A plain vanilla interest rate swap is equivalent to issuing a fixed-rate bond and using the proceeds to buy a floating-rate bond or vice versa.

Question

Quizplus · Accepted Answer

This statement is true. In a plain vanilla interest rate swap, one party agrees to pay a fixed interest rate while the other party agree to pay a floating interest rate. This is essentially like issuing a fixed-rate bond and using the proceeds to buy a floating-rate bond or vice versa.

A Plain Vanilla Interest Rate Swap Is Equivalent to Issuing