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What is an Interest Rate Swap? [Video]

What is an Interest Rate Swap?

Interest rate swaps are a popular derivative used by financial and non-financial companies.
In a plain vanilla interest rate swap, two parties agree to exchange cash flows at specific times in the future, with one party’s cash flows based on a fixed rate and the other party’s cash flows based on a floating rate (which is usually pegged to a floating rate index like the LIBOR).

There is a fixed-payer and a floating-payer, and each party’s cash flows are in the same currency and have the same notional amount.

The fixed rate in the transaction is known as the “swap rate.” It is determined so that the value of the swap contract is zero on the swap’s inception date. For the initial value of a swap to be zero, the value of the fixed-rate bond and floating-rate bond must be equal. For this reason, there is no premium paid by either the fixed-payer or floating-payer to enter into a plain vanilla interest rate swap.

The market makers for interest rate swaps are usually commercial banks and investment banks; they will serve as either the fixed-payer or the floating-payer.

Financial news companies collect and publish the fixed rates that banks are willing to pay or receive on interest rate swaps (bid and offer rates).

The notional amounts are not exchanged at the beginning of the contract. On payment dates, only the difference in interest changes hands.

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Resources for Accountants

How to Start and Fund Your Own Business [Video]

Embarking on the journey of starting and funding your own business is akin to setting sail on uncharted waters. It's a thrilling yet daunting endeavor that demands a blend of creativity, strategy, and financial acumen. In today's dynamic business landscape, where innovation and disruption reign supreme, the allure of entrepreneurship beckons individuals eager to carve their own path and leave a mark on the world. However, navigating the complexities of business ownership requires careful planning, unwavering commitment, and access to adequate funding. This guide aims to illuminate the path ahead, offering a roadmap for aspiring entrepreneurs to transform their vision into a tangible business reality.

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Resources for Accountants

How to Improve Your Verbal Communication Skills | Top 10 Verbal Communication Tips for Managers [Video]

Discover how to Improve Your Verbal Communication Skills. Effective verbal communication is an essential skill for managers, as it can greatly influence the success of their teams and organizations. By mastering the art of clear and concise verbal communication, managers can foster better relationships, boost productivity, and inspire their employees. To help you enhance your verbal communication skills as a manager, here are ten valuable tips, along with examples, to guide you in your journey.

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Resources for Accountants

Application of ASC 805 [Video]

This is the introductory video for the third course of the three-part Business Combinations eLearning series. Now that you are familiar with the basic accounting rules and certain ASC 805 advanced issues, this course will apply that knowledge by walking through an example acquisition and requiring you to identify the proper accounting treatment. Take the course: https://www.gaapdynamics.com/product/business-combinations-application-of-asc-805/ Buy all three courses and save! https://www.gaapdynamics.com/product/asc-805-business-combinations/ Learn more about GAAP Dynamics: https://www.gaapdynamics.com/ Check out our other online courses on the GAAP Dynamics Learning Library: https://www.gaapdynamics.com/individual-learning/ Subscribe to GAAP Dynamics to see more videos like these!

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Advanced Issues and Disclosures [Video]

This is the introductory video to our self-study eLearning course "Business Combinations: Advanced Issues and Disclosures." Check it out here: https://www.gaapdynamics.com/product/business-combinations-advanced-issues-and-disclosures/ This is the second course of the three-part Business Combinations eLearning series. Now that you are familiar with the basic accounting rules, this course dives deeper into more advanced business combination issues such as exceptions to general guidelines, noncontrolling interests, and measurement period adjustments. Learn more about GAAP Dynamics: https://www.gaapdynamics.com/ Check out our other online courses on the GAAP Dynamics Learning Library: https://www.gaapdynamics.com/individual-learning/ Subscribe to GAAP Dynamics to see more videos like these!