Interest rate swap

An agreement between two counterparties to swap one type of interest rate cash flow for another. The notional principal sum is not exchanged. The most common structure is the fixed-for-floating swap in which one counterparty agrees to pay a rate over the term of the swap in exchange for a floating-rate payment or by the other counterparty. Or one party periodically will pay a fixed amount of interest, in exchange for which that party will receive variable payments computed using a published index.