Interest Rate Swap

A contract exchanging fixed-rate for floating-rate interest payments.

In an interest rate swap, one party pays a fixed rate while the other pays a floating rate on a notional amount, without exchanging the principal. Companies use them to convert variable-rate debt to fixed, or vice versa, managing interest rate risk. They are the most common type of swap.

Through an interest rate swap, the company converted its floating-rate loan into fixed payments.