Fixed for floating swap


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Fixed for floating swap

An interest rate swap in which the fixed rate payments are swapped for floating rate payments.

Interest Rate Swap

The exchange of interest rates for the mutual benefit of the exchangers. The exchangers take advantage of interest rates that are only available, for whatever reason, to the other exchanger by swapping them. The two legs of the swap are a fixed interest rate, say 3.5%, and a floating interest rate, say LIBOR + 0.5%. In such a swap, the only things traded are the two interest rates, which are calculated over a notional value. Each party pays the other at set intervals over the life of the swap. For example, one party may agree to pay the other a 3.5% interest rate calculated over a notional value of $1 million, while the second party may agree to pay LIBOR + 0.5% over the same notional value. It is important to note that the notional amount is arbitrary and is not actually traded. This is also called a plain vanilla swap.
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However, Fitch projects that the deal can be exposed to interest rate risk if the amortization of the $200 million fixed rate assets extend while the fixed for floating swap notional, currently at $164 million, continues to amortize.
It has also been expanded to offer cross currency fixed for floating swaps for these two currencies, along with any combination of the 13 additional currencies it covers, including: Australian dollars, British pounds, Czech koruna, Danish krone, Euros, Hungarian forint, Japanese yen, Norwegian krone, Polish zloty, Swedish krona, Swiss Francs, South African rand, and U.