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Querist : Anonymous (Querist)
30 June 2012 interest rate swaps concepts
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Aniket

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Aniket (Expert)
17 July 2012 An interest rate swap is on a simple basis an exchange of cash flows based on interest rates of a predecided prinicpial at regular intervals.

In its simplest form,
an Int Rate Swap works like:

Principal: $100M
Fixed Rate payer - 5%
Floating rate - LIBOR based

If :LIBOR is 6% on settlement day, (assumed 1 yr)

FLoating rate payer party pays a net of $1M (6-5)% * $100M to fixed rate party.

IRS payments are almost always netted.
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