Define: Callable Swap

A callable swap is a financial derivative contract where one party has the right to terminate the swap before its maturity date.

The party that has the right to terminate a callable swap is typically the party that sold the swap, also known as the swap issuer.

The termination of a callable swap is usually triggered by specific events, such as changes in interest rates or creditworthiness of one of the parties involved.

No, the party buying the callable swap does not have the right to terminate it. Only the swap issuer has the right to terminate the swap.

If a callable swap is terminated, the remaining payments under the swap are settled, and the swap contract is closed.

The penalties for terminating a callable swap are typically outlined in the swap contract. These penalties may include payment of a termination fee or other financial consequences.

Yes, one of the common triggers for terminating a callable swap is a significant change in interest rates. If interest rates move in a certain direction, the swap issuer may exercise their right to terminate the swap.

In some cases, the parties involved in a callable swap may choose to renegotiate the terms of the swap instead of terminating it. This would require mutual agreement and an amendment to the original swap contract.

Callable swaps are less common than traditional swaps, but they are still used in certain situations. They provide flexibility for the swap issuer to manage their exposure to interest rates or credit risk.