interest rate swaps

An interest rate swap is a financial agreement between two parties to exchange interest payments on a specified principal amount over a set period. Typically, one party pays a fixed interest rate, while the other pays a variable rate that fluctuates with market conditions. This swap allows both parties to manage their interest rate exposure according to their financial strategies—one might want fixed payments for predictability, while the other may seek to benefit from potentially lower variable rates. Essentially, it's a way for entities to align their interest payments with their financial goals.