Interest rate swap, A derivative in which two parties exchange interest payments, usually fixed-rate payments for floating-rate payments., Fixed leg, The side of a swap that pays or receives a fixed interest rate., Floating leg, The side of a swap that pays or receives a variable interest rate., Reference rate, The benchmark rate used to calculate floating payments in a swap., Notional principal, The amount used to calculate swap payments, although it is usually not exchanged., Swap tenor, The length of time from the start date to the final maturity date of the swap., Payment frequency, How often swap payments are calculated and exchanged., Reset date, The date on which the floating rate is updated for the next calculation period., Net settlement, A method where only the difference between the two payment amounts is exchanged., Swap spread, The difference between a swap rate and the yield on a comparable government bond., Cross-currency swap, A swap where parties exchange interest and sometimes principal payments in different currencies., Basis swap, A swap where both sides pay floating rates based on different reference rates., Overnight indexed swap, A swap where the floating leg is linked to an overnight interest rate., Credit default swap, A derivative where one party pays protection against the default of a borrower or issuer., Total return swap, A swap where one party receives the economic return of an asset while the other receives a financing-based return., Counterparty credit risk, The risk that the other party to the swap will fail to meet its obligations., Collateral agreement, An agreement requiring collateral to be posted to reduce exposure between swap counterparties., Central clearing, The process of using a central counterparty to stand between the two original swap counterparties., Close-out netting, A legal mechanism allowing multiple obligations to be combined into a single net amount if a counterparty defaults., Wrong-way risk, The risk that exposure to a counterparty increases at the same time as that counterparty’s credit quality deteriorates.

EK Banking: Swaps

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