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Zero Coupon Swap
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An interest rate swap agreement with the fixed rate side based on a zero coupon bond. With agreement of the counterparty, the swap agreement may call for a single fixed payment at maturity by the holder of the zero. The payments on the other side may follow typical swap interim payment schedules. Because of the payment mismatch, a zero coupon swap exposes one of the counterparties to significant credit risk and is the functional equivalent of a loan. See also Reverse Zero Coupon Swap.
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