Your Ask Joey ™ Answer

What is an interest rate swap agreement?

Basically, each party would swap their contractual rate with the other party because they believe they can get a lower rate in the long-term. For a swap to occur, one party would need a fixed rate and the other would need a floating rate. In an interest rate swap arrangement, both parties would be subject to interest rate risk, market risk, and credit risk.

As you can see in the visual below, Simone has the floating rate with her bank and Julia has the fixed rate with her bank. Simone and Julia would swap rates.


Back To All Questions

You might also be interested in...

  • Three Reasons to Become an Accountant

    If you’re someone who is intrigued by numbers, enjoys problem-solving and wants to help others, then accounting might be the perfect career for you. While some people may be put off by its unalluring reputation, accounting is an excellent career choice that has many benefits. In this article, we look at three of the reasons...

  • Qualified Retirement Planning: Tax Advantages & Disadvantages

    Home Advantages and Disadvantages of Tax-Free and Deferred-Tax Retirement Plans What are “qualified retirement plans” and how can they be effective for tax planning? Well, there are plenty of tax savings advantages to individuals contributing to tax-free retirement accounts, as well as tax-deferred retirement accounts. However, this doesn’t necessarily mean that there are no disadvantages...

  • CPA Evolution Survival Guide

    Download Your eBook by selecting the download icon in the top right-hand corner