Details of an Interest Rate Swap Contract

An interest rate swap is an exchange of cash flows between two parties where party A pays a fixed rate and receives a floating rate and party B receives a fixed rate and pays the floating rate. An interest rate swap contract has the following characteristics:

MaturityOne to 10 years
Effective DateDepending on market convention, up to five business days from trade date (corporate settlement). The effective date is such that the first fixed and the first floating payment periods are full coupon periods (that is, no long or short first coupons).
Settlement DateEffective date
All-in-costDepends on market convention, but usually semi-annual equivalent of the internal rate of return of the fixed flows versus the floating index flat.
Fixed Payment
Fixed Coupon
Current market rate
Payment FrequencyEither semi-annually or annually depending on market convention
Day CountBased on market convention
Pricing DateTrade date
Floating Payment
Floating Index
Certain money market indices
Determination SourceA publicly quoted source
Payment FrequencyTerm of the floating index
Day CountBased on market convention
Reset FrequencyTerm of the floating index
First CouponCurrent market rate of the index
Premium or DiscountNone
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