Bank One Corporation - Page 175

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               In lieu of a LIBOR rate, the parties to an interest rate               
          swap may agree to use a less common floating interest rate index.           
          Other common floating interest rate indices during the relevant             
          years included the T-bill rate (the rate on the most recent issue           
          of U.S. Treasury bills), the commercial paper rate, the bankers             
          acceptance rate, the prime rate, and the tax-exempt rate.                   
                    5.  Plain Vanilla Interest Rate Swaps                             
               Interest rate swaps may be of the plain vanilla type.  A               
          plain vanilla interest rate swap, the simplest and most common              
          type of interest rate swap, is a swap with standard terms and               
          without another financial derivative as part of the agreement.              
          One party to a plain vanilla interest rate swap (first party)               
          agrees to pay to the other party (second party) amounts equal to            
          a fixed rate of interest multiplied by a set notional amount.               
          The second party agrees to pay to the first party amounts equal             
          to a floating rate of interest multiplied by the same notional              
          amount.  The fixed and floating amounts are offset against each             
          other as of each payment date, and the party paying the higher              
          rate of interest remits a payment to the counterparty equal to              
          the notional amount multiplied by the difference between the                
          interest rates.  An analogy of a plain vanilla interest rate swap           
          is the exchange of a fixed-rate loan for a floating-rate loan.              
          The schedule of payments on a plain vanilla interest rate swap              








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Last modified: May 25, 2011