interest rate swap definition by Wordo

Noun

A

contract

to

exchange

the

benefit

of

one

interest

rate

with

another

.

Often

a

fixed

interest

rate

is

exchanged

for

a

variable

rate

so

as

to

allow

one

party

to

remove

an

exposure

to

a

variable

rate

for

which

they

pay

a

premium

on

the

fixed

rate

in

order

to

compensate

for

this

'

insurance

'.

The

two

rates

can

also

be

based

on

different

currencies

.