science

ISDAfix

ISDAfix is a science topic covered in the lgStudy science library. This page brings together a partial reference excerpt, illustrations, worked examples, real-world applications and a short study plan, so you can understand ISDAfix rather than just read about it. In short: ISDAFIX refers to a worldwide common reference rate value for fixed interest rate swap rates. ISDAFIX was restructured and renamed "ICE Swap Rate" in April 2015.

Key takeaways

ISDAfix belongs to science; place it in that map before memorising details.
Learn the definition first, then one example that makes the definition concrete.
Connect ISDAfix to a quantity you can measure, compute or draw — that is where exam questions come from.
Reproduce the core statement of ISDAfix from memory before moving on to harder problems.

Reference excerpt

ISDAFIX refers to a worldwide common reference rate value for fixed interest rate swap rates. ISDAFIX was restructured and renamed "ICE Swap Rate" in April 2015. ISDAFIX was developed in 1998 as a cooperative effort of the International Swaps and Derivatives Association (ISDA) with Reuters (now Thomson Reuters) and InterCapital Brokers (now ICAP). It was based on voluntary quotations provided by certain banks that indicated the fixed rate they would pay or receive to enter into a reference swap with a nominal value of 50 million dollars. ISDAFIX fixes as of February 2014 were determined for four currencies (Euros, British pounds, Swiss francs, and U.S. dollars), each in different maturities; the rates for the Hong Kong dollar and the Japanese yen were suspended in April 2013 and January 2014, respectively, because the withdrawal of individual banks reduced the number of available quotations. Thomson Reuters collected quotation messages daily from the reference banks and performed the final calculation of the reference sets for each currency. The main purpose of the collection of ISDAFIX fixes was to determine an exercise price for the cash settlement of swaptions (that is, options to enter into fixed rate swaps). ISDAFIX sets were also often used to determine close-out payments if interest rate swaps were terminated early. Swap dealers also used ISDAFIX to determine the market value of swap products.

Restructuring As part of the Libor scandals from 2012 the ISDAFIX fixes came in for criticism. The American Commodity Futures Trading Commission and the UK Financial Conduct Authority investigated manipulation allegations. ICAP, which in the wake of the Libor scandal paid penalties in the amount of $87 million to British and American authorities, during the ongoing investigations in early 2014 lost its role in the data collection for and calculation of the ISDAFIX rates for the U.S. dollar. ISDA also announced changes to ISDAFIX. The US dollar sets and others were switched to a market-based, automated calculation process; it was also agreed to further reduce the portfolio of offered reference rates when the associated swap market is insufficiently liquid.

References

External links Overview on the website of ISDA Archived 2007-07-07 at the Wayback Machine

Worked examples

Example 1 — a first encounter with ISDAfix

Start with the simplest possible case. Write down what ISDAfix claims or describes in one sentence, then invent the smallest concrete situation in which that sentence is true. In science, the smallest case is usually a single object, a single equation or a single measurement. Check that every symbol or term in your sentence has a meaning in that case.

Example 2 — changing one variable

Take the situation from Example 1 and change exactly one quantity: double it, halve it, or set it to zero. Predict what should happen to ISDAfix before you calculate. Comparing your prediction with the result is the fastest way to find out whether you understand the idea or only the words.

Example 3 — an exam-style question

Typical questions about ISDAfix ask you to (a) state it precisely, (b) apply it to given data, and (c) explain a limitation. Practise writing all three answers in under five minutes; the third part is what separates a full-mark answer from an average one.

Applications of ISDAfix

In research: ISDAfix appears in science research whenever the underlying quantities have to be modelled precisely. Papers usually cite it as a starting assumption and then explore where it breaks down.
In technology and industry: Engineering practice reuses ISDAfix in design rules, simulations and safety margins. Knowing the idea lets you read a specification sheet and understand why the numbers look the way they do.
In the classroom: ISDAfix is common in secondary-school and first-year university syllabi. It links to neighbouring topics Financial markets, Interest rates, Settlement (finance), so understanding it makes those chapters shorter.
In everyday life: Look for ISDAfix outside the textbook — in sport, cooking, traffic, electronics or the sky above you. An example you found yourself is remembered far longer than one you were given.

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How to study ISDAfix in 20 minutes

Read the reference excerpt below once, without taking notes.
Close the page and write down what ISDAfix means in your own words.
Compare your version with the excerpt and mark what you missed.
Work through the three examples above with pen and paper.
Explain ISDAfix out loud to somebody else — or to Teacher Smith in the lgStudy chat.

Frequently asked questions

What is ISDAfix in simple terms?

ISDAFIX refers to a worldwide common reference rate value for fixed interest rate swap rates. ISDAFIX was restructured and renamed "ICE Swap Rate" in April 2015.

Why does ISDAfix matter?

Because it connects several science ideas at once: it gives you a definition you can apply, a quantity you can calculate, and a way to check whether a result is plausible.

How should I study ISDAfix?

Read the excerpt, restate it from memory, then work through the examples and applications listed on this page. The five-step study plan above takes about twenty minutes.

What does this page cover?

It gives you a compact reference excerpt plus original lgStudy explanations, examples, applications and study material on ISDAfix.