Interest Rate Swap (IRS)

An Interest Rate Swap (IRS) is a derivative financial instrument (derivative) in the form of an agreement between various parties (counterparties) to exchange periodic interest payments at a certain amount of a specified nominal value, called the notional principal amount. Most often, within the framework of this agreement, one of the parties pays another fixed interest rate throughout the duration of the contract, while the other party agrees to pay a floating rate that is dependent on a given base rate. In practice, these payments are netted, meaning that two payments are not made, one is, which is equal to the difference between the calculated values of payments, while the payment is made by the party which, according to the results of the calculations, should have paid more. In addition to changing from a fixed to a floating rate, interest rate swaps can help to change the frequency of payments (for example, from quarterly to semi-annual).

Initially, interest rate swaps were used to hedge interest rate risk, but over time they began to be actively used in speculative operations, which led interest rate swaps becoming one of the most liquid and popular instruments in the global financial market.

Information on interest rate swaps can be found in the "Indices" section - "Derivatives Market" - "Interest Rate Swaps (IRS)" on the Cbonds website.