Capital Markets School

Internal Use Only

Interest Rate Swaps

An agreement between two parties where a series of fixed rate payments are exchanged for a series of floating rate payments over an agreed upon term.

Fixed Interest Payment

Pay Fixed Counterparty

Receive Fixed Counterparty

Floating Interest Payment

Internal Use Only

Primary Uses for IRR Swaps

Balance Sheet Hedging • Manage IRR • Goal is to protect NIM • Limit the upside but protect against the downside