Business and Personal Finance Dictionary

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• EQUITY SWAP
  
  A Swap (q.v.) in which one of the payment streams derives from an equity instrument. For example, in one sort of ordinary Equity Swap, each period, Party A receives (and Party B pays) the capital gains on an equity investment of a given notional amount, while Party B receives (and Party A pays) a floating interest payment based on LIBOR and the same notional amount. This swap is practically equivalent to buying the underlying equity with 100% borrowing (zero margin) and realizing the gain or loss each period. Equity Swaps are useful for obtaining leverage, avoiding withholding taxes, and enjoying the returns from ownership without legally owning anything.
  
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