A floating rate borrower who enters an interest rate swap as the fixed-rate payer will:
A)now make fixed rate interest payments to their lender
B)agree to pay fixed interest payments and receive floating interest payments through the swap contract
C)receive swap interest payments based on the swap rate
D)make the swap cash settlement payments when the BBSW exceeds the swap rate.
E)None of these are correct.

Question

Quizplus · Accepted Answer

If a floating rate borrower enters an interest rate swap as the fixed-rate payer, they are agreeing to pay fixed interest payments and receive floating interest payments through the swap contract. This means that their interest rate payments will be based on the floating rate index (such as LIBOR), but they will have effectively swapped their floating rate for a fixed rate by paying fixed rates in the swap contract.

A Floating Rate Borrower Who Enters an Interest Rate Swap