Zero Coupon Swap

A Zero Coupon Swap is a financial contract where two parties agree to exchange future cash flows based on a predetermined interest rate without any periodic interest payments during the swap's life. In a Zero Coupon Swap, one party agrees to pay a fixed rate on a notional amount, while the other agrees to pay a floating rate, typically based on a benchmark interest rate. The fixed rate is calculated to make no periodic interest payments, hence the term "zero coupon."