Basis Rate Swap

Filed Under » ,
Dictionary Says

Definition of 'Basis Rate Swap'

A type of swap in which two parties swap variable interest rates based on different money markets. This is usually done to limit interest-rate risk that a company faces as a result of having differing lending and borrowing rates.
Investopedia Says

Investopedia explains 'Basis Rate Swap'

For example, a company lends money to individuals at a variable rate that is tied to the London Interbank Offer (LIBOR) rate but they borrow money based on the Treasury Bill rate. This difference between the borrowing and lending rates (the spread) leads to interest-rate risk. By entering into a basis rate swap, where they exchange the T-Bill rate for the LIBOR rate, they eliminate this interest-rate risk.

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. Make The Currency Cross Your Boss

    Tap into a world of possibilities by going beyond the simple pro- or anti-dollar trade.

  4. Basic Investment Objectives

    You might know about different asset types, but do you know how each type contributes to a particular goal?

  5. Derivatives 101

    Learn how to use this type of investment as an alternative way to participate in the market.

  6. The Barnyard Basics Of Derivatives

    This tale of a fictional chicken farm is a great way to learn how derivatives work in the market.

  7. A Guide To Real Estate Derivatives

    These instruments provide exposure to the real estate market without having to buy and sell property.

  8. America's Loss Is The Currency Market's Gain

    The Smithsonian Agreement hurt the U.S. in the short-term, but was necessary in furthering real market-driven exchange rates.

  9. Are Derivatives A Disaster Waiting To Happen?

    They've contributed to some major market scandals, but these instruments aren't all bad.

  10. Besides a savings account, where is the safest place to keep my money?

    Savings accounts are safe because investors' deposits are guaranteed by the Federal Deposit Insurance Corporation (FDIC) for bank accounts or the National Credit Union Administration (NCUA) for ...
comments powered by Disqus
Marketplace
Hot Definitions

  1. Yield Elbow

    The point on the yield curve indicating the year in which the economy's highest interest rates occur. The yield elbow is the peak of the yield curve, signifying where the highest interest rates occurred.

  2. Xenocurrency

    A currency that trades in markets outside of its domestic borders.

  3. Wanton Disregard

    A standard of severe negligence. Wanton disregard is a very serious accusation that indicates that a person behaved extremely recklessly.

  4. Ultra ETF

    A class of exchange-traded funds (ETF) that employs leverage in an effort to achieve double the return of a set benchmark.

  5. Toehold Purchase

    A purchase of less than 5% of a target company's outstanding stockmade by an acquiring company. A toehold purchase of just under 5%, while not a significant stake in a firm, allows the shareholders a "toe-holds" grip on the company and its decision making.

  6. Samurai Bond

    A yen-denominated bond issued in Tokyo by a non-Japanese company and subject to Japanese regulations.
Trading Center
http://sp.fastclick.net/ad/tr/10858-64082-15546-0?mpt=a7a60841787d957278a96550dbedd257