interest rate swap

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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 ?
As such, the most common use for derivatives in the municipal market is the execution of interest rate swaps and related interest rate-based products to hedge issuers' interest rate exposure for new, anticipated, or outstanding debt.
Electronic Interest Rate Swaps Trading Platform Increases Transparency, Efficiency in Growing Swaps Market
com) offers a secure Internet-based trading platform designed for the efficient execution of currency and interest rate swaps between banks and corporations.
In an effort to standardize the accounting for all derivative instruments, the standard requires recognition on the balance sheet at fair value of previously unrecognized derivative instruments, such as interest rate swaps used to hedge historical-cost-based assets and liabilities accounted for using accrual accounting, a step that many non-CPAs find inconsistent and illogical when compared to current practice.
After a period of reflection, the IRS has ruled that income earned on interest rate swaps and currency swaps by exempt organizations will not be subject to the unrelated business income tax (UBIT).
Simply stated, interest rate swaps are an exchange of interest-rate payments between two parties without an exchange of the underlying debt.
Eris Exchange recently launched Eris Standards, interest rate swap futures contracts with quarterly effective dates and pre-determined fixed rates that currently provide margin savings of 40-80% compared to cleared OTC interest rate swaps.
This milestone includes cleared and uncleared trades across a broad spectrum of products including cleared interest rate swaps and uncleared interest rate swaps in 27 currencies, credit default index and single name swaps, and commodity swaps.
16, 2014 /PRNewswire/ -- Javelin SEF announced today that the CFTC has certified its Made Available to Trade Submission ("MAT Submission") of Interest Rate Swaps thereby requiring mandatory trading of swaps on SEFs or exchanges.
Allied Irish Bank, Bank of Ireland, the Clydesdale and Yorkshire banks, the Co-operative Bank, Northern Bank and Santander UK will review the sale of so-called interest rate swaps to small and medium enterprises, said the Financial Services Authority.
based futures exchange, embeds the cash flows of OTC interest rate swaps into a capital-efficient futures product cleared by CME Clearing and settled to the CME OTC IRS swap curve.
It currently lists Interest Rate Swaps and Swap Spreads for clearing at both LCH and CME.

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