Investopedia

Fixed-For-Floating Swap

Dictionary Says

Definition of 'Fixed-For-Floating Swap'

An advantageous arrangement between two parties (counterparties), in which one party pays a fixed rate, while the other pays a floating rate.
Investopedia Says

Investopedia explains 'Fixed-For-Floating Swap'

To understand how each party would benefit from this type of arrangement, consider a situation where each party has a comparative advantage to take out a loan at a certain rate and currency. For example, Company A can take out a loan with a one-year term in the U.S. for a fixed rate of 8% and a floating rate of Libor + 1% (which is comparatively cheaper, but they would prefer a fixed rate). On the other hand, Company B can obtain a loan on a one-year term for a fixed rate of 6%, or a floating rate of Libor +3%, consequently, they'd prefer a floating rate.

Through an interest rate swap, each party can swap its interest rate with the other to obtain its preferred interest rate

Note that swap transactions are often facilitated by a swap dealer, who will act as the required counterparty for a fee.

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. 5 ETFs Flaws You Shouldn't Overlook

    Despite their popularity, exchange traded funds have some drawbacks that investors should know about.
  4. Using The Price-To-Book Ratio To Evaluate Companies

    The P/B ratio can be an easy way to determine a company's value, but it isn't magic!
  5. Liquidity Vs. Solvency

    Learn about the differences between these two words and how each one is used in the stock market.
  6. Should You Invest Your Entire Portfolio In Stocks?

    It is true that stocks outperform bonds and cash in the long run, but that statistic doesn't tell the whole story.
  7. The Uses And Limits Of Volatility

    Check out how the assumptions of theoretical risk models compare to actual market performance.
  8. R-Squared

    Learn more about this statistical measurement used to represent movement between a security and its benchmark.
  9. Derivatives 101

    Learn how to use this type of investment as an alternative way to participate in the market.
  10. Risk Tolerance Only Tells Half The Story

    Just because you're willing to accept a risk, doesn't mean you always should.
comments powered by Disqus
Marketplace
Hot Definitions
  1. Cost-Push Inflation

    A phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials.
  2. Happiness Economics

    The formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth.
  3. Affluenza

    A social condition arising from the desire to be more wealthy, successful or to "keep up with the Joneses." Affluenza is symptomatic of a culture that holds up financial success as one of the highest achievements.
  4. Icarus Factor

    The term Icarus factor describes a situation where managers or executives initiate an overly ambitious project which then fails. Fueled by excitement for the project, the executives are unable to reign in their misguided enthusiasm before it is too late to avoid the failure.
  5. Angelina Jolie Stock Index

    An index made up of a selection of stocks from companies associated with actress Angela Jolie.
  6. Consequential Loss

    The amount of loss incurred as a result of being unable to use business property or equipment.
Trading Center