An interest rate swap
A)involves a swap buyer who agrees to make a number of variable-rate payments on periodic settlement dates.
B)involves a swap seller who agrees to make a number of fixed-rate payments on periodic settlement dates.
C)is effectively a succession of forward contracts on interest rates.
D)involves comparative advantage by the fixed-rate side of the swap,but not the variable-rate side.

Question

Quizplus · Accepted Answer

An interest rate swap involves two parties exchanging cash flows based on a notional principal amount. One party agrees to make fixed-rate payments, while the other party agrees to make variable-rate payments. The interest rate swap is effectively a succession of forward contracts on interest rates, as the parties are agreeing on future payments based on expected interest rate movements.

An Interest Rate Swap