Swap is a transaction that involves the simultaneous exchange of rates or profitability between financial assets by different economy players. The Central Bank of Brazil uses this tool with the aim of preventing dysfunctional movements in the Brazilian foreign exchange market.

The purpose of swap transactions is to offer exchange rate hedging against excessive fluctuations in the U.S. Dollar to the Brazilian Real, in addition to providing liquidity to the domestic exchange market. When the Central Bank of Brazil buys swap contracts it is like injecting U.S. Dollars into the futures market.

When a company holds financial assets linked to the U.S. Dollar variation and seeks to swap this index for a fixed rate bond, without disposing of the asset, it can carry out this transaction through a rate swap.

In the swap contract, the Central Bank of Brazil undertakes to pay the swap holder the U.S. Dollar variation plus an interest rate called "DI x U.S. Dollar Spread", while receiving the variation in the domestic interest rate accrued over the same period (Selic rate). Therefore, whoever sells the contract is hedged in the event of an increase in the U.S. Dollar exchange rate, but assumes the responsibility of paying the Selic rate to the buyer, who, in this case, is the Central Bank.   

This contract works as a hedging tool against U.S. Dollar-denominated interest rate fluctuations. Thus, the DI x U.S. Dollar Spread can be interpreted as the return in U.S. Dollars for foreign investors who assume the risk of investing in Brazil.