Get a fixed interest rate on your loan
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An IRS is an agreement between two parties to exchange interest payments, based on a nominal principal, over a certain period of time. One party will pay a floating rate and the other party will pay a fixed rate. The actual settlement of interest exchanges will be the net difference between two interest payments.
The use of an IRS can be best illustrated with an example: Assume a company has a USD100 million borrowing for five years at 6 month USD LIBOR. The company is concerned that short term interest rate will rise and that the increase in loan cost will squeeze its profit margin. The company would prefer to lock into a fixed interest rate loan.
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