Enter Values

Pay fixed: profit when floating > fixed | Receive fixed: profit when fixed > floating
$
Reference amount (not exchanged)
%
Enter as percentage (e.g., 5 for 5%)
%
Current period floating rate
days
Days in this payment period
Simplified single convention for both legs
Simplified Model: This calculator computes a single-period settlement at period end using one day count convention for both legs. Real-world swaps may use different conventions (e.g., 30/360 for fixed, ACT/360 for floating).
Ryan O'Connell, CFA
Calculator by Ryan O'Connell, CFA

Settlement Result

Net Settlement (Your Position) +$1,250.00 Positive = You receive | Negative = You pay Moderate Gain Notable rate differential in your favor
Fixed Leg Payment $12,500.00
Floating Leg Payment $13,750.00
Rate Diff (Float − Fixed) +0.500%
Day Fraction 90/360 = 0.250
Net as % of Notional +0.125%
Net in Basis Points +12.5 bps

Formula Breakdown

Net = (Floating Leg − Fixed Leg) for Pay-Fixed
Each Leg = Notional × Rate × (Days / Year)

Settlement Interpretation

Scenario Pay Fixed Receive Fixed
Floating > Fixed Receive (+) Pay (-)
Floating = Fixed None (0) None (0)
Floating < Fixed Pay (-) Receive (+)

Understanding Interest Rate Swaps

Video Explanation

Video: Interest Rate Swaps Explained | Example Calculation

What is an Interest Rate Swap?

An Interest Rate Swap (IRS) is a derivative where two parties exchange interest payments on a notional principal. Typically, one party pays a fixed rate while receiving a floating rate (like SOFR, SONIA, or EURIBOR). Only the net difference is exchanged - the notional is never swapped.

Swap Payment Formulas
Fixed Leg = Notional × Fixed Rate × (Days / Year)
Floating Leg = Notional × Floating Rate × (Days / Year)
Net (Pay Fixed) = Floating Leg - Fixed Leg

Pay Fixed vs Receive Fixed

Pay Fixed

You pay the fixed rate and receive the floating rate. You profit when floating rates rise above the fixed rate. Common for borrowers hedging floating-rate debt.

Receive Fixed

You receive the fixed rate and pay the floating rate. You profit when floating rates fall below the fixed rate. Common for investors seeking fixed income.

Settlement at Period End

Unlike FRAs that settle in advance (discounted), swap payments settle at the end of each period without discounting. Each period's payment reflects the actual interest differential for that time frame.

Swap vs FRA: A swap is essentially a series of FRAs. However, FRAs settle at the beginning (discounted to present value), while swaps settle at period end (no discounting).

Common Uses

  • Hedging: Convert floating-rate debt to fixed (or vice versa)
  • Speculation: Take views on interest rate direction
  • Asset-Liability Management: Match cash flows for banks and insurers
Day Count Conventions: In practice, the fixed leg often uses 30/360 (bond basis) while the floating leg uses ACT/360 (money market). This calculator uses a simplified single convention for educational purposes.

Frequently Asked Questions

An interest rate swap (IRS) is a derivative contract where two parties exchange interest rate payments. Typically, one party pays a fixed rate while receiving a floating rate (like SOFR, SONIA, or EURIBOR), and the other party does the opposite. Only the net difference is exchanged - the notional principal is never swapped.

For each payment period: Fixed Payment = Notional × Fixed Rate × (Days/Year), Floating Payment = Notional × Floating Rate × (Days/Year). The net settlement is the difference between these payments, with direction depending on your position (pay-fixed or receive-fixed).

Pay-fixed means you pay the fixed interest rate and receive the floating rate. You benefit when floating rates rise above the fixed rate. This position is common for borrowers who want to convert floating-rate debt to fixed-rate debt.

After LIBOR's discontinuation in 2023, swaps now reference risk-free rates: SOFR (Secured Overnight Financing Rate) for USD, SONIA (Sterling Overnight Index Average) for GBP, and EURIBOR (reformed) or ESTER for EUR. These rates are considered more robust and manipulation-resistant.

A swap is essentially a series of FRAs. While an FRA covers a single forward period with settlement in advance (discounted), a swap has multiple payment periods with settlements typically in arrears (at period end). This calculator computes one period of a swap, settled at period end.

In practice, the fixed leg often uses 30/360 (bond basis) while the floating leg uses ACT/360 (money market basis). This calculator uses a simplified single convention for both legs. For professional pricing, separate conventions should be applied to each leg.
Disclaimer

This calculator is for educational purposes only and uses a simplified single-period model. Actual swap valuations involve multiple periods, varying day count conventions for each leg, and mark-to-market adjustments. Consult a qualified professional for hedging and trading decisions.

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