interest rate swap

(redirected from Swaps, Interest Rate)

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 ?
As of March 31, 2016, 67% of the Company's combined funding and net TBA balance was hedged through a combination of interest rate swaps, interest rate swaptions and U.S.
Since launching on October 2, more than USD 160bn in volume across credit default swaps, interest rate swaps, and foreign exchange and commodity derivatives has been executed on Bloomberg's SEF.
Regulations will cover derivatives that have traditionally been traded off an exchange such as credit default swaps, interest rate swaps and commodity derivatives.
The most common types of interest rate derivatives include interest rate swaps, interest rate caps, basis swaps, and rate locks.
They develop a methodology that can be used to quantify credit exposure involved in various types of currency swaps, interest rate swaps, and from off-balance-sheet operations.
Specific items included in the forward-type category of derivative financial instruments include forward interest rate agreements, futures contracts interest rate swaps, interest rate collars, and commitments to purchase stock or bonds.