A financial instrument representing a transaction in which two parties agree to swap or exchange net cash flows, on agreed-upon dates, for an agreed-upon period of time, for interest on an agreed-upon principal amount. The agreed-upon principal amount, called the notional amount, is never exchanged. Only the net interest cash flows are remitted. In the simplest form of interest rate swap, one party agrees to swap fixed-rate loan payments with the floating-rate payments of the other party. Interest rate swaps are often used in hedging.
See basis swap and swap. American Banker Glossary
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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. Bloomberg Financial Dictionary
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An agreement between two counterparties to exchange cash on a notional principal sum which is not exchanged. The most common structure is the fixed-for-floating swap in which one counterparty agrees to pay a rate over the term of the swap in exchange for a floating-rate payment by the other counterparty. LIFFE
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► See Swap.
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interest rate swap UK US noun [C] (also interest swap) FINANCE
► an agreement between two companies to exchange interest payments on a particular amount, often in order to protect against future changes in interest rates
Financial and business terms. 2012.