An interest rate swap (IRS) is an over-the-counter derivative contract between two parties who agree to exchange a series of future interest rate payments. One of the parties commits to paying a series of fixed payments over the life of the contract; the other commits to paying a series of floating-rate payments.
Key learning objectives:
Define the key components of and parties to an interest rate swap
Explain a liability swap and how they are used
Explain an asset swap and how they are used