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 ... 
Bond Market Association (BMA) Swap
A type of swap arrangement in which two parties agree to exchange ...

Markets
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. 
Managing Wealth
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 asset’s value will change due to changing interest rates. 
Investing
Interest Rate Swaps Explained
Plain interest rate swaps that enable the parties involved to exchange fixed and floating cash flows. 
Investing
Different Types of Swaps
Investopedia explores the most common types of swap contracts. 
Trading
Managing Interest Rate Risk
Learn which tools you need to manage the risk that comes with changing rates. 
Markets
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. 
Trading
Hedging With Currency Swaps
The wrong currency movement can crush positive portfolio returns. Find out how to hedge against it. 
Investing
How To Decipher Accrual Accounting
Accrual accounting is an important method of measuring the performance and position of a company. Learn more on how its used. 
Markets
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.

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 >> 
How did the LIBOR scandal affect interest rate swaps?
Find out how the LIBOR scandal directly enriched some interest rate swap traders and harmed others by understating the real ... Read Answer >> 
How do companies benefit from interest rate and currency swaps?
An interest rate swap involves the exchange of cash flows between two parties based on interest payments for a particular ... 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 >>