Bank One Corporation - Page 153

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          termination date.  The termination date is the date on which the            
          last payment is due.  The termination date sets the maturity of             
          the contract.                                                               
                    3.  Different Types of Interest Rates                             
               Swaps generally involve two types of interest rates.  The              
          first rate, a fixed interest rate, is applied for each payment              
          date to ascertain the agreed-upon payment in the fixed leg.  By             
          definition, the fixed interest rate is fixed in that it is                  
          constant.  The second rate, a floating interest rate, is applied            
          for each payment to ascertain the agreed-upon payment in the                
          floating leg.  By definition, the floating interest rate floats             
          in accordance with an agreed-upon index and usually changes with            
          time.                                                                       
               The date on which the floating interest rate is changed                
          (i.e., is “reset”) is known as the reset date.  Except in the               
          case of the first payment, the floating interest rate applicable            
          to each payment period is generally set at the beginning of the             
          interval, on the basis of the interest rate in effect 2 business            
          days before the most recent reset date.  The floating interest              
          rate applicable to the first payment is generally set on the                
          trade date, 2 days before the effective date.                               
                    4.  Use of LIBOR as a Floating Interest Rate Index                
               The most common floating interest rate index for interest              
          rate swaps is the London Interbank Offering Rate (LIBOR), the               






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Last modified: May 25, 2011