What is a balance of month swap?

A balance of month swap is a financial derivative transaction where two parties agree to exchange cash flows based on the difference between interest rates, typically over a specified period. It often involves the exchange of fixed interest payments for floating ones, calculated on a notional principal amount. This type of swap is commonly used by institutions to manage interest rate risk or to speculate on future interest rate movements. The "balance of month" aspect refers to the timing of cash flows, which are settled at the end of the month.