Business and Personal Finance Dictionary

# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z 

• INTEREST RATE SWAP
  
  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.
  
  Back