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Interest rate swap |
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Definition of Interest rate swapInterest rate swapA binding agreement between counterparties to exchange periodic interest payments on
Related Terms:Amortizing interest rate swapswap in which the principal or national amount rises (falls) as interest rates Asset swapAn interest rate swap used to alter the cash flow characteristics of an institution's assets so as to CounterpartiesThe parties to an interest rate swap. Effective dateIn an interest rate swap, the date the swap begins accruing interest. Equity swapA swap in which the cash flows that are exchanged are based on the total return on some stock Fixed-rate payerIn an interest rate swap the counterparty who pays a fixed rate, usually in exchange for a Floating-rate payerIn an interest rate swap, the counterparty who pays a rate based on a reference rate, Liability swapAn interest rate swap used to alter the cash flow characteristics of an institution's liabilities so MaturityFor a bond, the date on which the principal is required to be repaid. In an interest rate swap, the Notional principal amountIn an interest rate swap, the predetermined dollar principal on which the SwapAn exchange of cash flows between two counterparties. The Swap buy-backThe sale of an interest rate swap by one counterparty to the other, effectively ending the swap. Swap reversalAn interest rate swap designed to end a counterparty's role in another interest rate swap, SwaptionOptions on interest rate swaps. The buyer of a swaption has the right to enter into an interest rate Trade dateIn an interest rate swap, the date that the counterparties commit to the swap. Also, the date on Accelerated cost recovery system (ACRS)Schedule of depreciation rates allowed for tax purposes. Accelerated depreciationAny depreciation method that produces larger deductions for depreciation in the accelerated depreciation(1) The estimated useful life of the fixed asset being depreciated is Accelerated depreciationAny of several methods that recognize an increased amount Accounting rate of return (ARR)A method of investment appraisal that measures accounting rate of return (ARR)the rate of earnings obtained on the average capital investment over the life of a capital project; computed as average annual profits divided by average investment; not based on cash flow Accrued interestThe accumulated coupon interest earned but not yet paid to the seller of a bond by the Accrued InterestThe amount of interest accumulated on a debt security between Accrued InterestThe amount of interest owing but not paid. Active portfolio strategyA strategy that uses available information and forecasting techniques to seek a Adjustable rate preferred stock (ARPS)Publicly traded issues that may be collateralized by mortgages and MBSs. After-tax real rate of returnMoney after-tax rate of return minus the inflation rate. All equity rateThe discount rate that reflects only the business risks of a project and abstracts from the Annual percentage rate (APR)The periodic rate times the number of periods in a year. For example, a 5% annual percentage rate (APR)interest rate that is annualized using simple interest. Arithmetic average (mean) rate of returnArithmetic mean return. Asset for asset swapCreditors exchange the debt of one defaulting borrower for the debt of another Auction rate preferred stock (ARPS)Floating rate preferred stock, the dividend on which is adjusted every Average rate of return (ARR)The ratio of the average cash inflow to the amount invested. Average tax rateTaxes as a fraction of income; total taxes divided by total taxable income. average tax rateTotal taxes owed divided by total income. Barbell strategyA strategy in which the maturities of the securities included in the portfolio are concentrated Base interest rateRelated: Benchmark interest rate. Basic business strategiesKey strategies a firm intends to pursue in carrying out its business plan. Benchmark interest rateAlso called the base interest rate, it is the minimum interest rate investors will Best-interests-of-creditors testThe requirement that a claim holder voting against a plan of reorganization Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit CommitteesA committee formed in response to SEC chairman Arthur Levitt's initiative to improve the financial book rate of returnAccounting income divided by book value. Break-even payment rateThe prepayment rate of a MBS coupon that will produce the same CFY as that of Break-even tax rateThe tax rate at which a party to a prospective transaction is indifferent between entering Broker loan rateRelated: Call money rate. Bullet strategyA strategy in which a portfolio is constructed so that the maturities of its securities are highly Buy-and-hold strategyA passive investment strategy with no active buying and selling of stocks from the Call money rateAlso called the broker loan rate , the interest rate that banks charge brokers to finance Call swaptionA swaption in which the buyer has the right to enter into a swap as a fixed-rate payer. The Capitalization RateA discount rate used to find the present value of a series of