Floating Price

AAA

DEFINITION of 'Floating Price'

The leg of a swap that is based on a fluctuating interest rate. In a plain vanilla interest rate swap, there are two streams of cash flows. Each stream is based on the same amount of notional principal, but one stream pays interest on that notional principal at a fixed rate (or fixed price) and one stream pays interest on the notional principal at a floating rate (or floating price).

INVESTOPEDIA EXPLAINS 'Floating Price'

While the fixed-rate stream does not change for the duration of the swap, the floating rate stream changes periodically. The floating rate will adjust as its benchmark interest rate, changes in accordance with market conditions. The benchmark is often LIBOR, but may also be the yield on one-year U.S. Treasuries or another interest rate. Two parties, called counterparties, enter into fixed-for-floating swap transactions to reduce their exposure to changes in interest rates or to attempt to profit from changes in interest rates.

RELATED TERMS
  1. Reverse Swap

    An exchange of cash flow streams that undoes the effects of an ...
  2. Debt For Bond Swap

    A debt swap involving the exchange of a new bond issue for similar ...
  3. Forward Swap

    A swap agreement created through the synthesis of two swaps differing ...
  4. Interest Rate Swap

    An agreement between two parties (known as counterparties) where ...
  5. Quanto Swap

    A swap with varying combinations of interest rate, currency and ...
  6. Total Return Swap

    A swap agreement in which one party makes payments based on a ...
Related Articles
  1. An Introduction To Structured Products
    Options & Futures

    An Introduction To Structured Products

  2. Careers In The Derivatives Market
    Options & Futures

    Careers In The Derivatives Market

  3. The Barnyard Basics Of Derivatives
    Investing Basics

    The Barnyard Basics Of Derivatives

  4. The Alphabet Soup Of Credit Derivative ...
    Mutual Funds & ETFs

    The Alphabet Soup Of Credit Derivative ...

comments powered by Disqus
Hot Definitions
  1. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  2. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  3. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  4. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  5. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  6. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
Trading Center