Floating-rate payer

Floating-rate payer

In an interest rate swap, the counterparty who pays a rate based on a reference rate, usually in exchange for a fixed-rate payment.

Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Floating-Rate Payer

In a plain vanilla swap, the investor who pays the floating interest rate and receives the fixed interest rate. The two legs of a plain vanilla 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. The floating rate payer gives LIBOR + 0.5% of the notional value to the fixed rate payer and, in return, receives 3.5% of the same notional value. Each party pays the other at set intervals over the life of the swap.

Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved