interest rate swap

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Related to interest rate swap: Currency swap

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 ?
5) If LC Inc issues a fixed rate bonds and engages in the interest rate swap, what is the net cost of financing for LC Inc.
Yankson argues that in an interest rate swap both parties are sharing the risk and a case can be made for allowing interest rate swaps to be Shari'ah compliant without resorting to buying and selling commodities.
The execution of an interest rate swap or similar product typically does not affect the nature of an issuer's obligation or its legal liability to bondholders on any related bond issue.
Interest rate swaps are easily arranged and simple to execute, which explains their explosive growth.
DERIVATIVES REPRESENT a broad range of financial instruments that derive their value from other instruments, including futures and options, forwards, currency and interest rate swaps and various kinds of combinations.
The transactions delivered by MarkitSERV and cleared through CME Clearing were interest rate swaps involving BofA Merrill Lynch and Nomura Securities International, Inc.
If a loan is sold with disproportionate sharing of credit risk or interest rate risk, the credit guarantee or the implicit interest rate swap should be considered attached to the portion of the loan retained for purposes of determining that portion's fair value.
This is an important evolutionary step for the interest rate swap market, and represents our continued commitment to reducing systemic risk in the market," said Chris Murphy, Global Head of Interest Rate Derivatives.
Deliverable Swap Futures benefit clients by providing a unique new way to access interest rate swap exposure, further strengthening our position as the leading OTC clearing solution for U.
The interest rate swap was invented in the early 1980s to aid companies able to borrow cheaply at floating interest rates but seeking fixed rates and vice versa.
It currently clears approximately 70% of the global interbank interest rate swap market with a notional value of USD208 trillion and approximately 90% of all new inter-dealer swap activity.
The case is believed to be one of the first cases in the country where a bank has been held liable for fraud in connection with the sale of an interest rate swap.

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