A swap is, so to speak, equivalent to a strip of back-to-back forwards (FRAs) or futures. Forwards or futures allow investors who are long the contract, i.e., buy it at a preset price, to receive future values of LIBOR-based payments. Similarly, the buyer of a forward rate agreement (FRA) strip is entitled to a series of future LIBOR interest payments, each at a fixed rate, dependent on the forward values of LIBOR. Most likely, these rates will not be equal.
All the FRAs have zero replacement value at the contract date. Likewise, the buyer of an interest rate swap buys a series of future LIBOR interest payments at a single preset fixed swap rate. Therefore, the swap as a whole has zero replacement value at the contract date, while the individual forwards that compose it do not. Thus a par swap is a series of off-market FRAs plus a first exchange of interest at the fixed swap rate against interest at LIBOR.
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