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 ?
Eurex Clearings offer to accelerate the development of a liquid, EU based alternative for the clearing of interest rate swaps gains broad market support.
Kungsleden AB (STO:KLED) (OSE:KGLED01) announced on Tuesday that it has increased the fixed interest term of its borrowings by entering into new interest rate swaps.
We're calling for the banks to provide the right level of compensation to businesses for the interest rate swaps scandal, and to do so promptly.
BANKING AND CREDIT NEWS-February 28, 2014--CME Clearing Europe wins B of E nod to add more OTC interest rate swaps
Global Banking News-February 24, 2014--Westpac faces lawsuit over interest rate swaps
Generally Accepted Accounting Principles (GAAP) for accounting for interest rate swaps and, separately, accounting for goodwill in a business combination for private companies.
TIME is running out for businesses that may have been mis-sold interest rate swaps to seek compensation, a Huddersfield law firm has warned.
It is believed that as many as 40,000 interest rate swaps could have been mis-sold to small businesses since the end of 2001 after the FSA highlighted serious failings in the sale of the products last summer.
The primary subject matter of this case is the use of interest rate swaps to lower capital costs and manage interest rate risk.
The addition of our full electronic Euro Interest Rate Swaps is a significant action in our efforts of providing constant trading strategies to support our strong and unequal trading infrastructures," said Karl Cullen, CEO and Senior Managing Director of Gerstein Global Futures.
ABN AMRO Clearing will expand its centralised OTC Derivatives Clearing Service offering to include central clearing of over-the-counter interest rate swaps from the beginning of December.
The bank has claimed that central clearing of interest rate swaps preserves key aspects of the OTC market while reducing counterparty risk inherent in such transactions.

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