A Swap Rate is the rate at which the cash flows of a swap are exchanged between the two parties involved in the swap. The rate is typically based on an underlying benchmark, such as an interest rate or currency exchange rate.The most common type of swap is an interest rate swap, in which two parties agree to exchange cash flows based on different interest rates. One party, usually a fixed rate payer, will pay a fixed rate of interest, while the other party, usually a floating rate payer, will pay a variable rate of interest that is based on a benchmark such as the London Interbank Offered Rate (LIBOR). The swap rate is the fixed rate that the fixed rate payer agrees to pay.Another type of swap is a currency swap, in which two parties agree to exchange cash flows based on different currency exchange rates. The swap rate in this case is the exchange rate at which the currencies are exchanged.Swap rate can be determined by parties themselves (over the counter) or by using a Swap Execution Facility (SEF) which allows market participants to negotiate and execute swap transactions.In summary, the swap rate is the rate at which cash flows of a swap are exchanged between two parties, and is typically based on an underlying benchmark such as an interest rate or currency exchange rate. The most common types of swap are interest rate swaps and currency swaps.
