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Derivatives




Floating Rate


A variable interest rate on one or two legs of a swap. This rate changes or floats every time the underlying prime rate changes. Some floating rates can change as frequently as every day. Among the most popular floating rate benchmarks are LIBOR, PRIME, etc . For example, a swap may entail the exchange of a 3-month LIBOR plus 40 basis points for a fixed rate of 5%.

In a vanilla swap, the rate on the opposite leg is a fixed rate.



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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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