Total Return Swap
Definition
What is Total Return Swap?
A swap transferring an asset's total economic return, including income and price changes, without transferring legal ownership.
Example in practice
How This Looks in Practice
A bank pays the return on a bond portfolioThe complete collection of investments owned by an investor or managed under one mandate. to a hedge fundA privately offered pooled fund that may use leverage, short selling, derivatives, and flexible strategies..
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Related Terms
Derivative
A contract whose value depends on an underlying asset, rate, index, or event.
DerivativesUnderlying Asset
The asset, rate, index, or reference on which a derivative's value is based.
DerivativesNotional Amount
The reference amount used to calculate derivative payments, which may exceed the cash initially exchanged.
Derivatives StrategiesCovered Call
A strategy that owns the underlying asset and sells call options against it.