Derivatives | S
The market interest rate which is used (or referred to) to determine the fixed rate leg of a swap. At inception, the swap rate will be equal to the fixed rate payment with any possible adjustments to account for a premium or discount. It is true that the market interest rate will be liable to change, and therefore, it will deviate from its value at swap inception. Notwithstanding, the swap rate will experience no change accordingly. This feature appeals to a fixed rate payer who foresees that market condition would be favorable for him taking such static position.
The swap rate may also refer to forward points applied to an exchange rate to account for interest rate parity differences across two currencies. The spot exchange rate would be adjusted at those forward points to recorrect such a situation.
The swap rate is also referred to as the swap coupon.