Considering interest-rate swaps, the swap spread is:
A)Another name for the swap rate.
B)The difference between the benchmark rate and the swap rate.
C)The benchmark rate plus the swap rate.
D)A measure of the time value of the swap.

Question

Quizplus · Accepted Answer

The swap spread represents the difference between the benchmark rate (such as LIBOR) and the fixed rate of the swap. It is not the same as the swap rate, which is the fixed rate that one counterparty agrees to pay in exchange for receiving a floating-rate payment from the other counterparty. The swap spread reflects the market's perception of credit risk and liquidity risk associated with the swap transaction. The swap spread can be positive or negative, depending on market conditions.

Considering Interest-Rate Swaps, the Swap Spread Is