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Interest Rate Swap
Product Characteristics
- It refers to a combination of forward contract with a series of interest swap. Both parties agree that within a certain period, a specific benchmark interest rate (including floating or fixed interest rate) is used as the swap subject matter. In the future, interest is accrued periodically according to different benchmark interest rate, and interest difference is settled. For such contract, the notional amount is not swapped, and only the net interest amount or total interest amount of the specific benchmark interest rate are settled upon the maturity of each certain periods in order to make settlement payment.
Product Type
- Fixed vs. Floating Swap
- Basis Swap
- Zero Coupon Swap
- Accreting, Amortizing, Roller-coaster Swap
Use Timing
- Through the IRS method, the short-term floating fund cost is converted into a financing method equipped with the capital market function. On the contrary, it can also convert the financing method that is of long term and fixed interest rate into a liability structure of financing that is of short term and floating interest rate.
- Through the IRS method, investment income valuated at fixed rate can be converted into asset structure of short-term and floating interest rate income. Alternatively, the investment asset valuated at the floating interest rate can be converted into asset of fixed income.
- Through the IRS method, the interest rate-sensitive position of the company’s assets and liabilities can be adjusted.
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