Interest Rate Swap

An interest rate swap exchanges a fixed rate for a floating one on a notional amount that never changes hands. It's the largest derivatives market in the world, and its everyday use is unglamorous: a company with floating-rate debt swaps into fixed to make its interest bill predictable. Only the net difference is paid each period, so the credit exposure is a small fraction of the notional — which is why headline notional figures overstate systemic risk.