Question

Write a note on type of interest rate swaps with examples.

Answer 1

An interest rate swap is a contract between two counter parties who agree to exchange the future interest rate payments they make on loans or bonds. These two counter parties are banks, businesses, hedge funds or investors.  

The so-called vanilla swap is by far the most common. That's when a counter party swaps floating-rate payments with another counter party's fixed-rate interest payments.