Airbag Swap

If you are driving under a suspended license and get into an accident, an airbag swap is, uh...when you change places with the passenger before the cops show up.

In reality, it's an interest rate swap where the underlying value changes according to changes in prevailing interest rates.

If you're already confused, we'll take it a step at a time. An interest rate swap is a type of derivative contract that involves trading (i.e. swapping) interest rates. In an airbag swap, the notional value of the transaction is allowed to move according to overall interest rates. This allows the traders to hedge investments that closely follow fluctuating interest rates.

As for the other kind of airbag swap, if you do get smashed, it's probably a good idea to not move, stay in the driver's seat, and deal with the consequences. We're not lawyers, so you're on your own.