Arrears Swap

Filed Under » , ,
Dictionary Says

Definition of 'Arrears Swap'

An interest rate swap in which the floating payment is based on the interest rate at the end of the period. The payment is made at the end of the period, eliminating the time lag between setting the amount and paying it.
Investopedia Says

Investopedia explains 'Arrears Swap'

This type of swap is often used by speculators who attempt to predict the yield curve. It is better suited for speculating than a normal interest rate swap, since it allows speculators to receive payments that reflect the timeliness of their predictions.

For example, let's say speculators believe the current yield curve is too flat. They can purchase an arrears swap, which will pay them a floating payment each period. The fixed payment will be set to reflect the current market yield. If the speculators are correct and the yield curve steepens, they will receive a higher floating payment, while still making a relatively lower fixed payment.

Articles Of Interest

  1.

    An Introduction To Swaps

    Learn how these derivatives work and how companies can benefit from them.

  2. How Companies Use Derivatives To Hedge Risk

    Derivatives can reduce the risks associated with changes in foreign exchange rates, interest rates and commodity prices.

  3. 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 principal amount. However, in an interest rate swap, the principal amount ...

  4. What is a debt/equity swap?

    Occasionally, a company will need to undergo some financial restructuring to better position itself for long term success. One possible way to achieve this goal is to issue a debt/equity or an ...

  5. 6 Asset Allocation Strategies That Work

    Your portfolio's asset mix is a key factor in whether it's profitable. Find out how to get this delicate balance right.

  6. Managing Interest Rate Risk

    Learn which tools you need to manage the risk that comes with changing rates.

  7. Nobel Winners Are Economic Prizes

    Before you try to profit from their theories, you should learn about the creators themselves.

  8. Investing During Uncertainty

    The inability to forecast future events can turn the markets upside down. Find out how to stay right-side up.

  9. An Overview Of Commodities Trading

    Commodities markets, both historically and in modern times, have had tremendous economic impact on nations and people. Investing in commodities can quickly degenerate into gambling or speculation ...

  10. The Copper King: An Empire Built On Manipulation

    Find out how Yasuo Hamanaka's actions in the copper market forever changed the rules for commodity traders.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Racketeering

    Racketeering refers to criminal activity that is performed to benefit an organization such as a crime syndicate. Examples of racketeering activity include...

  2. Lawful Money

    Any form of currency issued by the United States Treasury and not the Federal Reserve System, including gold and silver coins, Treasury notes, and Treasury bonds. Lawful money stands in contrast to fiat money, to which the government assigns value although it has no intrinsic value of its own and is not backed by reserves.

  3. Fast Market Rule

    A rule in the United Kingdom that permits market makers to trade outside quoted ranges, when an exchange determines that market movements are so sharp that quotes cannot be kept current.

  4. Absorption Rate

    The rate at which available homes are sold in a specific real estate market during a given time period.

  5. Yellow Sheets

    A United States bulletin that provides updated bid and ask prices as well as other information on over-the-counter (OTC) corporate bonds...

  6. Bailment

    The contractual transfer of possession of assets or property for a specific objective.
Trading Center