What does Macroeconomic Swap mean?
A swap based on a macroeconomic factor. Macroeconomic Swap, also called macro swap,is an agreement wherein two parties exchange cash flows according to a predetermined macroeconomic factor such as Forex Rate and Interest rate. It is a cost effective substitution for Option Forwards.
Futures Knowledge Explains Macroeconomic Swap
If the cash flows are exchanged on the basis of foreign exchange rate, it is known as a Currency Swap. If the cash flows are exchanged on the basis of interest rates, it is known as an Interest Rate Swap. The variable cash flows are converted into fixed line of payments to reduce the risk.
Companies with revenues that are closely correlated with a macroeconomic indicator or business cycles use macro swap to hedge the risk. Macroeconomic hedge fund also follow this strategy to profit anticipating macroeconomic events.In macro swaps, the underlying asset cannot be traded.