Basis swap

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A basis swap is a floating-floating interest rate swap. It is intended to eliminate basis risk. For example, a swap of 1-month USD Libor for 6-month USD Libor. Such a swap can be used to customize exposures to specific points on the yield curve. Basis swaps are most commonly between two floating indexes from different segments of the money market. A bank that lends at prime but finances itself at Libor would be a natural user of a prime-Libor basis swap.[1]



References

  1. Basis Swap. riskglossary.com.