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In an interest rate swap, when pricing at inception (e.g. making sure the NPV is zero at inception), is the fixed rate set first and then the floating rate calculated (or vice-versa, e.g. floating rate set first and then the fixed rate calculated)?

I'm assuming it can be calculated both ways, so I could go to a broker and say:

I want to receive fixed 5% on $100 notional, what floating rate do I have to pay Mr Broker.

OR

I want to receive floating Libor 3M payments on $100 notional, what fixed amount do I have to pay Mr Broker.

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    $\begingroup$ It is the second one. $\endgroup$
    – dm63
    Apr 17, 2020 at 22:23
  • $\begingroup$ You can pay or receive a spread on a floating rate but you cant set a floating rate in advanced (else it is a fixed rate). By definition a floating rate references some index in the future. $\endgroup$
    – river_rat
    May 18, 2020 at 10:44

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Basically, the fixed rate is the rate that SETS the value of the swap to 0. Dealers’ quotes on the swap market are quotes of the fixed rate, so it is your second way.

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