Interest Rate Swap

This Issue in United States

Concept of Interest Rate Swap in Futures Trading

In this context of financial law, the following is a definition of Interest Rate Swap: A swap in which the two counterparties agree to exchange interest rate flows. Typically, one party agrees to pay a fixed rate on a specified series of payment dates and the other party pays a floating rate that may be based on LIBOR (London Interbank Offered Rate) on those payment dates. The interest rates are paid on a specified principal amount called the notional principal.

Interest Rate Swap

Concept of Interest Rate Swap in the context of derivatives contract, by the International Swaps and Derivatives Association (ISDA): An agreement to exchange interest rate cash flows, based on a specified notional amount from a fixed rate to a floating rate (or vice versa) or from one floating rate to another. Such swaps are commonly used for both hedging and speculating.

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See Also

• Derivatives Contract