Interest rate swap

(1) In an interest rate swap, the notional is used to determine the interest flows, which are the only elements to be exchanged. The notional is not normally exchanged. (2) The interest rate swap is sometimes opposed to the cross-currency swap, which involves the exchange of the notional or principal amount in addition to the interest flows, denominated in two different currencies. To distinguish between them, the expression single-currency interest rate swap is sometimes used to designate the interest rate swap, while cross-currency interest rate swap is used for the cross-currency swap. (3) There are two types of interest rate swaps, the first involving the exchange of a fixed rate against a floating rate (coupon swap), and the second a floating rate against another floating rate (basis swap). There is also the fixed-to-fixed swap, which is more in the nature of a cross-currency swap than an interest rate swap since it involves the exchange of both the interest flows, calculated on the basis of an agreed fixed rate for each of the two legs, and the notional or principal amount, calculated in two different currencies.