Agreement Of Swapping

Typically, at the time of entering into the contract, at least one of these cash flows is determined by a random or uncertain variable, such as the interest rate, exchange rate, stock price, or commodity price. A mortgage holder pays a variable interest rate for their mortgage, but expects that rate to increase in the future. Another mortgage holder pays a fixed interest rate, but expects interest rates to fall in the future. You enter into a fixed swap agreement for floating. Both mortgage holders agree on a notional face value and maturity date and agree to assume the other`s payment obligations. The first mortgage holder now pays a fixed rate to the second mortgage holder, while receiving a variable rate. By using a swap, both parties effectively changed their mortgage terms to preferential interest rate mode, while neither party had to renegotiate the terms with their mortgage lenders. . . .

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