Floating-rate payer

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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.

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.
References in periodicals archive ?
At expiration the holder of a long futures position will become the fixed rate receiver and floating rate payer in an OTC interest rate swap cleared by CME Clearing.
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.
In an interest rate swap by comparison, it can be argued that the uncertainty of interim payment amounts is not material to the floating rate payer. What is important is that the floating rate payer agrees to pay an amount on a fixed day and with reference to a fixed reference, i.e.
FIXING THE FLOATING RATE What about if the floating rate payer agreed to make a series of payments of fixed amounts and then would add more if the floating equivalent was higher and would receive a refund if the floating payment due on that date was lower?
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.
Therefore, if one looks closely at this transaction overall, the floating rate payer will pay interest based on LIBOR which is clearly uncertain.
(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.