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Consider you have a SWAP (any kind) to hedge this SWAP, you will most likely use another Derivative,but can you use a cash|spot product to hedge this. Like Cash Equity or FX Spot

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Assuming you can find a buyer then yes – pyCthon Oct 4 '13 at 16:37

Strictly speaking a vanilla swap is not really a derivative instrument, and vanilla swaps are often considered linear products. Having said that, there are a host of non-standard swap contracts on a myriad of underlying contingent assets which would make the swap qualify as a derivative non-linear instrument.

Short answer is that it completely depends on the actual swap contract whether such can be hedged with cash instruments or not.

Example: I can sell you a swap that pays on a monthly basis 5.5 times my average mood level against the rolling average monthly Nikkei225 returns. Such contract cannot be hedged with cash products because the underlying products are not all liquid and tradable.

However a swap that pays an amount equal to the monthly coupon payments of a chosen traded bond vs another liquid interest rate benchmark can be easily hedged in cash instruments.

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