Once a fixed-floating interest rate swap agreement has been negotiated under no-arbitrage conditions, both parties to the swap agreement know with certainty the exact amount of their respective cash flows.

Question

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In a fixed-floating interest rate swap, the floating rate payments are tied to an underlying interest rate (e.g., LIBOR) and can fluctuate over time, meaning the exact cash flows for the floating rate side cannot be known in advance.

Once a Fixed-Floating Interest Rate Swap Agreement Has Been Negotiated