Interest rate swap is the exchange of interest payments of different nature between two parties on the basis of a nominal principal amount, that is, the interest exchange of the same currency with different interest rates. Through this swap, one party can exchange assets or liabilities with fixed interest rate for assets or liabilities with floating interest rate, and the other party will get the opposite result. The main purpose of interest rate swap is to reduce the capital cost (interest) of both parties to the transaction and make them obtain their own interest payment methods (fixed or floating). The English-Chinese Dictionary of Securities Investment by the Commercial Press explains: interest rate swap. Also called: interest rate swap. Swap contract. Both parties to the contract agree to exchange interest payments on the basis of outstanding loan principal at a specific date in the future. The purpose of interest rate swap is to reduce the financing cost. If one party can get a preferential fixed interest rate loan, but wants to finance at a floating interest rate, while the other party can get a floating interest rate loan, but wants to finance at a fixed interest rate, both parties can obtain the desired financing form through swap transactions.
Interest rate swap refers to the exchange of fixed interest rate and floating interest rate between two funds with the same currency, the same debt amount (principal) and the same term. This kind of communication is mutual. If Party A changes the fixed interest rate into Party B's floating interest rate, and Party B changes the floating interest rate into Party A's fixed interest rate, it is called exchange. The purpose of swap is to reduce capital cost and interest rate risk. Both interest rate swap and currency swap were developed by 1982. They are a new financing technology suitable for bank credit and bond financing, and also a new financial skill to avoid risks, which has been widely adopted internationally. London Interbank Offered Rate. The LIBOR interest rate provided by the bank refers to the interest rate charged by the bank when it provides corporate funds to other big banks, which means that the bank uses this interest rate to deposit funds in other big banks. Some big banks or other financial institutions offer LIBOR interest rates of 1 month, 3 months, 6 months and 1 year to many major currencies.