en     ru     jp
 
 
private banking
private banking
private banking
private banking
private banking
private banking
private banking
     
 
Home
      
Knowledge Base
      
Equity Derivatives and Structured Products Glossary
      
Interest rate swap
       
 
Back

Interest rate swap

 Search definitions     
  Search  

Interest rate swap
An agreement to Exchange net Future cashflows. Interest rate swaps most commonly change the Basis on which liabilities are paid on a specified principal. They are also used to transform the Interest Basis of assets. In its commonest form, the fixed-floating Swap, one counterparty pays a Fixed Rate and the other pays a floating rate based on a reference rate, such as Libor. There is no Exchange of principal – the Interest rate payments are made on a notional amount. In floating-floating swaps the two counterparties pay a floating rate on a different index, such as three-month Libor versus six-month Libor. Swaps usually extend out as far as 10 years, although 12–40 year maturities are available in some liquid currencies. However, the longer the maturity of the Swap, the less liquid it becomes and Credit risk increases. Credit enhancements such as mutual put options and Collateral are used to ameliorate the Credit risk of longer term swaps. Interest rate swaps provide users with a way of Hedging the effects of changing Interest rates. For example, a company can convert floating-rate Interest payments to fixed-rate payments if it thinks Interest rates Will rise (which would make its liabilities more expensive). Companies can also use Interest rate swaps in conjunction with new Debt issuance, raising money on, say, a fixed Basis and swapping it into floating-rate Debt. In an Interest rate Swap there is a fixed-rate payer (floating-rate receiver) and a fixed-rate receiver (floating-rate payer).
Posted by  Privatebanking.com
 
  Back  
  Print  
  Email  

 

private banking
Get Adobe Flash Player to view the media
FlashPlayer required to view the media
private banking
private banking
private banking
private banking
private banking

 
Home News Library Newsletters Event Calendar Advertise About Contact FAQ
Privacy Policy     Terms of Service
 

©