Accreting Principal Swap

AAA

DEFINITION of 'Accreting Principal Swap'

A derivative where counterparties exchange financial instrument benefits, involving a growing notional principal amount. An accreting principal swap, is an interest rate or cross-currency swap where the notional principal grows as it reaches maturity. This type of swap may be used in instances where the borrower anticipates the need to draw down funds over a certain period of time but wants to fix the cost of the funds in advance.

Also called accreting swap, accumulation swap, construction loan swap, drawdown swap and step-up swap.

INVESTOPEDIA EXPLAINS 'Accreting Principal Swap'

An example of a situation where an accreting principal swap might be sought, is to fix the costs in response to a project's funding requirements. An accreting principal swap is priced by determining the cost of deferring the various trances of the principal along with the legs of the swap itself.

RELATED TERMS
  1. Reverse Swap

    An exchange of cash flow streams that undoes the effects of an ...
  2. Notional Principal Amount

    In an interest rate swap, the predetermined dollar amounts on ...
  3. Interest Rate Swap

    An agreement between two parties (known as counterparties) where ...
  4. Notional Value

    The total value of a leveraged position's assets. This term is ...
  5. Swap

    Traditionally, the exchange of one security for another to change ...
  6. Cash-And-Carry Trade

    A trading strategy in which an investor buys a long position ...
RELATED FAQS
  1. What is a "gypsy swap"?

    A gypsy swap is a unique method by which a company may raise capital without issuing debt or holding a secondary offering. ... Read Full Answer >>
Related Articles
  1. Mutual Funds & ETFs

    The Alphabet Soup Of Credit Derivative Indexes

    Find out how these instruments work and how they are used in the market.
  2. Options & Futures

    An Introduction To Swaps

    Learn how these derivatives work and how companies can benefit from them.
  3. Options & Futures

    Give Yourself More Options With Real Estate Options

    Real estate options have many benefits, including a smaller initial capital requirement.
  4. Options & Futures

    How to Use Commodity Futures to Hedge

    Both producers and consumers of commodities can use futures to hedge. We explain, using a few examples, how to achieve commodity hedging with futures.
  5. Investing

    How To Take Advantage Of A Stronger U.S. Dollar?

    If you are invested in the market, you will feel the effects of a stronger dollar, especially if overseas interests are part of your diversified portfolio
  6. Brokers

    OptionsXpress Vs. OptionsHouse: Which One To Pick?

    OptionsXpress and OptionsBroker -- each offers a price mix and set of services suitable for certain investors based on their trade approach and priorities.
  7. Options & Futures

    The Future Is Now: All About Futures ETFs

    A new security class - futures ETFs - is gaining popularity. We tell you how futures ETFs work and offer tips.
  8. Investing

    What Warren Buffet Calls "Weapons of Mass Destruction": Understanding the Swap Industry

    A full analysis of how the swap industry works.
  9. Investing Basics

    The Strange New World Of The Bitcoin Exchange Futures Market

    We explain the basics of the Bitcoin exchange and futures market.
  10. Trading Strategies

    Trade Weekly & Up Your Reward Potential

    Weekly patterns sidestep the HFT maelstrom by aligning trade entries and exits with the edges of longer-term trends.

You May Also Like

Hot Definitions
  1. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  2. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  3. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  4. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  5. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  6. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
Trading Center