Basis Swap
This is a Floating / Floating Same Currency swap
This is used to hedge interest rate risk
This swap exchanges Interest Only (no principal)
Both parties pay a floating rate based on two reference rates
One party pays - 3 month Treasury Bill rate plus a spread
Other party - receives 3 month LIBOR
The most common examples are in the same currency for example:
swapping LIBOR for Commercial Paper or Prime Treasury Bills
swapping 90 day LIBOR for 180 day Dollar LIBOR
When the swap is in the same currency the notional does not change hands.
1s3s - I month LIBOR - 3 month LIBOR Basis Swap - One month forward
Examples are:
LIBOR/LIBOR
Fed funds rate/LIBOR
Prime rate/LIBOR
Prime rate/fed funds rate
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