An interest rate swap is a succession of forward contracts on interest rates arranged by two parties that allows for the exchange of fixed-interest payments for floating payments; as such, it allows an FI to place a long-term hedge.

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An interest rate swap is a contract between two parties to exchange interest rate payments, typically fixed-rate payments for floating-rate payments, over a set period of time. It is a popular hedging tool for financial institutions seeking to manage interest rate risk.

An Interest Rate Swap Is a Succession of Forward Contracts