24-7 Both parties in an interest rate swap normally are fully hedged against interest rate risk on the notional amount of the swap.

Question

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In an interest rate swap, one party typically exchanges a fixed interest rate for a floating rate, or vice versa, to manage interest rate risk. However, this does not mean both parties are fully hedged; they may still face other risks such as credit risk or basis risk.

24-7 Both Parties in an Interest Rate Swap Normally Are