What is a key characteristic of a callable swap?

A callable swap is specifically designed to give one of the parties the option to terminate the swap agreement before its maturity date. This feature is significant because it provides flexibility in managing interest rate exposure. If interest rates change in a way that is more favorable for one party, they can choose to end the swap early and potentially refinance or enter into a new agreement under better terms.

This characteristic is important in financial markets, as it allows the party with the call option to respond to favorable market conditions, which adds a layer of strategic financial management. Other characteristics found in swaps, such as fixed payments or equal payment obligations, do not define a callable swap's unique property of early termination, making it a critical feature for parties seeking to manage interest rate risks effectively.