An interest rate swap is an agreement between two parties to exchange interest rate payments on a fixed (notional) amount of debt. In its standard (generic) form, one party to the swap agrees to pay a fixed interest rate in exchange for receiving a variable (floating) rate on the swaps notional amount. The reverse position is taken by the counterparty. Typically, the floating rate side of the swap is tied to the three- or six-month LIBOR (London Interbank Offer Rate). In foreign exchange, an exchange of bank balances.
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