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 ... 
Accrue
The ability for something to accumulate over time. In finance, ... 
Swap Rate
The rate of the fixed portion of a swap as determined by its ... 
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 ... 
Interest Rate Swap
An agreement between two parties (known as counterparties) where ...

Trading
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
What's an Interest Rate Swap?
An interest rate swap is an exchange of future interest receipts. Essentially, one stream of future interest payments is exchanged for another, based on a specified principal amount. 
Investing
How To Read Interest Rate Swap Quotes
Puzzled by interest rate swap quotes terminology? Investopedia explains how to read the interest rate swap quotes 
Trading
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
Interest Rate Swaps Explained
Plain interest rate swaps that enable the parties involved to exchange fixed and floating cash flows. 
Managing Wealth
An InDepth Look At The Swap Market
The swap market plays an important role in the global financial marketplace; find out what you need to know about it. 
Trading
Different Types of Swaps
Investopedia explores the most common types of swap contracts. 
Trading
An Introduction To Swaps
Learn how these derivatives work and how companies can benefit from them. 
Managing Wealth
Managing Interest Rate Risk
Learn which tools you need to manage the risk that comes with changing rates. 
Investing
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.

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Do interest rate swaps trade on the open market?
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