Interest rate set based on market rate like PRIBOR, EURIBOR set for certain time period (1M, 3M, 6M, 12M…) very often used as a basis for short-term financing, however especially in cases of low market rates the Client prefer to receive floating rate even on a long-term financing thus exposing themselves to the risk of future movement (hike) of interest rates, which would make the financing more expensive. In order to eliminate this risk as well as to generate cross-sells from relationship, the Bank also try to sell to the clients hedging in form of Interest rate swaps (IRS).  Based on this hedging instrument, there will be swap of principal amounts (principal amounts remain the same), so that Borrower will pay fixed interest rate interest rate and it will receive the floating rate.

Interest rate reset – time interval, when interest rates are updated/ newly re-fixed for upcoming period. For instance, an 1 Year term loan may have 3 months reset period, so that interest rate will be re-fixed each quarter.