Interest rate swap.. Easy Definition.. #ChartAcc
Friday, January 17, 2014
0 Comments
ChartAcc.com - An interest rate swap is:
Net of payments are exchanged on a fixed interest rate for payments based on a floating rate, often LIBOR.
- An agreement in between 2 parties
- to make interest payments to each other
- for a set period
- based upon a notional principal (Used for calculation only, no risk is attached to it.)
The fixed rate is known as the swap rate.
Example:
Party A pays a fixed rate to to party B and receives a variable rate in exchange from party B.
Uses:
- to hedge against interest rate exposure,
- to speculate on future interest rate movements
- to obtain a higher yield on assets.
Subscribe to:
Post Comments (Atom)
 |
| CHARTACC Share space for Chartered Accountants and Financial Professionals |