buy $50 million par value of a 5-year floating-rate bond that pays 6- month LIBOR every six months ■ finance the purchase by borrowing $50 million for five years at a 10% annual interest rate paid every six months.   The cash flows for this transaction are set forth in Exhibit 12.1. The sec- ond column of the exhibit shows the cash flows from purchasing the 5- year floating-rate bond. There is a $50 million cash outlay and then ten cash inflows. The amount of the cash inflows is uncertain because they depend on future levels of 6-month LIBOR. The next column shows the cash flows from borrowing $50 million on a fixed-rate basis. The last col- umn shows the net cash flows from the entire transaction. As the last col- umn indicates, there is no initial cash flow (the cash inflow and cash outlay offset each other). In all ten 6-month periods, the net position results in a cash inflow of LIBOR and a cash outlay of $2.5 million. This net position, however, is identical to the position of a fixed-rate payer/ floating-rate receiver.       It can be seen from the net cash flow in Exhibit 12.1 that a fixed-rate payer has a cash market position that is equivalent to a long position in a floating-rate bond and a short position in a fixed-rate bond-the short position being the equivalent of borrowing by issuing a fixed-rate bond. What about the position of a floating-rate payer? It can be easily demonstrated that the position of a floating-rate payer is equivalent to purchasing a fixed-rate bond and financing that purchase at a floating- rate, where the floating rate is the reference rate for the swap. That is, the position of a floating-rate payer is equivalent to a long position in a fixed- rate bond and a short position in a floating-rate bond.       TERMINOLOGY, CONVENTIONS, AND MARKET QUOTES   Here we review some of the terminology used in the swaps market and explain how swaps are quoted. The trade date for a swap is not surpris- ingly, the date on which the swap is transacted. The terms of the trade     include the fixed interest rate, the maturity, the notional amount of the swap, and the payment bases of both legs of the swap. The date from which floating interest payments are determined is the reset or setting date,