Fixed-rate payer

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Fixed-rate payer

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

Fixed-Rate Payer

In a plain vanilla swap, the investor who pays the fixed interest rate and receives the floating 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 fixed rate payer gives 3.5% of the notional value to the floating rate payer and, in return, receives LIBOR + 0.5% of the same notional value. Each party pays the other at set intervals over the life of the swap.
References in periodicals archive ?
The primary Murabaha contract will see a floating rate payer buy a commodity from broker 1, and immediately sell the commodity to the fixed rate payer. The fixed rate payer will immediately sell the commodity to broker 2 to generate cash.
In brief, the fixed rate payer buys commodities every three months, sells them to the floating rate payer who onward sells them immediately and pays the fixed rate payer the cost of the commodities plus the fixed rate payers profit on the sale, which is linked to a floating rate formula.
The amount of the fixed rate payer's profit is uncertain as it is linked to LIBOR.
There is, however, the uncertainty of the profit paid to the fixed rate payer. In Yankson's view this uncertainty is exactly the same as that contained in an interest rate swap contract and therefore, there is a case for arguing that those contracts should not fail for lack of Gharar.
This is due to the fact that no sooner has the fixed rate payer bought the asset, it is sold to the floating rate payer and onto the floating rate payer's agents.
In substance under the profit swap, all that is essentially happening is that a floating rate payer is paying LIBOR and a fixed rate payer is paying a fixed amount.
(6) Strictly speaking, the contract would call for the exchange of the difference between (1 + [pi])H(n) and S(n): the fixed rate payer would pay (1 + [pi])H(n) - S(n) if (1 + [pi])H(n) - S(n) > 0, and the floating rate payer would pay S(n) - (1 + [pi])H(n) if (1 + [pi]H(n) - S(n) < 0.
Floating rate payments by the dealer will ideally offset the issuer's variable-rate debt exposure such that the issuer is, as a consequence of the debt issuance taken together with the swap, a net fixed rate payer. As noted later in this piece, a basis risk is involved, as the variable swap rate received is structured to be close to the variable-rate interest payment made.

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