Interest Rate Swaps (SAP Library

Interest Rate Swaps

Use

Interest rate swaps are transactions that exchange payment flows on the basis of different interest rates in the same currency. You agree on a certain term, usually over a year.

An interest rate swap enables you to hedge possible interest rate risks.

Activities

For more information, see Swap.

Possible combinations of interest rate swaps are:

Payer
Receiver
Basis

These are the most common variants, in other words, the swap of fixed interest rates against variable interest rates, or variable interest rates against each other on the basis of different interest rates.

You can display the two cash flows for an interest rate swap either together or separately. This provides you with an overview of the incoming and outgoing payments. For swaps with a variable interest rate calculation, manual or automatic interest rate adjustments are carried out over the course of the term and the cash flow is gradually filled with the current values.

Example Example:

This graphic is explained in the accompanying text

A company finances an existing investment with a fixed interest loan at 6.5%. The company treasurer expects falling interest rates and, therefore, agrees an interest rate swap with a bank. From this interest rate swap, the company receives a fixed interest yield of 7.25% and pays a variable rate of 6-M-EURIBOR.

The company, therefore, has the following interest rate costs:

Interest expenditure of 6.5% and 6-M-EURIBOR
Interest yield from SWAP of 7.25%

Þ This results in interest expenditure of 6M-EURIBOR - 0.75%