before the interest period begins. The second (and subsequent) reset date will be two business days before the beginning of the second (and subsequent) swap periods. The effective date is the date from which interest on the swap is calculated, and this is typically two business days after the trade date. In a forward-start swap the effective date will be at some point in the future, specified in the swap terms. The floating-interest rate for each period is fixed at the start of the period, so that the interest payment amount is known in advance by both parties (the fixed rate is known of course, throughout the swap by both parties). While our illustrations assume that the timing of the cash flows for both the fixed-rate payer and floating-rate payer will be the same, this is rarely the case in a swap. An agreement may call for the fixed-rate payer to make payments annually but the floating-rate payer to make payments more frequently (semiannually or quarterly). Also, the way in which interest accrues on each leg of the transaction differs. Normally, the fixed interest payments are paid on the basis of a 30/360 day count which is described in Chapter 2. Floating-rate payments for dollar and euro- denominated swaps use an Actual/360 day count similar to other money market instruments in those currencies. Sterling-denominated swaps use an Actual/365 day count. Accordingly, the fixed interest payments will differ slightly owing to the differences in the lengths of successive coupon periods. The floating payments will differ owing to day counts as well as movements in the ref- erence rate. The terminology used to describe the position of a party in the swap markets combines cash market jargon and futures market jargon, given that a swap position can be interpreted either as a position in a package of cash market instruments or a package of futures/forward positions. As we have said, the counterparty to an interest rate swap is either a fixed- rate payer or floating-rate payer. The fixed-rate payer receives floating-rate interest and is said to be "long" or to have "bought" the swap. The long side has conceptually purchased a floating-rate note (because it receives floating-rate interest) and issued a fixed coupon bond (because it pays out fixed interest at peri- odic intervals). In essence, the fixed-rate payer is borrowing at fixed-rate and investing in a floating-rate asset. The floating-rate payer is said to be "short" or to have "sold" the swap. The short side has conceptually pur- chased a coupon bond (because it receives fixed-rate interest) and issued a     floating-rate note (because it pays floating-rate interest). A floating-rate payer is borrowing at floating rate and investing in a fixed rate asset. The convention that has evolved for quoting swaps levels is that a swap dealer sets the floating rate equal to the reference rate and then