An interest rate swap is a transaction wherein one party pays (on a one-time basis or in instalments) floating amounts in a specified currency calculated using an established floating interest rate from a notional amount in such currency and the other party pays (on a one-time basis or in instalments) fixed amounts in the same currency calculated using a fixed interest rate in relation to the same notional amount.
This product serves as a tool to hedge interest rates on a long-term basis. Only the interest payments are exchanged, not the notional amounts.