Business and Personal Finance Dictionary

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• SWAP
  
  (1) a technique of the Federal Home Loan Mortgage Corporation by which original lenders exchange the mortgages they have made for Freddie Mac Participation Certificates (PCs), which provide the lender with ownership interests in the same mortgages. Freddie Mac refers to the transaction as the Guarantor Program, because the corporation adds its own guarantees to the safety of the mortgage investment. (2) a financial transaction in which two counterparties agree to exchange streams of payments over a period of time according to a predetermined rule. For example, the counterparties may swap interest payments, with each paying the other's interest on the same amount of principal. Usually a fixed rate interest obligation is swapped for a floating rate interest obligation, so that both parties can match the form of interest they owe on their debts with the form of interest income they expect to receive on their assets
  
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