An interest rate swap is a contractual agreement between two counter parties to exchange a series of fixed rate interest payments for a series of floating rate interest payments at predetermined intervals for a stated period of time (the swap tenor).

Payments are based upon a notional principal amount. While any payment frequency is possible, the most common frequencies are overnight and semi-annual. The floating rate side of the swap is pegged to a floating rate index such as the O/N MIBOR (OIS Swap) and is normally reset at the beginning of each payment interval. The notional principal, swap tenor, reference floating rate index, fixed rate and payment frequency are all specified at contract inception.