Absolute Rate

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DEFINITION of 'Absolute Rate'

The fixed portion of an interest-rate swap, expressed as a percentage rather than as a premium or a discount to a reference rate.

BREAKING DOWN 'Absolute Rate'

The absolute rate is a combination of the reference rate and the premium or discounted fixed percentage. For example, if the LIBOR is 3% and the fixed interest portion of the swap is at a 7% premium, the absolute rate is 10%.

It is sometimes also referred to as an absolute swap yield.

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    Value at risk (VaR) calculations may be helpful for risk management when trading credit default swaps and other derivatives ... Read Full Answer >>
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  4. What is the difference between derivatives and swaps?

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