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Derivatives




Coupon


The amount of interest paid annually on a bond or note expressed as a percentage of its face or par value. It is also the nominal annual rate of interest attached usually to debt instruments to compensate holders for time value and risks associated with their money being lent to a government or institution. Physically, a coupon is a slip of paper which is cut off from a bearer bond and presented to a bond issuer in exchange for quarterly, semi-annual or annual interest payment.

With respect to swaps, coupon refers to the periodic interest payment on the fixed-rate leg of an interest rate swap or a currency swap. The payment is periodically made by the fixed-rate payer to the floating rate payer over the lifespan of a swap.



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Derivatives have increasingly become very important tools in finance over the last three decades. Many different types of derivatives are now traded actively on ...
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