Fixed-for-Fixed Swaps

Posted in Finance, Accounting and Economics Terms, Total Reads: 301
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Definition: Fixed-for-Fixed Swaps

In any swap, two parties involved in the contract agree to exchange cash payments. In an interest swap, the interest to be paid is exchanged between the parties, not the principal amount.


Fixed for fixed swaps indicates that there is a fixed interest rate to be paid and that is exchanged between the two parties. This is usually entered into by companies when they are operating in different countries and have interest to be paid in different currencies.


Example:

Suppose a company A wants to take loan from country X and company B wants to take loan from country Y. The interest rate for A is higher in X and lower in Y while the interest rate for B is higher in Y and lower in X. Then, in this kind of a situation, the two companies enter into a contract where in A pays the amount B is supposed to pay in Y, and B pays in X. As a result of this, both the companies are being benefitted.

 

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