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The swap rate is the fixed interest rate that one party agrees to pay in exchange for receiving floating-rate payments in an interest rate swap agreement. The swap rate is determined by the current market conditions, including the demand for fixed versus floating rates and the duration of the swap. It serves as the benchmark for pricing interest rate swaps and reflects the creditworthiness of the parties involved.
In an interest rate swap, one party agrees to pay a fixed swap rate of 2.5% annually while receiving floating payments based on LIBOR.
• The fixed interest rate exchanged for floating payments in a swap agreement.
• Reflects market conditions and credit risk.
• Used as a benchmark for pricing interest rate swaps.
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