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 ?
The derivative portfolio has consisted of both regular interest-rate swaps and structured instruments.
This is the first time that IFC is offering interest-rate swaps in Sri Lanka.
Jones thinks I am misunderstanding Goldman Sachs' motive for engaging in interest-rate swaps. Goldman Sachs, he writes, is just like your bookie taking a bet on the Notre Dame-Michigan game.
There were $639 trillion in over-the-counter derivatives contracts outstanding as of June 30, while the notional value of interest-rate swaps totaled $379 trillion, according to the Bank for International Settlements.
The Financial Services Authority (FSA) said Santander UK, Allied Irish Bank, Bank of Ireland, the Co-operative Bank and Clydesdale and Yorkshire banks had agreed to adopt the same approach being used by the UK's biggest banks in offering redress to firms mis-sold interest-rate swaps.
Business owners who were mis-sold interest-rate swaps suffered "a difficult and distressing experience with many people's livelihoods affected", the Financial Services Authority said.
53 to permit the continued use of hedge accounting for interest-rate swaps and commodity swaps, in the circumstances just described, provided that:
The product, called the NASDAQ OMX Interest Rate Swap (NOIS), is a futures contract for interest-rate swaps that makes it possible to obtain exposure to the SEK swap curve.
A report on LDI released earlier this year by Russell Investments suggests that the fall-out from the problems experienced by complex mortgage securities might scare plan sponsors away from employing LDI strategies involving derivatives, such as interest-rate swaps. But the Russell report concludes that over the next five years, adoption of LDI strategies is likely to become widespread as sponsors of pension plans react to the losses they've suffered over the last year.
Dow Jones Newswires (New York; Singapore) has launched 'Dow Jones CommentaryPlus,' a real-time commentary and analysis service focused on the interest-rate swaps and foreign-exchange options markets in G7 and Asia-Pacific countries.
Many taxpayers enter into interest-rate swaps to hedge debt instruments.
"They are more likely to see interest-rate swaps," he said, adding that "they will have the information they need if they focus on FASB statement no.