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

How does an entrepreneur choose a business structure?
Swaps are derivative contracts between two parties that involve the exchange of cash flows. Interest rate swaps involve exchanging ... Read Full Answer >> 
When was the first swap agreement and why were swaps created?
Swap agreements originated from agreements created in Great Britain in the 1970s to circumvent foreign exchange controls ... Read Full Answer >> 
What are some common markets where notional value is used?
Notional value is commonly used in futures and swap markets. The notional value is the total net amount of derivative contracts, ... Read Full Answer >> 
How are swap agreements financed?
Since swap agreements involve the exchange of future cash flows and are initially set at zero, there is no real financing ... Read Full Answer >> 
What are the risks involved with swaps?
The main risks associated with interest rate swaps, which are the most common type of swap, are interest rate risk and counterparty ... Read Full Answer >> 
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 >>
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