Interest Rate Swap

Definition - What does Interest Rate Swap mean?

An interest rate swap is a type of financial derivative that is liquid; the purpose of the swap is for two parties to agree to an exchange of interest rate cash flows based on a notional amount, which is specifically based on the difference between the fixed rate and the floating rate. The main purpose of an interest rate swap is to hedge an investment or speculate on future rates.

Justipedia explains Interest Rate Swap

An interest rate swap is usually linked to the LIBOR rates, which is the average exchange rate at which banks lend money to other banks.

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