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Interest Rate Swap (IRS)
An interest rate swap is a binding agreement between two contracting parties, in which one party exchanges one type of interest payment for another, for a specified fictitious principal, with the other contracting party for a specified period.
Advantages
| it allows you to insure yourself against unfavorable interest rate fluctuations |
| secure fixed financing costs |
Characteristics
| The exchange of interest rates, with which the buyer insures himself against a change in the interest rate, includes the exchange of liabilities at a fixed interest rate for liabilities at a variable interest rate, or the reverse exchange of liabilities at a variable interest rate for a fixed interest rate. The contracting party pays one stream of interest and receives another. |
| The variable interest rate is the corresponding reference interest rate (e.g. EURIBOR, LIBOR USD, LIBOR CHF,...). |
| The apparent principal or nominal amount, on the basis of which interest is calculated, can remain unchanged or change in accordance with the amortization plan. No exchange of dummy principal takes place. | |
| If the reference interest rate is negative (EURIBOR), the company pays a negative variable interest rate in addition to the fixed interest rate. |
Interest option (Interest cap)
An interest cap is an instrument that, upon payment of a premium, protects the buyer from interest rates rising above the cap's effective interest rate and gives the holder the right to call on the seller of the option to pay out the positive difference between the market and contractual interest rates.
Advantages
| the counterparty (company) itself determines the execution interest rate; |
| the counterparty itself determines the amount and period of protection; |
| the counterparty does not need to exercise the option if the market interest rate is more favorable for it. |
How to conclude the deal?
Need more information?
For further information, the experts in the Customer Trading Department are at your disposal.
Call us!
T: 02 229 22 09
| | RULES FOR BUSINESS WITH FINANCIAL INSTRUMENTS |
