What is an OIS rate?

An overnight indexed swap (OIS) is an interest rate swap (IRS) over some given term, e.g. 10Y, where the periodic fixed payments are tied to a given fixed rate while the periodic floating payments are tied to a floating rate calculated from a daily compounded overnight rate over the floating coupon period.

How is OIS rate determined?

The rate that overnight index swaps use must be divided by 360 and added to 1. For example, if this rate is 0.0053\% the result is: 0.0053\% / 360 + 1 = 1.00001472. In step 8, raise this rate the power of the number of days in the loan and multiply by the principal: 1.00001472^1 x $1,000,000 = $1,000,014.72.

Why is OIS considered risk free?

The OIS rate is generally considered to be a good proxy for a term risk-free rate, and is therefore less risky than the corresponding IBOR, because there is less credit risk associated with it due to the parties to an OIS not being required to exchange the principal amount during the life of the transaction and only …

What is OIS curve India?

There is, however, another metric — perhaps one that is a purer indicator of where markets expect interest rates to head — the overnight indexed swap (OIS) curve. In India, the OIS market had been originally envisioned as a tool to hedge exposure to government bonds and interest rate risk.

Why OIS is better than Libor?

The major reason for switching from using LIBOR to the OIS as a term structure for pricing interest rate swaps is that OIS discounting better reflects the counterparty credit risk in a collateralized interest rate swap. Due to these developments/ requirements, the credit risk on swaps has reduced significantly.

What is the FRA OIS spread?

The FRA-OIS spread measures the difference between the three-month Libor or the inter-bank lending rate and the overnight index rate, which is the risk-free rate set by central banks. In the case of the U.S. dollar, this would be the three-month Libor less the Federal Funds rate.

What does swap rate mean?

A swap rate is the rate of the fixed leg of a swap as determined by its particular market and the parties involved. Swap rate denotes the fixed rate that a party to a swap contract requests in exchange for the obligation to pay a short-term rate, such as the Labor or Federal Funds rate.

What is swap in Avatrade?

In online forex trading, a swap is a rollover interest that you earn or pay for holding your positions overnight. The swap charge depends on the underlying interest rates of the currencies involved, and whether you are long or short on the currency pair involved.