interest rate swap

(redirected from Forward starting 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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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

interest rate swap

See swap.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

interest rate swap

see SWAP.
Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005
References in periodicals archive ?
However, gains on forward starting swaps settled prior to the change in the corporate tax rate will continue to be tax effected at 35 percent as they are amortized into net investment income.
Forward starting swaps hedge rate and spread risk, match cash flows exactly, and hedge the curve.
The company will use the funds to repay its senior revolving credit, settle certain forward starting swaps contracts, make payments on the sale-leaseback agreement related to its refractory ore treatment plant in Nevada and for general corporate purposes such as exploration and development-related funding and capital returns to stockholders.
The firm aims to use the funds from the offering for repayment of the outstanding balance under the Company's senior revolving credit facility, settlement of certain forward starting swaps contracts, remaining payments to be made during 2012 in connection with the exercise of the early purchase option under the sale-leaseback agreement relating to the Company's refractory ore treatment plant in Nevada, and for general corporate purposes.
The Company has entered into $4.0 billion of pay-fixed interest rate swaps, excluding forward starting swaps of $1.7 billion (approximately 13.7 months forward), which have variable maturities between October 2017 and February 2044, and $3.7 billion notional value of pay-variable interest rate swaps, which have variable maturities between February 2020 and February 2045.

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