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:
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:
| Terms | Definition |
| Maturity | One to 10 years |
| Effective Date | Depending 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 Date | Effective date |
| All-in-cost | Depends on market convention, but usually semi-annual equivalent of the internal rate of return of the fixed flows versus the floating index flat. |
| Fixed PaymentFixed Coupon | Current market rate |
| Payment Frequency | Either semi-annually or annually depending on market convention |
| Day Count | Based on market convention |
| Pricing Date | Trade date |
| Floating PaymentFloating Index | Certain money market indices |
| Spread | None |
| Determination Source | A publicly quoted source |
| Payment Frequency | Term of the floating index |
| Day Count | Based on market convention |
| Reset Frequency | Term of the floating index |
| First Coupon | Current market rate of the index |
| Premium or Discount | None |