Short for call swap option. This is an exchange in which the buyer pays an option premium and gains the opportunity to enter into a specified swap agreement with the issuer on a specified future date as a fixed-rate receiver.
A swaption in general is the right to enter into an interest rate swap should it benefit the buyer to do so. The agreement is different depending on whether the buyer is the rate receiver (as in this case) or payer (as in a put option on a bond). Regardless of the arrangement, interest is always paid at a fixed rate.
In forex trading, this may occur as a currency swap. This is a system in which two parties exchange specified amounts of different currencies. Interest is paid as agreed, sometimes with one party paying a fixed amount and the other floating. When the swap reaches maturity both the principal amounts and the interest are exchanged back in full.
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