# Fixed-rate payer

## 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 ?
Under such arrangements, the fixed-rate payer usually has the right to terminate the swap after a certain time if rates fall.
X entered into a \$10,000,000, 5-year swap on which it is a fixed-rate payer of 9.5% against six-month LIBOR (London Interbank Offer Rate, which is the floating rate commonly used in swaps).
That is, if the reset rate agreed to on date t is ([F.sub.t, N-t] + [Epsilon]), as opposed to its "true" level of [F.sub.t, N-t], the fixed-rate payer would then be required to make higher future settlement payments but receive the present value of this amount as an unwind payment at date t.
Thus, if a firm enters the three-year swap as the fixed-rate payer at the market rate of 11%, it knows in advance that it is scheduled to make a settlement payment in one year equal to [F.sub.0, 3] - [I.sub.0] = 3% times the notional principal.
A straightforward interest rate swap might require one party--the "fixed-rate payer"--to pay a fixed interest rate times a notional principal amount at the end of each of the next five years; the counterparty would be required to pay the floating London interbank offered rate times the same notional principal amount at the same intervals.

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