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Recall that a forward contract, whether on an interest rate, a currency, or an equity, is an agreement for one party to make a fixed payment to the other, while the latter party makes a variable payment to the former. A swap extends this notion by combining a series of forward contracts into a single transaction. There are, however, some subtle differences between swaps and forward contracts. For example, swaps are a series of equal fixed payments, whereas the component contracts of a series of forward contracts would almost
always be priced at different fixed rates.I4 In this context we often refer to a swap as a series of off-market forward contracts, reflecting the fact that the implicit forward contracts that make up the swap are all priced at the swap fixed rate and not at the rate at which they would normally be priced in the market. In addition, in interest rate swaps, the next payment that each party makes is known. That would obviously not be the case for a single forward contract. Other subtleties distinguish currency swaps from a series of currency forwards and equity swaps from a series of equity forwards, but in general, it is acceptable to view a swap as a series of forward contracts.