Interest Rate Swap (IRS)

Interest Rate Swap allows clients to manage or hedge their fixed or floating assets and liabilities. Interest Rate Swap involves exchanging the interest payment calculated by Fixed Rate and Floating Rate between 2 counterparties. If client paid Fixed Rate and receives Floating Rate, client can hedge its interest rate risk if the current market interest rates keep increasing. Vice versa, if client paid Floating Rate and receives Fixed Rate, client will benefit if market interest rate goes down, but paid a higher cost if market interest rate goes up. Assuming client has a 10-Year USD loan and interest rate is 3m-Libor+ 2.50%. If the market interest rate goes up, the interest payment will increase tremendously. In other words, clients are now exposed under Interest Rate Risk. By entering into an IRS transaction with ICBC (Asia), the cash flow of the client is fixed. Hence, the interest rate risk of client is fully hedged.