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A company that is concerned about fluctuations in interest rates can reduce or limit its exposure to these interest rates by using a financial instrument (derivative) called Interest Rate Swap. It consists of an agreement between two parties where two streams of future interest payments are exchanged.
Interest rate swaps are highly liquid instruments and are also used by speculators to profit from changes in interest rates.
Here is a basic example that illustrates the Interest Rate Swap:
Company A is currently paying interests based on a floating rate. This company wants to change the interest rate structure and transform this floating rate into a fixed rate.
Company A enters into an interest rate swap with another party that pays a fixed rate for its obligations.
Company A gets the other party obligation that is based on a fixed rate. The other party gets Company A obligation that is based on the floating rate.
More info: http://en.wikipedia.org/wiki/Interest_rate_swap
This item downloads historical data for several US Swap rates from the Federal Reserve Bank website. The following series are downloaded and saved under different symbol names:
1- year swap (Symbol: ^IR_swaps_1year), 2-year swap, 3-year swap, 4-year swap, 5-year swap, 7-year swap, 10-year swap, 30-year swap.
Each interest rate swap series corresponds to the rate paid by fixed-rate payer on an interest rate swap with a maturity of X years.
Historical data for each interest rate swap is available starting from 2000 to present.
Source: http://www.federalreserve.gov/releases/h15/data.htm
Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
