Interest Rate Swap: 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.

 

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Interest Rate Swap: 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 part . . . View Full Definition

Asset Swap: An interest rate swap used to alter the cash flow characteristics of an institution's assets in order to provide a better match with its liabilities.

Reference Rate: A benchmark interest rate (such as LIBOR) used to specify conditions of an interest rate swap or an interest rate agreement.

Swap Sale: An interest rate swap designed to end a counterparty's role in another interest rate swap, accomplished by counterbalancing the original swap in maturity, reference rate, and notional amount.

Swap Rate: The sale of an interest rate swap by one counterparty to the other, effectively ending the swap.

Floating-Rate Preferred: In an interest rate swap, the counterparty who pays a rate based on a reference rate, usually in exchange for a fixed-rate payment.

Swap: When you swap or exchange securities, you sell one security and buy a comparable one almost simultaneously. Swapping enables you to change the maturity or the quality of the holdings in your . . . View Full Definition

Liability Swap: An interest rate swap used to alter the cash flow characteristics of an institution's liabilities so as to provide a better match with its assets.

Swaption: Also called a swap assignment, a transaction that ends one counterparty's role in an interest rate swap by substituting a new counterparty whose credit is acceptable to the other original co . . . View Full Definition

Pass-Through Rate: The net interest rate passed through to investors after deducting servicing, management, and guarantee fees from the gross mortgage coupon.