Final answer:
An equity swap is a financial contract in which parties exchange fixed cash payments for variable payments based on the returns of a stock or stock index.
Step-by-step explanation:
When parties exchange fixed cash payments for payments that depend on the returns to a stock or a stock index, they are purchasing a equity swap.
An equity swap is a financial contract in which two parties agree to exchange cash flows based on the returns of an underlying equity instrument, such as a stock or an index. It allows investors to gain exposure to the performance of a stock or a stock index without actually owning the underlying asset.