An agreement between two parties to exchange a series of cash flows similar to those resulting from an exchange of different types of bonds is called a/an:
A) credit swap.
B) interest rate swap.
C) yield curve swap.
D) notional spread.

Question

Quizplus · Accepted Answer

An interest rate swap is an agreement between two parties to exchange a series of cash flows based on interest rates. This allows each party to effectively adjust the type or term of their debt without actually having to go through the process of issuing or refinancing bonds. Credit swaps (choice A) involve the exchange of credit risk, yield curve swaps (choice C) involve the exchange of different maturities of bonds, and notional spread (choice D) is not a commonly used financial term.

An Agreement Between Two Parties to Exchange a Series of Cash