An index swap refers to a hedging contract in which a party exchanges a predetermined cash flow with a counter-party on a specified date. A debt, equity or other price index is used as the agreed exchange for one side of this swap. An overnight index swap applies an overnight rate index such as the federal funds or Libor rates. Index swaps are specialized groups of conventional fixed rate swaps, with terms that can be set from three months to more than a year.
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