Interest Rate Swaps

Abstract

Interest rate swaps (IRS) are incredibly popular. They have come from humble beginnings (only a few decades ago) and grown to be an irrevocable part of the fabric of our financial system. They are bought and sold around the world by banks, individuals, hedge funds — so much so, that the total outstanding notional.mount of swaps amounts to hundreds of trillions of dollars. ¹ As we’ll see, notional amount is just that — this isn’t real money. Notional amounts are rarely transferred between parties — they are just used to compute interest payments. But still, the amount of risk involved in enormous.