Question

distinguish between basis swap and total return swap

Answer 1

Basis swap refers to a swap agreement in which parties agrees to exchange floating payments for another floating payments . ie for eg. floating int rate for another floating int rate. 1 month LIBOR for a 6 month LIBOR . This swap can be used to help standardize the payments .

A total return swap is a swap agreement in which one party pays a fixed payment based on the fixed or flaoting rate for exchange of total return on the underlying asset. The total return is sum of the capital gains as wel as the income it generates.