[Verse 1]
Two companies meet with different needs
One wants fixed rates, one wants to be freed
From floating payments that rise and fall
So they make a deal that benefits all
Bank A pays fixed at five percent flat
Bank B pays floating where the market's at
They swap their payments but keep their loans
Each gets the rate type their business owns
[Chorus]
Swap it fixed for floating, floating for fixed
Interest rate swaps get the payments mixed
No principal traded, just the interest flow
Fixed for floating, that's how swaps go
Manage your risk, hedge your rate
Fixed for floating, don't hesitate
[Verse 2]
The notional amount stays in its place
Ten million dollars sets the payment base
Multiply the rate by this amount
That's how each payment you will count
LIBOR plus fifty basis points
For the floating side that rate appoints
While the fixed side pays the same each time
Predictable payments, steady as rhyme
[Chorus]
Swap it fixed for floating, floating for fixed
Interest rate swaps get the payments mixed
No principal traded, just the interest flow
Fixed for floating, that's how swaps go
Manage your risk, hedge your rate
Fixed for floating, don't hesitate
[Bridge]
Why do companies make this trade?
To match their assets with debts they've made
If revenues float but your loan is fixed
Or vice versa, you could get mixed
Duration matching, speculation too
Portfolio hedging, there's much you can do
Settlement dates come quarterly round
Net payments keep transactions sound
[Verse 3]
Plain vanilla swaps are the simplest kind
Fixed rate for floating, easy to find
Mark to market shows the current worth
As interest rates change across the earth
If rates go up, fixed payers win
If rates fall down, floating's the spin
Counter-party risk is something to mind
Default protection you'll want to find
[Chorus]
Swap it fixed for floating, floating for fixed
Interest rate swaps get the payments mixed
No principal traded, just the interest flow
Fixed for floating, that's how swaps go
Manage your risk, hedge your rate
Fixed for floating, don't hesitate
[Outro]
From banks to corporations, the market's wide
Interest rate swaps help you decide
Fixed or floating, choose your way
Swap agreements are here to stay