating interest payments. Its value comes from the difference between the two legs.
Where you will meet it
Swap comes up in 73 learning outcome notes across the FRM syllabus.
A few of them:
Insurance Companies and Pension Plans FRM Part I · Financial markets and products
“It can also be hedged with longevity swaps.”
How Do Firms Manage Financial Risk? FRM Part I · Foundations of risk management
“A consumer fearing a rise buys futures, pays fixed on a swap, or buys calls.”
Country Risk: Determinants, Measures, and Implications FRM Part I · Valuation and risk models
“A sovereign credit default swap is a contract in which the protection buyer pays a periodic premium, the CDS spread in basis points.”
Fundamentals of Credit Risk FRM Part II · Credit risk measurement and management
“A beneficiary of a guarantee, credit insurance or a credit default swap is exposed to the guarantor or protection seller, so hedging replaces one credit risk with another.”
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