Equity Return Swap

Master Complex Financial Derivative Contracts

Through Interactive AI Learning



An Equity Return Swap is a financial derivative agreement between two parties in which one party agrees to pay the other the total return of an equity asset, such as a stock or equity index, over a specified period. The "total return" typically includes capital gains and any dividends paid by the equity asset. In exchange, the receiving party typically pays a floating interest rate, such as LIBOR or SOFR, plus a spread. This allows the party receiving the equity return to gain exposure to the performance of the equity asset without actually owning it, while the counterparty earns the floating rate and avoids direct exposure to the asset's market risks. Equity return swaps are often used for hedging, speculation, or tax efficiency.

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