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What is an Interest Rate Swap? <br />• A contractual agreement between two parties to exchange (swap) interest <br />cash flows on a specified dollar amount over time. <br />• No principal changes hands. Only interest cash flows are effected. <br />• Interest payments are determined by multiplying the swap rates times the <br />specified dollar amount (called the "Notional" amount). <br />• One party pays a fixed rate. The other party pays a floating rate. <br />Fixed Pa) er <br />• Pays Fixed <br />• Receives floating <br />Fixed swap rate <br />times notional amount <br />Floating swap rate <br />times notional amount <br />Floating Payer <br />• Pays floating <br />• Receives Fixed <br />Springstea <br />5.0% <br />4.5% - <br />4.0% - <br />3.5% - <br />3.0% - <br />2.5% - <br />2.0% <br />Swap Yield Curve Comparison <br />December 3, 2007 <br />1 2 3 4 5 7 10 15 20 30 <br />-+- Treasury f GO -AAA -*- BMA f 67 %Libor <br />4 <br />2 <br />