DEFINITION of 'Accrual Swap'
A form of discrete timeswitch option in which the interest on one side accrues only if certain conditions are met. Payment of interest in the accrual swap occurs if the reference rate, such as LIBOR or EURIBOR, is above or below a certain level. One party pays the standard floating reference rate, and in turn receives the reference rate plus a spread. Interest payments to the counterparty will only accrue for days in which the reference rate stays within a certain range.
BREAKING DOWN 'Accrual Swap'
Investors and companies utilizing accrual swaps assume the risk that the reference rate will stay in a certain range. The broader the lower and upper cap, the greater the risk that the reference rate will fall within this range, which is typically what is desired since interest will not be accrued.
For example, a company with a floatingrate obligation denominated in euros wants to hedge its exposure by paying a fixed rate which is below the market rate. The floating rate is conditional on how many days EURIBOR is within an agreed upon range during a set period. The goal of the company is to obtain a lower fixed rate by assuming the risk that the EURIBOR rate will fall outside of the agreed upon range.

Reference Rate
An interest rate benchmark upon which a floatingrate security ... 
Euro Interbank Offer Rate  EURIBOR
The rates offered to prime banks on euro interbank term deposits. ... 
Panel Bank
The name given to the group of banks contributing to the Euro ... 
Bond Market Association (BMA) Swap
A type of swap arrangement in which two parties agree to exchange ... 
Delayed Rate Setting Swap
An exchange of cash flows, one of which is based on a fixed interest ... 
FixedForFloating Swap
An advantageous arrangement between two parties (counterparties), ...

Investing Basics
How Are Interest Rate Swaps Valued?
When trading in financial markets, higher returns are generally associated with higher risk. Hedge your risk with interest rate swaps. 
Investing Basics
Managing Interest Rate Risk
Interest rate risk stems from the possibility that an interestbearing assetâ€™s value will change due to changing interest rates. 
Trading Strategies
Interest Rate Swaps Explained
Plain interest rate swaps that enable the parties involved to exchange fixed and floating cash flows. 
Options & Futures
An Introduction To Swaps
Learn how these derivatives work and how companies can benefit from them. 
Options & Futures
Managing Interest Rate Risk
Learn which tools you need to manage the risk that comes with changing rates. 
Trading Systems & Software
The FastPaced World of Libor & Fixed Income Arbitrage
LIBOR is an essential part of implementing the swap spread arbitrage strategy for fixed income arbitrage. Here is a stepbystep explanation of how it works. 
Markets
Earnings Quality: Measuring Accruals
By Tim Keefe,CFA (Contact Author  Biography)As was noted earlier, earnings management is predominantly a function of manipulating accruals, so it is intuitive to use the magnitude of accruals ... 
Economics
Who Uses Libor Data And Why?
LIBOR is a crucial benchmark reference rate with global economic impact. 
Investing
What's Accrued Interest?
Accrued interest has two meanings. In accounting, it is interest that has been earned, but the time for payment has not yet occurred. 
Markets
Earnings Quality: Investigating The Financing Of Accruals
By Tim Keefe,CFA (Contact Author  Biography)Along with the timeseries plots above, which illustrated scenarios where a firm experiences a large jump for two operatingassets accruals, investigation ...

Can individual investors profit from interest rate swaps?
Find out how individual investors can speculate on interest rate movements through interest rate swaps by trading fixed rate ... Read Answer >> 
What are interest rate swaps on the OTC market?
Learn about interest rate swaps and how they are traded over the counter, and understand the impact of DoddFrank on swaps ... Read Answer >> 
What is an absolute rate?
An absolute rate is easy to understand once you know the basics of an interest rate swap. An absolute rate is the fixed rate ... Read Answer >> 
Do interest rate swaps trade on the open market?
Learn how interest rate swaps are traded on the OTC and interbank markets, and how these swaps can be used to arbitrage different ... Read Answer >> 
Why do businesses calculate accrued expenses?
Find out why businesses calculate accrued expenses, how they are applied and what circumstances give rise to accrual entries ... Read Answer >> 
What is accrual accounting used for in finance?
Read about the accrual method of accounting, its uses and rules, and why it is considered so important for investors, lenders ... Read Answer >>