An Overnight Indexed Swap (OIS) is:
A) A fixed-floating money market swap in which the floating rate is an overnight index fixed periodically over the term of the swap
B) A fixed-floating money market swap in which the floating rate is the mean of the overnight index over the term of the swap
C) A fixed-floating money market swap in which the floating rate is an overnight index compounded daily
D) A floating-for-floating rate swap in different currencies in which both floating rates are overnight indexes compounded daily

Question

Quizplus · Accepted Answer

An Overnight Indexed Swap (OIS) is a fixed-floating money market swap in which the floating rate is an overnight index compounded daily. This means that the floating interest rate is calculated based on the daily compounded average overnight index rate. Choice A is partially correct, but not complete as it does not mention the compounding aspect. Choice B is not correct because the floating rate is not the mean of the overnight index, but rather the compounded average. Choice D is not correct because it involves two different currencies.

An Overnight Indexed Swap (OIS) Is