Swaps forward-start

A forward-start swap s effective date is a considerable period—say, six months—after the trade date, rather than the usual one or two days. A forward start is used when one counterparty, perhaps foreseeing a rise in interest rates, wants to fix the cost of a future hedge or a borrowing now. The swap rate is calculated in the same way as for a vanilla swap. 

Swaptions are similar to forward-start swaps, except that the buyer can choose not to commence payments on the effective date. A bank may purchase a call swaption if it expects interest rates to rise it will exercise only if rates do indeed rise. A company may use swaptions to hedge future... 

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