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Zero Coupon Swap
An interest rate swap in which one or sometimes both parties make a lump sum payment, typically when the contract matures, though it can be made at the beginning of the contract in which case it is known as a reverse zero coupon swap. In most deals only the payments on the fixed-rate leg of the swap are deferred until maturity. The present value of the deferred payment is normally adjusted to reflect the greater credit risk involved.