The fixed and floating payments that are exchanged by the two counterparties to a swap. The fixed payment is made by the buyer of the swap (known as the fixed rate payer or the floating rate receiver), whilst the floating payment is made by the seller (known as the floating rate payer or the fixed rate receiver). The fixed rate payer is also labeled “the short party”, with the fixed receiver being referred to as “the long party”. Swap payments are calculated using the following formulae:
Fixed payment = notional amount × (fixed rate) × (fixed rate day count convention)
floating payment = notional amount × (floating rate) × (floating rate day count convention)
where: N is the notional principal amount of the swap (swap notional amount or for short swap NPA).
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