DEFINITION of 'Quality Spread Differential  QSD'
In an interest rate swap, the difference between the interest rates of debt obligations offered by two parties of different creditworthiness that engage in the swap. A swap transaction is considered beneficial to both parties only when the QSD is positive.
INVESTOPEDIA EXPLAINS 'Quality Spread Differential  QSD'
For example, suppose ABC Corp can borrow debt at a fixed rate of 10.75% or at a floating rate of LIBOR. And let's say that XYZ Corp. can borrow debt at a fixed rate of 10% or at a floating rate of LIBOR 0.25%. The fixed rate differential would be 0.75% and the floating rate differential would be 0.25%. The QSD would be 0.5%.
Since the QSD is positive, both companies would benefit from entering into a swap transaction.
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RELATED FAQS

What are interest rate swaps on the OTC market?
Interest rate swaps are agreements where counter parties agree to exchange interest rate cash flows based upon the difference ... Read Full Answer >> 
What are the Securities and Exchange Commission regulations regarding swaps?
The U.S. Securities and Exchange Commission (SEC) was granted the authority to regulate securitybased swaps (SBS) by Title ... Read Full Answer >> 
What would motivate an entity to enter into a swap agreement?
The main purpose of swap agreements is to swap cash flows between counterparties for a certain market or asset. Generally, ... Read Full Answer >> 
Can individual investors profit from interest rate swaps?
Interest rate swaps normally take place between two business entities, but individual investors can still use them to speculate ... Read Full Answer >> 
If interest rate swaps are based on two companies' different outlook on interest ...
Interest rate swaps are, at their core, a derivative instrument built on the premise of comparative advantage. To see how ... Read Full Answer >> 
How did the LIBOR scandal affect interest rate swaps?
The LIBOR scandal impacted interest rate swaps in two important ways. During the period between 2005 and 2009, more than ... Read Full Answer >>
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