Swap market convention

Swap Market Convention means, the terminology prevailing in Swap Market.

There are two type of Swaps-

Generic Swap- Normally Generic Swaps are used in practice, where, Floating rate is exchanged with  Fixed rate.

Non-Generic Swap- Where, Floating Rate is exchanged against Floating Rate for example LIBOR with MIBOR or LIBOR with Prime Rate etc.

AIC- All in Cost  agreement, where Swap Commission in included in the rate given in the problem.

Fixed To LIBOR Flat means there is no fixed Component added in the LIBOR. e.g. If LIBOR is 6% and Fixed Rate is 8% that means, Fixed Rate of 8 % will be exchanged against LIBOR Flat i.e. 6%. Normally, floating rate is expressed in terms of LIBOR +- fixed component.

sometimes, fixed rate is also expressed as Risk Free Treasury Rate +- " premium/discount" say Treasury Rate + "72-76" that means if treasury rate is 8%, there are two rates for fixed rates one is 8.72% and other is 8.76%, one is buying and other one is selling rate.

This thing is well explained in the book.