(plural interest rate swaps) (Abbreviated as: IRS)
- A contract to exchange the benefit of one interest rate with another. Often a fixed interest rate being exchanged for a variable rate so as to allow one party to remove an exposure to a variable rate for which they pay a premium on the fixed rate in order to compensate for this 'insurance'. The two rates can also be based on different currencies.
interest rate swap - Investment & Finance Definition
The exchange of cash flows according to a predetermined agreement, usually between two parties. Upon the payment date of the swap, typically only the difference between the two payment amounts is given to the party that is entitled to it, which results in very little cash being spent.