Fixed For Floating

This is the most common type of swap.
Also known as a Vanilla Swap, Fixed-Floating Interest Rate Swap


Both cash flows are in the same currency
The fixed payer is the long party
The fixed receiver is the short party


The value at the outset is zero because the fixed rate of the swap should have been the same present value as the floating side.
Whenever there is a payment date the amount transferred is the "net" amount


One party agrees to pay the fixed interest rate cash flow on a notional amount and receive the floating rate cash flow on the same notional over a fixed period of time.


The floating rate used in a lot of currency swaps is LIBOR.


Same Currency

Lets imagine a 3 year vanilla swap initiated on the 4th June 2007 between two parties on a notional amount of £50 million.
Party A agrees to pay a fixed interest rate of 5% per annum.
Party B agrees to pay a floating interest rate of six month LIBOR
The agreement is to exchange cash flows every 6 months.


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The first cash flow exchange will be made in 6 months using the current six month LIBOR rate.


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5% interest for 6 months on £50m is £1.75m
5.2% interest for 6 months on £50m is ??



Different Currencies








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