 This section is about the swap contracts, so we can go for hedging using swap contracts So when you are seeing that there could be multiple cash flows in the future involving in a contract, so you are seeing that when we are having a certain investment in a business or a contract and that yields multiple cash flows, they are not one-time payments different time periods, different points in time, you are going to have some payments and because of interest rate fluctuations or foreign exchange fluctuations, there could be some ups and downs so you might go for hedging, you will think of going for hedging, i.e. protection against these fluctuations in the interest rate or foreign exchange rate or any such price fluctuations, so you want to hedge yourself so if multiple cash flows are coming over a period of time, then there is an option which can be tried which can be which the investors might go for and we call it swap contracts In swap contracts, series of cash flows involved are specified intervals over a period of time so that is the important part of this particular type of contracts where you are doing a forward contract, but since cash flow is not one-time, there are multiple cash flows involved, so we use swap contracts here What are swap contracts? In which there are swapping of the payments that is involved and there has to be a certain principal amount which is decided to be paid in different intervals and this particular principal payment is called notional amount so you define the subsequent payments according to the notional amount and in the swap contract as well as the futures contract the immediate payment is not given by both parties which are going to do a swap contract agreement Another important thing which we need to understand is that a swap contract can be done for anything so it can be done for commodities like wheat or it can be done for precious metals like gold, silver, people who invest in it or it can be incorporated into foreign exchange so there is no restriction of specific things for swap contracts that only these things can be used in swap contracts so there are multiple types of swap contracts but generally the two types of swap contracts are done a lot they involve the interest rate swaps and the currency swaps so in currency swaps, I just told you about the exchange rate fluctuations you are forcing that there would be a lot of fluctuations in the foreign exchange rates in future so you might want to protect yourself against the fluctuations in the exchange rate risk and therefore you go for the currency swaps so swaps are not exchange traded instruments like we said futures contracts will be traded through stock market swaps are not traded through exchange market these are done over the counter which we call as customized products customized contracts which are defined by firms or financial institutions and through these firms or financial institutions their sales are purchased so the different firms and financial institutions depending upon the demand of the customers or the market demand they define these swaps contracts they make their rules and regulations according to them now there is another important thing associated with swap contracts because these firms and financial institutions are developing this is not being traded in the stock market so here there is a high probability that whatever counter parties will be involved in the parties agreement they should not default so here there is a kind of risk involved in swap contracts because this is not being traded in the stock exchange market so there is a possibility that there may be involving parties defaulting eventually in the long run so that is one bad side or bad thing associated with swaps but swaps are defined by firms and in this you can take any kind of goods to trade it and here there will be a specified time period in which you define the rate of the repayments on some equal interval and lock it accordingly so swap contracts are executed and that is another way through which you can do hedging