Delayed Rate Setting Swap

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DEFINITION of 'Delayed Rate Setting Swap '

An exchange of cash flows, one of which is based on a fixed interest rate and one of which is based on a floating interest rate, in which the spread (difference) between the fixed and floating interest rates is determined when the swap is initiated but the actual interest rate is not determined until later. The swap contract will define the amount of time the investor has to lock the swap's fixed interest rate.

BREAKING DOWN 'Delayed Rate Setting Swap '

A delayed rate setting swap is also called a "deferred rate setting swap" or "spread lock". This type of interest-rate swap might be desirable if the investor expects interest rates to change in its favor in the near future but likes the spread currently available. Once the fixed interest rate has been set, a delayed rate setting swap acts like a regular interest rate swap.

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RELATED FAQS
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    The primary risks associated with trading derivatives are market, counterparty, liquidity and interconnection risks. Derivatives ... Read Full Answer >>
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    Value at risk (VaR) calculations may be helpful for risk management when trading credit default swaps and other derivatives ... Read Full Answer >>
  3. For what financial instruments is a modified duration relevant?

    The modified duration is a formula used to calculate the percent change in the price of a financial instrument when there ... Read Full Answer >>
  4. What is the difference between derivatives and swaps?

    Derivatives are securities with prices dependent on one or multiple underlying assets. Common derivatives include forward ... Read Full Answer >>
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    Tenor – the amount of time left on a debt security's maturity – is important in a credit default swap because it coordinates ... Read Full Answer >>
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