interest rate swap

(redirected from Fixed-for-Floating Swaps)

Interest rate swap

A binding agreement between counterparties to exchange periodic interest payments on some predetermined dollar principal, which is called the notional principal amount. For example, one party will pay fixed and receive variable.

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.

interest rate swap

See swap.

interest rate swap

see SWAP.
References in periodicals archive ?
We assume that all fixed-for-floating swaps are plain vanilla and that they are therefore subject to central clearing and initial margins reflecting a 99.7 percent confidence threshold for five-day losses.
We can conclude that the price sensitivity of the CMT swap is similar to the price sensitivities of fixed-for-floating swaps on a five-year Treasury rate and a ten-year Treasury rate.[15] Using the data in Exhibit A4, the chart on this page offers a graphic representation of the concept of separability.