Payer
Categories: Insurance
A payer: someone who pays some money to someone else. You’d rather be the payee, probably.
In finance, the “payer” usually refers specifically to the party responsible for paying dividends or interest...the promised payouts of a security. Especially for fixed income securities, which should give the investor periodic payments.
Interest rate swaps turn everything upside-down, with two parties switching their benefits of certain investments for a period of time. It makes it easier to distinguish who is the “payer” for what thing, and who is the payee.
For example, if you did an interest rate swap, you might be the payer. The payer would pay a fixed rate for the entire life of the interest rate swap. Being the payer on an interest rate swap is good if interest rates go up, since that’s what you get in return. But if interest rates go down, well, you’re a payer who just lost some money. Sorry, bud...being a payer doesn’t always pay off.