future cash receipts. Sometimes called discount rate. Capitalized interestinterest that is not immediately expensed, but rather is considered as an asset and is then Capitalized Interestinterest incurred during the construction period on monies invested in cash burn rateA relatively recent term that refers to how fast a business Cash flow after interest and taxesNet income plus depreciation. Circus swapA fixed rate currency swap against floating U.S. dollar LIBOR payments. Combination strategyA strategy in which a put and with the same strike price and expiration are either both compensation strategya foundation for the compensation plan that addresses the role compensation should play in the organization Compound interestinterest paid on previously earned interest as well as on the principal. Compound Interestinterest paid on principal and on interest earned in previous compound interesta method of determining interest in which interest that was earned in prior periods is added to the original investment so that, in each successive period, interest is earned on both principal and interest compound interestinterest earned on interest. Compound Interestinterest earned on an investment at periodic intervals and added to principal and previous interest earned. Each time new interest earned is calculated it is on a combined total of principal and previous interest earned. Essentially, interest is paid on top of interest. computer integrated manufacturing (CIM)the integration of two or more flexible manufacturing systems through the use of a host computer and an information networking system confrontation strategyan organizational strategy in which company management decides to confront, rather than avoid, competition; an organizational strategy in which company management still attempts to differentiate company ConglomerateA firm engaged in two or more unrelated businesses. Conglomerate mergerA merger involving two or more firms that are in unrelated businesses. Contribution RateThe percentage tax charged by a state to an employer to Corporate acquisitionThe acquisition of one firm by anther firm. Corporate bondsDebt obligations issued by corporations. Corporate charterA legal document creating a corporation. Corporate financeOne of the three areas of the discipline of finance. It deals with the operation of the firm Corporate financial managementThe application of financial principals within a corporation to create and Corporate financial planningFinancial planning conducted by a firm that encompasses preparation of both Corporate processing floatThe time that elapses between receipt of payment from a customer and the Corporate tax viewThe argument that double (corporate and individual) taxation of equity returns makes Corporate taxable equivalentrate of return required on a par bond to produce the same after-tax yield to cost leadership strategya plan to achieve the position in a Coupon rateIn bonds, notes or other fixed income securities, the stated percentage rate of interest, usually Coupon RateThe rate of interest paid on a debt security. Generally stated on an Coupon rateThe nominal interest rate that the issuer promises to pay the coupon rateAnnual interest payment as a percentage of face value. Covered call writing strategyA strategy that involves writing a call option on securities that the investor Covered interest arbitrageA portfolio manager invests dollars in an instrument denominated in a foreign Covered or hedge option strategiesStrategies that involve a position in an option as well as a position in the Crediting rateThe interest rate offered on an investment type insurance policy. Cross ratesThe exchange rate between two currencies expressed as the ratio of two foreign exchange rates Crossover rateThe return at which two alternative projects have the same net present value. Currency swapAn agreement to swap a series of specified payment obligations denominated in one currency Current rate methodUnder this currency translation method, all foreign currency balance-sheet and income Daily Interest AccumulationAccount in which interest is accrued daily and credited to the account at the end of a specified time. Debt swapA set of transactions (also called a debt-equity swap) in which a firm buys a country's dollar bank Dedication strategyRefers to multi-period cash flow matching. Differential swapswap between two LIBO rates of interest, e.g. yen LIBOR for dollar LIBOR. Payments are differentiation strategya technique for avoiding competition by distinguishing a product or service from that of competitors through adding sufficient value (including quality and/or features) that customers are willing to pay discount ratethe rate of return on investment that would be required by a prudent investor to invest in an asset with a specific level risk. Also, a rate of return used to convert a monetary sum, payable or receivable in the future, into present value. Discount rateThe interest rate that the Federal Reserve charges a bank to borrow funds when a bank is Discount RateThe rate of interest used to calculate the present value of a stream discount ratethe rate of return used to discount future cash
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