what s an example of an interest rate swap 
say that company a issued 10 million in two year bonds that have a variable interest rate of sofr plus 1 sofr is 2 but the company is worried that interest rates may rise it locates company b which agrees to pay company a the sofr annual rate plus 1 for two years on the notional principal amount of 10 million in exchange company a pays company b a fixed rate of 4 on a notional value of 10 million for two years if interest rates rise significantly company a will benefit conversely company b will stand to benefit if interest rates stay flat or fall the bottom linean interest rate swap is an agreement between different parties to exchange one stream of interest payments for another over a specified time period they are derivative contracts that trade over the counter otc and can be customized by the participating parties to match their financial needs usually interest rate swaps exchange fixed rate payments for floating rate payments or the other way around they are used to manage exposure to fluctuating interest rates or to get a lower borrowing rate 