Some of the more common examples encountered in practice include interest-rate swaps (exchanging fixed-rate interest
payments for variable-rate interest payments or vice versa), basis swaps (exchanging a variable interest rate based on one index for a variable interest rate based on a different index), and swaptions (the option to participate in an interest-rate swap at some future date).
LUMP sum investment that pays monthly fixed-rate interest
During the early 1990s, when low fixed-rate interest
, 30-year mortgages were the overwhelming choice of borrowers, the thrift industry suffered shrinking market share.
Our thought was to place more of our fixed-rate interest
into a floating-rate environment, since we anticipated interest rates coming down.
The interest rate swap requires the seller to receive the fixed-rate interest
on the loans sold and pay the buyer the guaranteed variable rate.