What does Overnight Index Swap mean?
Overnight Index Swap (OIS) is a type of an interest rate swap which involves the overnight rate being exchanged for a fixed interest rate. The overnight index is considered to be a good indicator of the interbank credit markets, and less risky than other traditional interest rate spreads.
Futures Knowledge Explains Overnight Index Swap
These types of instruments allow financial institutions to swap the interest rates they are paying without having to refinance or change the terms of the loans they have taken from other financial institutions. Generally, when two financial institutions create an OIS, one of the institutions is swapping an overnight interest rate and the other institution is swapping a fixed short-term interest rate. These kinds of swaps are popular with financial institutions.