Which of the following is true about interest rate swaps (IRS):
A) Both parties know what their future payments will be at the outset of the swap
B) There is payment of principal at maturity
C) Payments are always made gross
D) The fixed rate payer knows what his future payments will be at the outset of the swap

Question

Quizplus · Accepted Answer

In an interest rate swap, the fixed rate payer knows what their future payments will be at the outset of the swap. This is because the fixed rate is agreed upon at the time of the swap, while the floating rate payments will fluctuate based on market conditions. Therefore, option D is the correct answer. Option A is not entirely true because one party's payments may vary based on market conditions. Option B is incorrect because there is no payment of principal at maturity, only interest payments. Option C is incorrect because payments can be made net of each other to reduce transaction costs.

Which of the Following Is True About Interest Rate Swaps