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...

  • CECL Excel Workbook

    If you would like to use the Excel workbook that was used to create the Universal CPA lecture on CECL for debt securities, please click the link below to download the Excel workbook: CECL Calculation workbook (Universal CPA Review)

  • Journal Entry for Direct Materials Variance

    Journal Entry for Direct Materials Variance In the current year, Mission Burrito budgeted 6,000 pounds of production and actually used 4,000 pounds. Material cost was budgeted for $5 per pound and the actual cost was $8 per pound. What would the debit or credit to the direct material efficiency variance account be for the current...

  • Understanding Variance Analysis

    Variance Analysis Variance analysis is a method for companies to compare its actual performance vs its budgeted amount for that cost measurement (related to the flexible budget). The differences between the standard (budgeted) amount of cost and the actual amount that the organization incurs is referred to as a variance. By analyzing variances, the company...