Interest Rate Swap

Interest Rate Swap (IRS) is a forward contract in which one stream of future interest payments is exchanged for another based on a specified principal amount. Interest rate swaps usually involve the exchange of a fixed interest rate for a floating rate, or vice versa, to reduce or increase exposure to fluctuations in interest rates or to obtain a marginally lower interest rate than would have been possible without the swap. Interest rates are affected by a wide range of factors, including national and international financial and economic conditions and political and natural events. The effect of normal market force may at times be countered by intervention by central banks and other bodies.